<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1994
SECURITIES ACT FILE NO. 33-37439
INVESTMENT COMPANY ACT FILE NO. 811-6196
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 4
(CHECK APPROPRIATE BOX OR BOXES)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 6
(CHECK APPROPRIATE BOX OR BOXES)
---------------
CMA TREASURY FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
CMA TREASURY FUND
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
COPIES TO:
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD FUND ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER, BOX 9011, PRINCETON,
NEW YORK, N.Y. 10048-0557 NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
KEVIN J. MOYNIHAN, ESQ.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
WORLD FINANCIAL CENTER, NORTH TOWER, NEW YORK, N.Y. 10281
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[_] immediately upon filing pursuant to paragraph (b)
[X] on July 29, 1994 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) of Rule 485.
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's most recent
fiscal year was filed on May 25, 1994.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT OF PROPOSED PROPOSED
SHARES MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest (par value
$.10 per share)....... 98,637,217 $1.00 $290,000* $100
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price is made pursuant
to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 6,103,394,111 Shares of Beneficial Interest.
(3) 6,005,046,894 of the Shares described in (2) above have been used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during Registrant's current fiscal
year.
(4) 98,347,217 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CMA TREASURY FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------ --------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fee Table
Item 3. Condensed Financial
Information............ Financial Highlights; Yield
Information
Item 4. General Description of
Registrant............. Investment Objectives and Policies;
Appendix--Additional Information--
Organization of the Funds
Item 5. Management of the Fund.. Fee Table; Appendix--Management of the
Funds; Appendix--Portfolio
Transactions; Inside Back Cover Page
Item 5A. Management Discussion of
Fund Performance....... Not Applicable
Item 6. Capital Stock and Other
Securities............. Appendix--Additional Information--
Organization of the Funds
Item 7. Purchase of Securities
Being Offered.......... Cover Page; Fee Table; Appendix--
Purchase of Shares; Appendix--
Redemption of Shares; Inside Back
Cover Page
Item 8. Redemption or Repurchase Fee Table; Appendix--Purchase of
Shares; Appendix--Redemption of
Shares
Item 9. Pending Legal
Proceedings............ Not Applicable
PART B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Cover Page
Item 12. General Information and
History................ Not Applicable
Item 13. Investment Objectives
and Policies........... Investment Objectives and Policies
Item 14. Management of the Fund.. Management of the Funds
Item 15. Control Persons and
Principal Holders of
Securities............. Management of the Funds
Item 16. Investment Advisory and
Other Services......... Management of the Funds; Purchase and
Redemption of Shares; General
Information
Item 17. Brokerage Allocation.... Portfolio Transactions
Item 18. Capital Stock and Other
Securities............. General Information--Description of
Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.......... Purchase and Redemption of Shares;
Determination of Net Asset Value
Item 20. Tax Status.............. Taxes
Item 21. Underwriters............ Purchase and Redemption of Shares
Item 22. Calculation of
Performance Data....... Yield Information
Item 23. Financial Statements.... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
CMA MONEY FUND CMA GOVERNMENT SECURITIES FUND CMA TAX-EXEMPT FUND CMA TREASURY
FUND
----------------
This document consists of the Prospectuses of CMA Money Fund, CMA Government
Securities Fund, CMA Tax-Exempt Fund and CMA Treasury Fund, four of the money
market mutual funds (collectively, the "CMA Funds") the shares of which are
offered to participants in the Cash Management Account (R) ("CMA (R) account")
financial service program of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") to provide a medium for the investment of free credit
balances held in CMA accounts, and an Appendix to such Prospectuses which
constitutes a part of each Prospectus. A Table of Contents is contained on page
1 of each Prospectus.
----------------
A CMA account is a conventional Merrill Lynch cash securities account or
margin securities account ("Securities Account") which is linked to the CMA
Funds, to money market deposit accounts maintained with depository institutions
and to a Visa (R) card/check account ("Visa Account"). Merrill Lynch markets
its margin account under the name Investor CreditLineSM service. Subscribers to
the CMA service may automatically invest free credit balances held in their CMA
accounts in shares of one of the CMA Funds, or such balances may be
automatically deposited with a depository institution through the Insured
Savings(TM) Account (the "Insured Savings Account"). The CMA Funds and the
Insured Savings Account are collectively referred to as the "Money Accounts".
Each CMA Fund is a no-load money fund seeking current income, preservation of
capital and liquidity available from investing in short-term securities. Of the
CMA Funds offered by this Prospectus, CMA Money Fund invests in money market
securities generally; CMA Government Securities Fund invests in direct
government obligations; CMA Tax-Exempt Fund invests in tax-exempt securities
and pays dividends exempt from Federal income taxation; and CMA Treasury Fund
invests in U.S. Treasury securities. The CMA Funds also include various series
of CMA Multi-State Municipal Series Trust (the "CMA State Funds"), each of
which invests in tax-exempt securities and pays dividends exempt from Federal
and a particular state's income taxation. At the date hereof, CMA State Funds
exist with respect to Arizona, California, Connecticut, Massachusetts,
Michigan, New Jersey, New York, North Carolina, Ohio and Pennsylvania.
Free credit balances held in CMA accounts will be automatically invested in
or deposited through the Money Account selected by the CMA subscriber as his or
her Primary Money Account. The subscriber may make manual investments in any of
the Funds as described under "Purchase of Shares" in the Appendix. The
subscriber may change the Primary Money Account designation at any time by
following the procedures set forth under "Purchase of Shares".
Merrill Lynch charges a program participation fee for the CMA service which
presently is $100 per year (an additional $25 annual program fee is charged for
participation in the CMA Visa (R) Gold Program described in the CMA Program
Description). A different fee may be charged to certain group plans and special
accounts. Merrill Lynch reserves the right to change the fee for the CMA
service or the CMA Visa (R) Gold Program at any time. As described under
"Purchase of Shares", shares of the CMA Funds may also be purchased directly
through the Funds' Transfer Agent by investors who are not subscribers to the
CMA program. Shareholders of the CMA Funds not subscribing to the CMA program
will not be charged the CMA program fee but will not receive any of the
additional services available to CMA program subscribers.
----------------
The information in this document should be read in conjunction with the
description of the Merrill Lynch Cash Management Account program which is
furnished to all CMA subscribers. Reference is made to such description for
information with respect to the CMA program, including the fees related
thereto. Information concerning the other CMA Funds is contained in the
prospectus relating to each of such Funds which is available from Merrill
Lynch, and information concerning the Insured Savings Account is contained in
the Insured Savings Account Fact Sheet. All CMA subscribers are furnished with
the prospectuses of CMA Money Fund, CMA Government Securities Fund, CMA Tax-
Exempt Fund and CMA Treasury Fund. The prospectuses of the CMA State Funds and
the Insured Savings Account Fact Sheet are available from Merrill Lynch. For
more information about the Merrill Lynch Cash Management Account program, call
toll-free from anywhere in the U.S., 1-800-CMA-INFO (1-800-262-4636).
<PAGE>
PROSPECTUS
JULY 29, 1994
CMA MONEY FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Money Fund (the "Money Market Fund") is a no-load, diversified, open-end
investment company seeking current income, preservation of capital and
liquidity available from investing in a diversified portfolio of short-term
money market securities. These securities will consist primarily of short-term
United States Government securities, bank certificates of deposit, commercial
paper and repurchase agreements. Dividends are declared and reinvested daily in
the form of additional shares at net asset value. THE MONEY MARKET FUND SEEKS
TO MAINTAIN A CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE
ASSURED. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. The Money Market Fund has adopted a
Distribution and Shareholder Servicing Plan in compliance with Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
There can be no assurance that the investment objectives of the Money Market
Fund will be realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Money Market
Fund that is relevant to making an investment in the Money Market Fund. This
Prospectus should be read carefully and retained for future reference. A
statement containing additional information about the Money Market Fund, dated
July 29, 1994 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Money Market Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................ 2
Financial Highlights............. 3
Yield Information................ 4
Investment Objectives and Poli-
cies............................ 4
Appendix......................... A-1
Purchase of Shares.............. A-1
Redemption of Shares............ A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds.......... A-6
Portfolio Transactions........... A-9
Dividends........................ A-9
Determination of Net Asset Value. A-9
Taxes............................ A-10
Additional Information........... A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
ANNUAL MONEY MARKET FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS) FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees(a)............................................... 0.38%
Rule 12b-1 Fees(b)............................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees.......................... 0.03%
Other Fees................................................. 0.01%
----
Total Other Expenses(c).......................................... 0.04%
----
Total Money Market Fund Operating Expenses....................... 0.55%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming an operating ex-
pense ratio of 0.55% and a 5% annual return
throughout the periods........................ $5.62 $17.63 $30.73 $68.93
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE MONEY MARKET FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE MONEY MARKET FUND'S TRANSFER AGENT
AND WHO ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA
PROGRAM FEE BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO
CMA PROGRAM SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Money Market Fund will bear
directly or indirectly. The example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Money Market Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditors' report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Money Market Fund audited
by Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
Per Share Oper-
ating
Peformance:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Investment in-
come--net...... .0276 .0309 .0498 .0734 .0837 .0754 .0635 .0579
Realized and
unrealized gain
(loss) on in-
vestments--net. (.0005) .0019 .0019 .0017 (.0001) (.0004) .0004 .0002
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations..... .0271 .0328 .0517 .0751 .0836 .0750 .0639 .0581
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Less dividends
and
distributions:
Investment in-
come--net...... (.0276) (.0309) (.0498) (.0734) (.0836) (.0750) (.0635) (.0579)
Realized gain on
investments--
net............ (.0003) (.0015) (.0020) (.0017)* -- -- (.0004)* (.0002)*
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total dividends
and
distributions.. (.0279) (.0324) (.0518) (.0751) (.0836) (.0750) (.0639) (.0581)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== =========== =========== ===========
TOTAL INVESTMENT
RETURN:........ 2.82% 3.30% 5.27% 7.81% 8.69% 7.79% 6.58% 5.97%
=========== =========== =========== =========== =========== =========== =========== ===========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses,
excluding
distribution
fees........... .42% .42% .42% .41% .43% .43% .43% .43%
=========== =========== =========== =========== =========== =========== =========== ===========
Expenses........ .55% .55% .54% .54% .55% .55% .55% .56%
=========== =========== =========== =========== =========== =========== =========== ===========
Investment
income and
realized gain
on
investments--
net............ 2.79% 3.25% 5.18% 7.51%* 8.33%* 7.53%* 6.39%* 5.80%*
=========== =========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year
(in thousands)
............... $27,071,882 $27,093,682 $29,106,627 $31,163,167 $29,768,495 $22,954,950 $20,557,461 $19,029,720
=========== =========== =========== =========== =========== =========== =========== ===========
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------
1986 1985
----------- -----------
<S> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
Per Share Oper-
ating
Peformance:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00
----------- -----------
Investment in-
come--net...... .0745 .0952
Realized and
unrealized gain
(loss) on in-
vestments--net. .0030 .0026
----------- -----------
Total from
investment
operations..... .0775 .0978
----------- -----------
Less dividends
and
distributions:
Investment in-
come--net...... (.0745) (.0952)
Realized gain on
investments--
net............ (.0030)* (.0026)*
----------- -----------
Total dividends
and
distributions.. (.0775) (.0978)
----------- -----------
Net asset value,
end of year.... $ 1.00 $ 1.00
=========== ===========
TOTAL INVESTMENT
RETURN:........ 8.01% 10.29%
=========== ===========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses,
excluding
distribution
fees........... .43% .45%
=========== ===========
Expenses........ .56% .58%
=========== ===========
Investment
income and
realized gain
on
investments--
net............ 7.70%* 9.72%*
=========== ===========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year
(in thousands)
............... $17,957,576 $16,422,472
=========== ===========
</TABLE>
- ---------------
* Includes unrealized gain (loss).
Money Market Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Money Market Fund for the
indicated seven-day periods, computed to include and exclude realized and
unrealized gains and losses, and information as to the compounded annualized
yield (excluding gains and losses) for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 2.93% 3.58%
Excluding gains and losses........................ 2.93% 3.56%
Compounded Annualized Yield......................... 2.97% 3.62%
Average Maturity of Portfolio at End of Period...... 41 days 54 days
</TABLE>
The yield of the Money Market Fund refers to the income generated by an
investment in the Money Market Fund over a stated seven-day period. This income
is then annualized: that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield
(which excludes gains and losses) is calculated similarly but, when annualized,
the income earned by an investment in the Money Market Fund is assumed to be
reinvested. The compounded annualized yield will be somewhat higher than the
yield because of the effect of the assumed reinvestment.
The yield on Money Market Fund shares normally will fluctuate on a daily
basis. Therefore, the yield for any given past period is not an indication or
representation by the Money Market Fund of future yields or rates of return on
its shares. The Money Market Fund's yield is affected by changes in interest
rates on money market securities, average portfolio maturity, the types and
quality of portfolio securities held and operating expenses. Current yield
information may not provide a basis for comparison with bank deposits or other
investments which pay a fixed yield over a stated period of time.
On occasion, the Money Market Fund may compare its yield to (i) industry
averages compiled by Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds, (ii) the average yield reported by the Bank Rate Monitor National
Index (TM) for money market deposit accounts offered by the 100 leading banks
and thrift institutions in the ten largest standard metropolitan statistical
areas, (iii) yield data published by Lipper Analytical Services, Inc., (iv) the
yield on an investment in 90-day Treasury bills on a rolling basis, assuming
quarterly compounding, (v) performance data published by Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes and Fortune or (vi) historical yield
data relating to other central asset accounts similar to the CMA program. As
with yield quotations, yield comparisons should not be considered
representative of the Money Market Fund's yield or relative performance for any
future period.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Money Market Fund are to seek current
income, preservation of capital and liquidity available from investing in a
diversified portfolio of short-term money market securities. There can be no
assurance that the investment objectives of the Money Market Fund will be
realized.
Money Market Fund
4
<PAGE>
Investment in Money Market Fund shares offers several benefits that are
offset by certain expenses borne by investors, including investment advisory
fees, administrative costs and operational costs. The Money Market Fund seeks
to provide as high a yield potential, consistent with its objectives, as is
available from short-term money market securities utilizing professional money
market management, block purchases of securities and yield improvement
techniques. It provides high liquidity because of its redemption features and
reduced risk resulting from diversification of assets. The shareholder is also
relieved from administrative burdens associated with direct investment in
short-term securities, such as coordinating maturities and reinvestments,
safekeeping and making numerous buy-sell decisions. Certain expenses are borne
by investors, including management fees, distribution fees, administrative
costs and operational costs.
In managing the Money Market Fund's portfolio, Fund Asset Management, L.P.
(the "Investment Adviser") will employ a number of professional money
management techniques, including varying the composition of the Money Market
Fund's investments and the average maturity of the portfolio based on its
assessment of the relative values of the various money market instruments and
future interest rate patterns. The Investment Adviser's assessments will
respond to changing economic and money conditions and to shifts in fiscal and
monetary policy. The Investment Adviser will also seek to improve yield by
taking advantage of yield disparities that regularly occur in the money market.
For example, market conditions frequently result in similar securities trading
at different prices. Also, there are frequently yield disparities between the
various types of money market securities. The Money Market Fund seeks to
enhance yield by purchasing and selling securities based on these yield
disparities.
The following is a description of the types of short-term money market
securities in which the Money Market Fund may invest:
United States Government Securities: Marketable securities issued by or
guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the United States.
United States Government Agency Securities: Debt securities issued by
U.S. Government-sponsored enterprises, agencies and instrumentalities,
including, but not limited to, the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association and the Federal Agricultural Mortgage Corporation. Such
securities may also include debt securities issued by international
organizations designated or supported by multiple governmental entities,
such as the International Bank for Reconstruction and Development (the
"World Bank"). Government Agency Securities are not direct obligations of
the U.S. Government but involve various forms of U.S. Government
sponsorship or guarantees and are issued, in general, under the authority
of an act of Congress. The U.S. Government is not obligated to provide
financial support to any of these agencies, instrumentalities or
organizations.
Bank Money Instruments: U.S. dollar-denominated obligations of depository
institutions such as certificates of deposit, including variable rate
certificates of deposit, time deposits, deposit notes, bank notes and
bankers' acceptances. The obligations of commercial banks may be issued by
U.S. banks, foreign branches or subsidiaries of U.S. banks ("Eurodollar"
obligations) or U.S. branches or subsidiaries of foreign banks
("Yankeedollar" obligations). The Money Market Fund may invest only in
Eurodollar obligations which by their terms are general obligations of the
U.S. parent bank. Yankeedollar obligations in which the Money Market Fund
may invest must be issued by U.S. branches or subsidiaries of foreign banks
which are subject to state or Federal banking regulations in the U.S. and
by their terms must be general obligations of the foreign parent.
Money Market Fund
5
<PAGE>
Commercial Paper and Other Short-Term Obligations: Commercial paper
(including variable amount master demand notes), which refers to short-
term, unsecured promissory notes issued by corporations, partnerships,
trusts or other entities to finance short-term credit needs, and non-
convertible debt securities (e.g., bonds and debentures) with no more than
397 days (13 months) remaining to maturity at the date of purchase. Short-
term obligations issued by trusts include mortgage-related or asset-backed
debt instruments, including pass-through certificates such as
participations in, or bonds and notes backed by, pools of mortgage, credit
card, automobile or other types of receivables. These structured financings
will be supported by sufficient collateral and other credit enhancements,
including letters of credit, insurance, reserve funds and guarantees by
third parties, to enable such instruments to obtain the requisite quality
rating by a nationally recognized statistical rating organization, as
described below.
Foreign Bank Money Instruments: U.S. dollar-denominated obligations of
foreign depository institutions and their foreign branches and
subsidiaries, such as certificates of deposit, bankers' acceptances, time
deposits, bank notes and deposit notes. The obligations of such foreign
branches and subsidiaries may be the general obligation of the parent bank
or may be limited to the issuing branch or subsidiary by the terms of the
specific obligation or by government regulation. Such investments will only
be made if determined to be of comparable quality to other investments
permissible for the Money Market Fund. The Money Market Fund will not
invest more than 25% of its total assets (taken at market value at the time
of each investment) in these obligations.
Foreign Short-Term Debt Instruments: U.S. dollar-denominated commercial
paper and other short-term obligations issued by foreign entities. Such
investments are subject to quality standards similar to those applicable to
investments in comparable obligations of domestic issuers.
The following is a description of other types of investment practices in
which the Money Market Fund may invest or engage:
Repurchase Agreements: The Money Market Fund may invest in the money
market securities described above pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities or
an affiliate thereof. Under such agreements, the bank or primary dealer or
an affiliate thereof agrees, upon entering into the contract, to repurchase
the security at a mutually agreed upon time and price, thereby determining
the yield during the term of the agreement. This results in a fixed rate of
return insulated from market fluctuations during such period.
Reverse Repurchase Agreements: The Money Market Fund may enter into
reverse repurchase agreements which involve the sale of money market
securities held by the Money Market Fund, with an agreement to repurchase
the securities at an agreed upon price, date and interest payment. During
the time a reverse repurchase agreement is outstanding, the Money Market
Fund will maintain a segregated custodial account containing U.S.
Government or other appropriate high-grade debt securities having a value
equal to the repurchase price.
Lending of Portfolio Securities: The Money Market Fund may lend portfolio
securities (with a value not in excess of 33 1/3% of its total assets) to
brokers, dealers and financial institutions and receive
Money Market Fund
6
<PAGE>
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. During the period of the
loan, the Money Market Fund receives income on both the loaned securities and
the collateral and thereby increases its yield.
Preservation of capital is a prime investment objective of the Money Market
Fund and, while the types of money market securities in which the Money Market
Fund invests generally are considered to have low principal risk, such
securities are not completely risk-free. There is a risk of the failure of
issuers to meet their principal and interest obligations. Repurchase agreements
may be construed to be collateralized loans by the purchaser to the seller
secured by the securities transferred to the purchaser. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Money Market Fund but only
constitute collateral for the seller's obligation to pay the repurchase price.
With respect to repurchase agreements, reverse repurchase agreements and the
lending of portfolio securities by the Money Market Fund, there is also the
risk of the failure of parties involved to repurchase at the agreed upon price
or to return the securities involved in such transactions, in which event the
Money Market Fund may suffer time delays and incur costs or possible losses in
connection with such transactions.
Bank money instruments in which the Money Market Fund invests must be issued
by depository institutions with total assets of at least $1 billion, except
that the Money Market Fund may invest in certificates of deposit of smaller
institutions if such certificates of deposit are Federally insured and if, as a
result of such purchase, no more than 10% of total assets (taken at market
value), are invested in such certificates of deposit. Investments in Eurodollar
and Yankeedollar obligations may not exceed 25% of total assets. For purposes
of this requirement, the Money Market Fund treats bank money instruments issued
by U.S. branches or subsidiaries of foreign banks as obligations issued by
domestic banks (not subject to the 25% limitation) if the branch or subsidiary
is subject to the same banking regulation as U.S. banks.
The Money Market Fund's investments in short-term corporate, partnership and
trust debt and bank money instruments will be rated, or will be issued by
issuers who have been rated, in one of the two highest rating categories for
short-term debt obligations by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, will be of comparable quality as
determined by the Trustees of the Money Market Fund. The Money Market Fund's
investments in corporate, partnership and trust bonds and debentures (which
must have maturities at the date of purchase of 397 days (13 months) or less)
will be in issuers who have received from the requisite NRSROs a rating, with
respect to a class of short-term debt obligations that is comparable in
priority and security with the investment, in one of the two highest rating
categories for short-term obligations or, if not rated, will be of comparable
quality as determined by the Trustees of the Money Market Fund. Currently,
there are six NRSROs: Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA
Limited and its affiliate IBCA, Inc., Moody's Investors Service, Inc., Standard
& Poor's Corporation and Thompson BankWatch, Inc.
Securities and Exchange Commission regulations limit investments by the Money
Market Fund in securities issued by any one issuer (other than the U.S.
Government, its agencies or instrumentalities) ordinarily to not more than 5%
of its total assets, or in the event that such securities do not have the
highest rating, not more than 1% of its total assets. In addition, such
regulations require that not more than 5% of the Money Market Fund's total
assets be invested in securities that do not have the highest rating, or are
not
Money Market Fund
7
<PAGE>
of comparable quality to securities with the highest rating, as determined by
the Trustees of the Money Market Fund.
The Money Market Fund may purchase money market securities on a forward
commitment basis at fixed purchase terms. The purchase will be recorded on the
date the Money Market Fund enters into the commitment and the value of the
security will thereafter be reflected in the calculation of the Money Market
Fund's net asset value. The value of the security on the delivery date may be
more or less than its purchase price. A separate account of the Money Market
Fund will be established with its custodian consisting of cash or liquid money
market securities having a market value at all times at least equal to the
amount of the forward commitment.
For purposes of its investment policies, the Money Market Fund defines short-
term money market securities as having a maturity of no more than 762 days (25
months) in the case of U.S. Government and agency securities and no more than
397 days (13 months) in the case of all other securities. The dollar-weighted
average maturity of the Money Market Fund's portfolio will not exceed 90 days.
During the Money Market Fund's fiscal year ended March 31, 1994, the average
maturity of its portfolio ranged from 37 days to 90 days.
Investment Restrictions. The Money Market Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Money Market Fund's outstanding
voting securities as defined in the Investment Company Act. Among the more
significant restrictions, the Money Market Fund may not: (1) purchase any
short-term securities other than the types of money market securities and
investments described under "Investment Objectives and Policies"; (2) invest
more than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in any particular industry (other than
U.S. Government securities, Government agency securities or bank money
instruments); (3) purchase the securities of any one issuer, other than U.S.
Government or U.S. Government agency securities, if immediately after such
purchase, more than 5% of the value of its total assets (taken at market value)
would be invested in such issuer, except that in the case of bank money
instruments or repurchase agreements with any one bank up to 25% of the value
of the Money Market Fund's total assets may be invested without regard to such
5% limitation but shall instead be subject to a 15% limitation; (4) invest in
the securities of any single issuer, if immediately after and as a result of
such investment, the Money Market Fund owns more than 10% of the outstanding
securities, or more than 10% of the outstanding voting securities, of such
issuer; and (5) enter into repurchase agreements if, as a result thereof, more
than 10% of the Money Market Fund's total assets (taken at market value at the
time of each investment, together with any other investments deemed illiquid)
would be subject to repurchase agreements maturing in more than seven days.
Money Market Fund
8
<PAGE>
PROSPECTUS
JULY 29, 1994
CMA GOVERNMENT SECURITIES FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Government Securities Fund (the "Government Fund") is a no-load,
diversified, open-end investment company seeking preservation of capital,
liquidity and current income available from investing exclusively in a
diversified portfolio of short-term marketable securities which are direct
obligations of the United States Government and repurchase agreements
pertaining to such securities. Dividends are declared and reinvested daily in
the form of additional shares at net asset value. THE GOVERNMENT FUND SEEKS TO
MAINTAIN A CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE
ASSURED. AN INVESTMENT IN THE GOVERNMENT FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. The Government Fund has adopted a Distribution and
Shareholder Servicing Plan in compliance with Rule 12b-1 under the Investment
Company Act of 1940 as amended (the "Investment Company Act"). There can be no
assurance that the investment objectives of the Government Fund will be
realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Government
Fund that is relevant to making an investment in the Government Fund. This
Prospectus should be read carefully and retained for future reference. A
statement containing additional information about the Government Fund, dated
July 29, 1994 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Government Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................ 2
Financial Highlights............. 3
Yield Information................ 4
Investment Objectives and Poli-
cies............................ 5
Appendix......................... A-1
Purchase of Shares.............. A-1
Redemption of Shares............ A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds.......... A-6
Portfolio Transactions........... A-9
Dividends........................ A-9
Determination of Net Asset Value. A-9
Taxes............................ A-10
Additional Information........... A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
ANNUAL GOVERNMENT FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS) FOR
THE YEAR ENDED MARCH 31, 1994:
Management Fees (a).................................................... 0.40%
Rule 12b-1 Fees (b).................................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees................................ 0.01%
Other Fees....................................................... 0.02%
Total Other Expenses (c)............................................... 0.03%
----
Total Government Fund Operating Expenses............................... 0.56%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
An investor would pay the fol-
lowing expenses on a $1,000
investment, assuming an oper-
ating expense ratio of 0.56%
and a 5% annual return
throughout the periods....... $5.72 $17.95 $31.28 $70.15
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE GOVERNMENT FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE GOVERNMENT FUND'S TRANSFER AGENT AND
WHO ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM
FEE BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA
PROGRAM SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Government Fund will bear directly
or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Government Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditors' report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Government Fund audited by
Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net............ .0271 .0294 .0473 .0704 .0819 .0737 .0586 .0546
Realized and
unrealized gain
(loss) on
investments--
net............ (.0013) .0038 .0034 .0014 .0006 (.0013) .0011 .0018
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .0258 .0332 .0507 .0718 .0825 .0724 .0597 .0564
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less dividends
and
distributions:
Investment
income--net.... (.0271) (.0294) (.0473) (.0704) (.0819) (.0724) (.0586) (.0546)
Realized gain on
investments--
net............ (.0004) (.0026) (.0036) (.0014)* (.0006)* -- (.0011)* (.0018)*
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total dividends
and
distributions.. (.0275) (.0320) (.0509) (.0718) (.0825) (.0724) (.0597) (.0564)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:........ 2.79% 3.25% 5.17% 7.46% 8.57% 7.50% 6.13% 5.80%
========== ========== ========== ========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .43% .43% .43% .43% .45% .46% .47% .46%
========== ========== ========== ========== ========== ========== ========== ==========
Expenses........ .56% .55% .56% .56% .57% .59% .59% .59%
========== ========== ========== ========== ========== ========== ========== ==========
Investment
income and
realized gain
(loss) on
investments--
net............ 2.75% 3.20% 5.05% 7.11%* 8.21%* 7.25%* 5.97%* 5.63%*
========== ========== ========== ========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $3,563,595 $3,858,017 $4,452,247 $5,228,619 $3,515,578 $2,494,905 $2,362,766 $2,076,907
========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------------
1986 1985
---------- ----------
<S> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00
---------- ----------
Investment
income (loss)--
net............ .0702 .0892
Realized and
unrealized gain
(loss) on
investments--
net............ .0042 .0040
---------- ----------
Total from
investment
operations..... .0744 .0932
---------- ----------
Less dividends
and
distributions:
Investment
income--net.... (.0702) (.0892)
Realized gain on
investments--
net............ (.0042)* (.0040)*
---------- ----------
Total dividends
and
distributions.. (.0744) (.0932)
---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00
========== ==========
TOTAL INVESTMENT
RETURN:........ 7.68% 9.79%
========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .48% .50%
========== ==========
Expenses........ .61% .63%
========== ==========
Investment
income and
realized gain
(loss) on
investments--
net............ 7.43%* 9.26%*
========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $1,903,593 $1,714,728
========== ==========
</TABLE>
- --------------
* Includes unrealized gains (losses).
Government Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Government Fund for the
indicated seven-day periods, computed to include and exclude realized and
unrealized gains and losses, and information as to the compounded annualized
yield (excluding such gains and losses) for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 2.92% 3.42%
Excluding gains and losses........................ 2.92% 3.42%
Compounded Annualized Yield......................... 2.96% 3.48%
Average Maturity of Portfolio at End of Period...... 45 days 46 days
</TABLE>
The yield of the Government Fund refers to the income generated by an
investment in the Government Fund over a stated seven-day period. This income
is then annualized: that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield
(which excludes gains and losses) is calculated similarly but, when annualized,
the income earned by an investment in the Government Fund is assumed to be
reinvested. The compounded annualized yield will be somewhat higher than the
yield because of the effect of the assumed reinvestment.
The yield on Government Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Government Fund of future yields or rates of return on
its shares. The Government Fund's yield is affected by changes in interest
rates on money market securities, average portfolio maturity, the types and
quality of portfolio securities held and operating expenses. The yield on
Government Fund shares for various reasons may not be comparable to the yield
on shares of other money market funds or other investments. Current yield
information may not provide a basis for comparison with bank deposits or other
investments which pay a fixed yield over a stated period of time.
On occasion, the Government Fund may compare its yield to (i) averages
compiled by Donoghue's Money Fund Report, a widely recognized independent
publication that monitors the performance of money market mutual funds, (ii)
the average yield reported by the Bank Rate Monitor National Index (TM) for
money market deposit accounts offered by the 100 leading banks and thrift
institutions in the ten largest standard metropolitan statistical areas, (iii)
yield data reported by Lipper Analytical Services, Inc., (iv) the yield on an
investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding, (v) performance data published by Morningstar Publications, Inc.,
Money Magazine, U.S. News and World Report, Business Week, CDA Investment
Technology, Inc., Forbes and Fortune or (vi) historical yield data relating to
other central asset accounts similar to the CMA program. As with yield
quotations, yield comparisons should not be considered representative of the
Government Fund's yield or relative performance for any future period.
Government Fund
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Government Fund are to seek preservation of
capital, liquidity and current income available from investing exclusively in a
diversified portfolio of short-term marketable securities which are direct
obligations of the U.S. Government and repurchase agreements pertaining to such
securities. Direct U.S. Government obligations consist of securities issued, or
guaranteed as to principal and interest, by the U.S. Government and which are
backed by the full faith and credit of the United States. The Government Fund
may not invest in securities issued or guaranteed by U.S. Government agencies,
instrumentalities or Government-sponsored enterprises which are not backed by
the full faith and credit of the United States.
Investment in Government Fund shares offers several benefits that are offset
by certain expenses borne by investors, including investment advisory fees,
administrative costs and operational costs. The Government Fund seeks to
provide as high a yield potential, consistent with its objectives, as is
available from short-term U.S. Government securities utilizing professional
money market management and block purchases of securities. It provides high
liquidity because of its redemption features and reduced market risk resulting
from diversification of assets. The shareholder is also relieved from
administrative burdens associated with direct investment in short-term U.S.
Government securities, such as coordinating maturities and reinvestments,
safekeeping and making numerous buy-sell decisions.
The Government Fund may invest in the U.S. Government securities described
above pursuant to repurchase agreements. Repurchase agreements may be entered
into only with a member bank of the Federal Reserve System or a primary dealer
in U.S. Government securities or an affiliate thereof. Under such agreements,
the bank or primary dealer or an affiliate thereof agrees, upon entering into
the contract, to repurchase the security from the Government Fund at a mutually
agreed upon time and price, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period.
Preservation of capital is a prime investment objective of the Government
Fund and the direct U.S. Government obligations in which it will invest are
generally considered to have the lowest principal risk among money market
securities. Historically, direct U.S. Government obligations have generally had
lower rates of return than other money market securities with less safety.
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
In the event of default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned by the
Government Fund but only constitute collateral for the seller's obligation to
pay the repurchase price. With respect to repurchase agreements, there is also
the risk of the failure of parties involved to repurchase at the agreed upon
price, in which event the Government Fund may suffer time delays and incur
costs or possible losses in connection with such transactions.
The Government Fund may purchase portfolio securities on a forward commitment
basis at fixed purchase terms. The purchase will be recorded on the date the
Government Fund enters into the commitment
Government Fund
5
<PAGE>
and the value of the security will thereafter be reflected in the calculation
of the Government Fund's net asset value. The value of the security on the
delivery date may be more or less than its purchase price. A separate account
of the Government Fund will be established with its custodian consisting of
cash or liquid money market securities having a market value at all times at
least equal to the amount of the forward commitment.
For purposes of its investment policies, the Government Fund defines short-
term U.S. Government securities as securities having a maturity of not more
than 762 days (25 months). Fund Asset Management, L.P. (the "Investment
Adviser") expects that substantially all the assets of the Government Fund will
be invested in securities maturing in not more than 397 days (13 months) but at
times some portion may have maturities up to not more than 762 days (25
months). The dollar-weighted average maturity of the Government Fund's
portfolio will not exceed 90 days. During the Government Fund's fiscal year
ended March 31, 1994, the average maturity of its portfolio ranged from 34 days
to 90 days.
Investment Restrictions. The Government Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Government Fund's outstanding
voting securities as defined in the Investment Company Act. Among the more
significant restrictions, the Government Fund may not: (1) purchase any
securities other than short-term marketable securities which are direct
obligations of the U.S. Government and repurchase agreements pertaining to such
securities; (2) enter into repurchase agreements with any one bank or primary
dealer or an affiliate thereof, if immediately thereafter, more than 5% of the
value of its total assets (taken at market value) would be invested in
repurchase agreements with such bank or primary dealer or an affiliate thereof;
and (3) enter into repurchase agreements if, as a result thereof, more than 10%
of the Government Fund's total assets (taken at market value at the time of
each investment) would be subject to repurchase agreements maturing in more
than seven days.
Government Fund
6
<PAGE>
PROSPECTUS
JULY 29, 1994 CMA TAX-EXEMPT FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Tax-Exempt Fund (the "Tax-Exempt Fund") is a no-load, diversified, open-
end investment company seeking current income exempt from Federal income
taxes, preservation of capital and liquidity available from investing in a
diversified portfolio of short-term high quality Tax-Exempt Securities.
Portfolio securities will consist principally of short-term municipal notes,
variable rate demand notes and short-term municipal commercial paper. All of
the investments of the Tax-Exempt Fund will be in securities with remaining
maturities of not more than 397 days (13 months). The dollar-weighted average
maturity of the Tax-Exempt Fund's portfolio will be 90 days or less. Dividends
are declared and reinvested daily in the form of additional shares at net
asset value. THE TAX-EXEMPT FUND SEEKS TO MAINTAIN A CONSTANT $1.00 NET ASSET
VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED. AN INVESTMENT IN THE TAX-
EXEMPT FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. The Tax-
Exempt Fund has adopted a Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Tax-Exempt Fund may invest in
certain otherwise tax-exempt securities which are classified as "private
activity bonds" which may be subject to an alternative minimum tax. See
"Taxes". The Tax-Exempt Fund also may invest in derivative or synthetic
municipal instruments. See "Investment Objectives and Policies--Portfolio
Investments--Derivative or Synthetic Municipal Instruments." There can be no
assurance that the investment objectives of the Tax-Exempt Fund will be
realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Tax-Exempt
Fund that is relevant to making an investment in the Tax-Exempt Fund. This
Prospectus should be read carefully and retained for future reference. A
statement containing additional information about the Tax-Exempt Fund, dated
July 29, 1994 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Tax-Exempt Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................... 2
Financial Highlights................ 3
Yield Information................... 4
Investment Objectives and Policies.. 4
Appendix............................ A-1
Purchase of Shares................. A-1
Redemption of Shares............... A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds........... A-6
Portfolio Transactions............ A-9
Dividends......................... A-9
Determination of Net Asset Value.. A-9
Taxes............................. A-10
Additional Information............ A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
ANNUAL TAX-EXEMPT FUND OPERATING EXPENSES (AS A PERCENTAGE OF AV-
ERAGE NET ASSETS) FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees (a).................................................. 0.39%
Rule 12b-1 Fees (b).................................................. 0.13%
Other Expenses:
Dividend and Transfer Agency Fees.............................. 0.01%
Other Fees..................................................... 0.02%
----
Total Other Expenses (c)............................................. 0.03%
----
Total Tax-Exempt Fund Operating Expenses............................. 0.55%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming an operating ex-
pense ratio of 0.55% and a
5% annual return throughout the periods....... $5.62 $17.63 $30.73 $68.93
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE TAX-EXEMPT FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE TAX-EXEMPT FUND'S TRANSFER AGENT AND
WHO ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM
FEE BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA
PROGRAM SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Tax-Exempt Fund will bear directly
or indirectly. The example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Tax-Exempt Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditor's report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Tax-Exempt Fund audited by
Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net............ .02 .02 .04 .05 .06
---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .02 .02 .04 .05 .06
---------- ---------- ---------- ---------- ----------
Less dividends:
Investment
income--net.... (.02) (.02) (.04) (.05) (.06)
---------- ---------- ---------- ---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:........ 1.96% 2.36% 3.76% 5.39% 5.94%
========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .42% .42% .42% .41% .42%
========== ========== ========== ========== ==========
Expenses ....... .55% .54% .54% .54% .54%
========== ========== ========== ========== ==========
Investment
income--net.... 1.94% 2.33% 3.70% 5.24% 5.79%
========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $7,911,960 $7,527,054 $7,874,437 $8,695,795 $8,356,203
========== ========== ========== ========== ==========
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------------
1989 1988 1987 1986 1985
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net............ .05 .04 .04 .05 .06
---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .05 .04 .04 .05 .06
---------- ---------- ---------- ---------- ----------
Less dividends:
Investment
income--net.... (.05) (.04) (.04) (.05) (.06)
---------- ---------- ---------- ---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:........ 5.25% 4.38% 3.97% 4.89% 5.63%
========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .42% .42% .42% .43% .45%
========== ========== ========== ========== ==========
Expenses ....... .54% .54% .55% .56% .57%
========== ========== ========== ========== ==========
Investment
income--net.... 5.11% 4.32% 3.89% 4.80% 5.45%
========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $7,348,164 $8,277,540 $8,534,034 $7,171,113 $4,966,937
========== ========== ========== ========== ==========
</TABLE>
Tax-Exempt Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Tax-Exempt Fund as to the
annualized and compounded annualized yield for the indicated seven-day periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield.................................... 1.80% 2.32%
Compounded Annualized Yield......................... 1.82% 2.35%
Average Maturity of Portfolio at End of Period...... 63 days 50 days
</TABLE>
The yield of the Tax-Exempt Fund refers to the income generated by an
investment in the Tax-Exempt Fund over a stated seven-day period. This income
is then annualized: that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield is
calculated similarly but, when annualized, the income earned by an investment
in the Tax-Exempt Fund is assumed to be reinvested. The compounded annualized
yield will be somewhat higher than the yield because of the effect of the
assumed reinvestment.
The yield on Tax-Exempt Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Tax-Exempt Fund of future yields or rates of return on
its shares. The Tax-Exempt Fund's yield is affected by changes in interest
rates on short-term Tax-Exempt Securities, average portfolio maturity, the
types and quality of portfolio securities held and operating expenses. Current
yield information may not provide a basis for comparison with bank deposits or
other investments which pay a fixed yield over a stated period of time.
On occasion, the Tax-Exempt Fund may compare its yield to (i) the Donoghue's
Tax-Free Funds Average, an average compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the performance of
money market mutual funds, (ii) yield data published by Lipper Analytical
Services, Inc. (iii) performance data published by Morningstar Publications,
Inc., Money Magazine, U.S. News & World Report, Business Week, CDA Investment
Technology, Inc., Forbes and Fortune or (iv) historical yield data relating to
other central asset accounts similar to the CMA program. As with yield
quotations, yield comparisons should not be considered representative of the
Tax-Exempt Fund's yield or relative performance for any future period.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The investment objectives of the Tax-Exempt Fund are to seek current income
exempt from Federal income taxes, preservation of capital and liquidity
available from investing in a diversified portfolio of short-term high quality
Tax-Exempt Securities. The Tax-Exempt Fund seeks to achieve its objectives by
investing in a diversified portfolio of obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities or
derivative or synthetic municipal instruments, the interest from which is
exempt from Federal income tax (such obligations are herein referred to as
"Tax-Exempt Securities"). The Tax-Exempt Fund may invest in
Tax-Exempt Fund
4
<PAGE>
certain otherwise tax-exempt securities which are classified as "private
activity bonds" which may be subject to an alternative minimum tax. See
"Taxes". The investment objectives of the Tax-Exempt Fund described in this
paragraph are a fundamental policy of the Tax-Exempt Fund and may not be
changed without a vote of the majority of the outstanding shares of the Tax-
Exempt Fund.
POTENTIAL BENEFITS
Investment in Tax-Exempt Fund shares offers several benefits that are offset
by certain expenses borne by investors, including investment advisory fees,
administrative costs and operational costs. The Tax-Exempt Fund seeks to
provide as high a tax-exempt yield potential, consistent with its objectives,
as is available from the short-term Tax-Exempt Securities in which it invests
utilizing professional management and block purchases of securities. It
provides high liquidity because of its redemption features and reduced risk
resulting from diversification of assets. The shareholder is also relieved from
administrative burdens associated with direct investment in short-term
securities, such as coordinating maturities and reinvestments, safekeeping and
making numerous buy-sell decisions.
PORTFOLIO INVESTMENTS
The Tax-Exempt Securities in which the Tax-Exempt Fund invests include
municipal notes, municipal commercial paper and municipal bonds with a
remaining maturity of not more than 397 days (13 months). The Tax-Exempt Fund
will also invest in variable rate demand notes and participations therein (see
"Variable Rate Demand Notes" below) and derivative or synthetic municipal
instruments (see "Derivative or Synthetic Municipal Instruments" below).
Municipal notes include tax anticipation notes, bond anticipation notes and
revenue anticipation notes. Anticipation notes are sold as interim financing in
anticipation of tax collection, bond sales or revenue receipts. Municipal
commercial paper refers to short-term unsecured promissory notes issued
generally to finance short-term credit needs. The Tax-Exempt Fund may invest in
all types of tax-exempt instruments currently outstanding or to be issued in
the future which satisfy the short-term maturity and quality standards of the
Tax-Exempt Fund.
The Tax-Exempt Fund presently contemplates that it will not invest more than
25% of its total assets in Tax-Exempt Securities whose issuers are located in
the same state. The Tax-Exempt Fund does not intend to invest more than 25% of
its total assets in industrial development bonds or private activity bonds
where the entities supplying the revenues from which the issues are to be paid
are in the same industry.
Variable Rate Demand Notes. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate
adjustment formula and an unconditional right of demand to receive payment of
the unpaid principal balance plus accrued interest upon a short notice period.
The interest rates are adjustable at periodic intervals to some prevailing
market rate for similar investments, such adjustment formula being calculated
to maintain the market value of the VRDN at approximately the par value of the
VRDN upon the adjustment date. The adjustments are frequently based on the
prime rate of a bank or some other appropriate interest rate adjustment index.
The Tax-Exempt Fund may also invest in VRDNs in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically commercial banks ("institutions").
Participating VRDNs provide the Tax-Exempt Fund with a specified undivided
interest (up
Tax-Exempt Fund
5
<PAGE>
to 100%) of the underlying obligations and the right to demand payment of the
unpaid principal balance plus accrued interest on the Participating VRDNs from
the institution upon a specified number of days' notice, presently not to
exceed 30 days. In addition, each Participating VRDN is backed by an
irrevocable letter of credit or similar commitment of the institution. The Tax-
Exempt Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except
that the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit or
issuing the repurchase commitment.
VRDNs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities. A VRDN with a demand notice
period exceeding seven days will therefore be subject to the Fund's restriction
on illiquid investments unless, in the judgment of the Trustees, such VRDN is
liquid. The Trustees may adopt guidelines and delegate to Fund Asset
Management, L.P. (the "Investment Adviser") the daily function of determining
and monitoring liquidity of such VRDNs. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for such determinations.
The Tax-Exempt Fund has been advised by its counsel that the Tax-Exempt Fund
should be entitled to treat the income received on Participating VRDNs as
interest from tax-exempt obligations provided that certain conditions are met.
It is presently contemplated that the Tax-Exempt Fund will not invest more than
a limited amount (not more than 20%) of its total assets in Participating
VRDNs.
Derivative or Synthetic Municipal Instruments. The Tax-Exempt Fund may invest
in a variety of derivative or synthetic short-term municipal instruments
("Derivative Products"). Derivative Products are typically structured by a
bank, broker-dealer or other financial institution. A Derivative Product
generally consists of a trust or partnership through which the Fund holds an
interest in one or more long-term municipal bonds which are assets of the
applicable entity ("Underlying Bonds") coupled with a right to sell ("put") the
Fund's interest in the Underlying Bonds at par plus accrued interest to a
financial institution (a "Liquidity Provider"). Typically, a Derivative Product
is structured as a trust or partnership which provides for pass-through tax-
exempt income. There are currently three principal types of derivative
structures: (1) "Tender Option Bonds", which are instruments which grant the
holder thereof the right to put an Underlying Bond at par plus accrued interest
at specified intervals to a Liquidity Provider; (2) "Swap Products", in which
the trust or partnership swaps the payments due on an Underlying Bond with a
swap counterparty who agrees to pay a floating municipal money market interest
rate; and (3) "Partnerships", which allocate to the partners income, expenses,
capital gains and losses in accordance with a governing partnership agreement.
The Tax-Exempt Fund may also invest in other forms of Derivative Products.
Investments in Derivative Products raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
bonds. There is some risk that certain issues could be resolved in a manner
which could adversely impact the performance of the Tax-Exempt Fund. For
example, the tax-exempt treatment of the interest paid to holders of Derivative
Products is premised on the legal conclusion that the holders of such
Derivative Products have an ownership interest in the Underlying Bonds. While
the Fund receives an opinion of legal counsel to the effect that the income
from each Derivative Product is tax-exempt to the same extent as the Underlying
Bond, the Internal Revenue Service (the "IRS") has not issued a ruling on this
subject. Were the IRS to issue an adverse ruling, there is a risk that the
interest paid on such Derivative Products would be deemed taxable.
Municipal Lease Obligations. Also included within the general category of the
Tax-Exempt Securities are participation certificates in a lease, an installment
purchase contract or a conditional sales contract
Tax-Exempt Fund
6
<PAGE>
(hereinafter collectively called "lease obligations") entered into by a state
or political subdivision to finance the acquisition or construction of
equipment, land or facilities. Although lease obligations do not constitute
general obligations of the issuer for which the lessee's unlimited taxing power
is pledged, a lease obligation is frequently backed by the lessee's covenant to
budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the lessee has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. These securities represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional securities. Certain investments in lease obligations may be
illiquid. The Tax-Exempt Fund may not invest in illiquid lease obligations if
such investments, together with all other illiquid investments, would exceed
10% of the Tax-Exempt Fund's net assets. The Tax-Exempt Fund may, however,
invest without regard to such limitation in lease obligations which the
Investment Adviser, pursuant to guidelines which have been adopted by the Board
of Trustees and subject to the supervision of the Board, determines to be
liquid. The Investment Adviser will deem lease obligations liquid if they are
publicly offered and have received an investment grade rating of Baa or better
by Moody's Investors Service, Inc. ("Moody's"), or BBB or better by Standard &
Poor's Corporation ("Standard & Poor's") or Fitch Investors Service, Inc.
("Fitch"). Unrated lease obligations, or those rated below investment grade,
will be considered liquid if the obligations come to the market through an
underwritten public offering and at least two dealers are willing to give
competitive bids. In reference to the unrated lease obligations, the Investment
Adviser must, among other things, also review the creditworthiness of the
municipality obligated to make payment under the lease obligation and make
certain specified determinations based on such factors as the existence of a
rating or credit enhancement such as insurance, the frequency of trades or
quotes for the obligation and the willingness of dealers to make a market in
the obligation.
SHORT-TERM MATURITY STANDARDS
All of the investments of the Tax-Exempt Fund will be in securities with
remaining maturities of not more than 397 days (13 months). The dollar-weighted
average maturity of the Tax-Exempt Fund's portfolio will be 90 days or less.
The maturity of VRDNs (including Participating VRDNs) are deemed to be the
longer of (i) the notice period required before the Tax-Exempt Fund is entitled
to receive payment of the principal amount of the VRDN upon demand or (ii) the
period remaining until the VRDNs next interest rate adjustment. If not redeemed
by the Tax-Exempt Fund through the demand feature, VRDNs mature on a specified
date which may range up to 30 years from the date of issuance.
HIGH QUALITY STANDARDS
The Tax-Exempt Fund's portfolio investments in municipal notes and short-term
tax-exempt commercial paper will be limited to those obligations which (i) are
secured by a pledge of the full faith and credit of the United States, or (ii)
are rated, or issued by issuers who have been rated, in one of the two highest
rating categories for short-term municipal debt obligations by a nationally
recognized statistical rating organization (an "NRSRO") or, if not rated, will
be of comparable quality as determined by the Trustees of the Tax-Exempt Fund.
The Tax-Exempt Fund's investments in municipal bonds (which must have
maturities at the date of purchase of 397 days (13 months) or less) will be in
issuers who have received from the requisite NRSROs a rating, with respect to a
class of short-term debt obligations that is comparable in priority and
Tax-Exempt Fund
7
<PAGE>
security with the investment, in one of the two highest rating categories for
short-term obligations or, if not rated, will be of comparable quality as
determined by the Trustees of the Tax-Exempt Fund. Currently, there are three
NRSROs which rate municipal obligations: Fitch, Moody's and Standard & Poor's.
Certain tax-exempt obligations (primarily VRDNs and Participating VRDNs) may be
entitled to the benefit of letters of credit or similar commitments issued by
financial institutions and, in such instances, the Investment Adviser will take
into account the obligation of the financial institution in assessing the
quality of such instrument. The Tax-Exempt Fund may also purchase other types
of tax-exempt instruments if, in the opinion of the Trustees, such obligations
are equivalent to securities having the ratings described above.
Preservation of capital is a prime investment objective of the Tax-Exempt
Fund, and, while the types of short-term Tax-Exempt Securities in which the
Tax-Exempt Fund invests are not completely risk free, such securities are
generally considered by the Investment Adviser to have low risk of the failure
of issuers to meet their principal and interest obligations. These securities
have a lower principal risk compared to lower rated obligations and generally
to longer term obligations which entail the risk of changing conditions over a
longer period of time.
OTHER FACTORS
Management of the Tax-Exempt Fund will endeavor to be as fully invested as
reasonably practicable in order to maximize the yield on the Tax-Exempt Fund's
portfolio. Because the Tax-Exempt Fund does not intend to realize taxable
investment income, it will not invest in taxable short-term money market
securities. Tax-Exempt Securities generally do not trade on the basis of same
day settlements and, accordingly, a portfolio of such securities cannot be
managed on a daily basis with the same flexibility as a portfolio of money
market securities which can be bought and sold on a same day basis. There may
be times when the Tax-Exempt Fund has uninvested cash resulting from an influx
of cash due to large purchases of shares or maturities of portfolio securities.
The Tax-Exempt Fund may also be required to maintain cash reserves or incur
temporary bank borrowings to make redemption payments which are made on the
same day the redemption request is received. Such inability to be fully
invested would lower the yield on the portfolio.
The Tax-Exempt Fund's portfolio holdings represent a significant percentage
of the market in short-term tax-exempt securities and the yield on the
portfolio could be negatively impacted from time to time by the lack of
availability of short-term high quality Tax-Exempt Securities. The Tax-Exempt
Fund reserves the right to suspend or otherwise limit sales of its shares if,
as a result of difficulties in acquiring portfolio securities, it is determined
that it is not in the interests of the Tax-Exempt Fund's shareholders to issue
additional shares.
Tax-Exempt Securities may at times be purchased or sold on a delayed delivery
basis or a when-issued basis. These transactions arise when securities are
purchased or sold by the Tax-Exempt Fund with payment and delivery taking place
in the future, often a month or more after the purchase. The payment obligation
and the interest rate are each fixed at the time the buyer enters into the
commitment. The Tax-Exempt Fund will only make commitments to purchase such
securities with the intention of actually acquiring the securities, but the
Fund may sell these securities prior to settlement date if it is deemed
advisable. No new when-issued commitments will be made if more than 40% of the
Tax-Exempt Fund's net assets would become so committed. Purchasing Tax-Exempt
Securities on a when-issued basis involves the risk that the yields available
in the market when the delivery takes place may actually be higher than those
obtained in the transaction itself; if yields so increase, the value of the
when-issued obligation will generally decrease. The
Tax-Exempt Fund
8
<PAGE>
Tax-Exempt Fund will maintain a separate account at its custodian bank
consisting of cash or liquid Tax-Exempt Securities (valued on a daily basis)
equal at all times to the amount of the when-issued commitment.
Investment Restrictions. The Tax-Exempt Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Tax-Exempt Fund's outstanding
shares as defined in the Investment Company Act. Among the more significant
restrictions, the Tax-Exempt Fund may not: (1) purchase any securities other
than Tax-Exempt Securities referred to under "Investment Objectives and
Policies" herein and "Appendix--Information Concerning Tax-Exempt Securities"
in the Statement of Additional Information; (2) invest more than 5% of its
total assets (taken at market value at the time of each investment) in the
securities of any one issuer except that such restriction shall not apply to
securities backed (i.e., guaranteed) by the United States Government or its
agencies or instrumentalities (for purposes of this restriction, the Tax-Exempt
Fund will regard each state and each political subdivision, agency or
instrumentality of such state and each multi-state agency of which such state
is a member and each public authority which issues securities on behalf of a
private entity as a separate issuer, except that if the security is backed only
by the assets and revenues of a non-government entity then the entity with the
ultimate responsibility for the payment of interest and principal may be
regarded as the sole issuer); and (3) invest more than 5% of its total assets
(taken at market value at the time of each investment) in industrial revenue
bonds where the entity supplying the revenues from which the issue is to be
paid, including predecessors, has a record of less than three years of
continuous operation.
Tax-Exempt Fund
9
<PAGE>
PROSPECTUS
JULY 29, 1994 CMA TREASURY FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Treasury Fund (the "Treasury Fund") is a no-load, diversified, open-end
investment company seeking preservation of capital, liquidity and current
income available from investing exclusively in a diversified portfolio of
short-term marketable securities which are direct obligations of the U.S.
Treasury. Dividends are declared and reinvested daily in the form of additional
shares at net asset value. THE TREASURY FUND SEEKS TO MAINTAIN A CONSTANT $1.00
NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED. AN INVESTMENT IN
THE TREASURY FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. The
Treasury Fund has adopted a Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). There can be no assurance that the investment
objectives of the Treasury Fund will be realized.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
This Prospectus is a concise statement of information about the Treasury Fund
that is relevant to making an investment in the Treasury Fund. This Prospectus
should be read carefully and retained for future reference. A statement
containing additional information about the Treasury Fund, dated July 29, 1994
(the "Statement of Additional Information"), has been filed with the Securities
and Exchange Commission and can be obtained without charge by calling or
writing to the Treasury Fund at the above telephone number or address. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................ 2
Financial Highlights............. 3
Yield Information................ 4
Investment Objectives and Poli-
cies............................ 4
Appendix......................... A-1
Purchase of Shares.............. A-1
Redemption of Shares............ A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds.......... A-6
Portfolio Transactions........... A-9
Dividends........................ A-9
Determination of Net Asset Value. A-9
Taxes............................ A-10
Additional Information........... A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
ANNUAL TREASURY FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVER-
AGE NET ASSETS)
FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees(a)................................................... 0.44%
Rule 12b-1 Fees(b)................................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees.............................. 0.01%
Other Fees..................................................... 0.03%
----
Total Other Expenses(c).............................................. 0.04%
----
Total Treasury Fund Operating Expenses............................... 0.61%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
<TABLE>
<CAPTION>
EXAMPLE: CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming an operating
expense ratio of 0.61% and a 5% annual return
throughout the periods........................ $6.23 $19.53 $34.03 $76.21
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE TREASURY FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE FUND'S TRANSFER AGENT AND WHO ARE NOT
SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM FEE BUT WILL
NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA PROGRAM
SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Treasury Fund will bear directly
or indirectly. The example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Treasury Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditor's report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Treasury Fund audited by
Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
MARCH 31, APRIL 15, 1991+
---------------------- TO
1994 1993 MARCH 31, 1992
---------- ---------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Investment income--net............... .0250 .0278 .0453
Realized and unrealized gain on in-
vestments--net...................... .0002 .0026 .0019
---------- ---------- ----------
Total from investment operations....... .0252 .0304 .0472
---------- ---------- ----------
Less dividends and distributions:
Investment income--net............... (.0250) (.0278) (.0453)
Realized gain on investments--net.... (.0004) (.0024) (.0020)
---------- ---------- ----------
Total dividends and distributions...... (.0254) (.0302) (.0473)
---------- ---------- ----------
Net asset value, end of period......... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
TOTAL INVESTMENT RETURN:............... 2.57% 3.07% 5.02%*
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and ex-
cluding distribution fees............. .49% .48% .36%*
========== ========== ==========
Expenses, net of reimbursement......... .61% .60% .49%*
========== ========== ==========
Expenses............................... .61% .62% .68%*
========== ========== ==========
Investment income and realized gain on
investments--net...................... 2.55% 3.01% 4.67%*
========== ========== ==========
SUPPLEMENTAL DATA:
Net Assets, end of period (in
thousands)............................ $1,220,440 $1,287,061 $1,221,461
========== ========== ==========
</TABLE>
- --------
+Commencement of Operations
*Annualized
Treasury Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Treasury Fund for the
indicated seven-day periods, computed to include and exclude realized and
unrealized gains and losses, and information as to the compounded annualized
yield (excluding gains and losses) for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 2.65% 3.21%
Excluding gains and losses........................ 2.65% 3.21%
Compounded Annualized Yield......................... 2.69% 3.26%
Average Maturity of Portfolio at End of Period...... 33 days 49 days
</TABLE>
The yield of the Treasury Fund refers to the income generated by an
investment in the Treasury Fund over a stated seven-day period. This income is
then annualized; that is, the amount of income generated by the investment
during that period is assumed to be generated each seven-day period over a 52-
week period and is shown as a percentage of the investment. The compounded
annualized yield is calculated similarly but, when annualized, the income
earned by an investment in the Treasury Fund is assumed to be reinvested. The
compounded annualized yield will be somewhat higher than the yield because of
the effect of the assumed reinvestment.
The yield on Treasury Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Treasury Fund of future yields or rates of return on its
shares. The Treasury Fund's yield is affected by changes in interest rates on
Treasury securities, average portfolio maturity, the types and quality of
portfolio securities held and operating expenses. The yield on Treasury Fund
shares for various reasons may not be comparable to the yield on shares of
other money market funds or other investments. Current yield information may
not provide a basis for comparison with bank deposits or other investments
which pay a fixed yield over a stated period of time.
On occasion, the Treasury Fund may compare its yield to (i) yield data
reported by Donoghue's Money Fund Report (including Donoghue's U.S. Funds
Average), a widely recognized independent publication that monitors the
performance of money market mutual funds, (ii) the average yield reported by
the Bank Rate Monitor National Index(TM) for money market deposit accounts
offered by the 100 leading banks and thrift institutions in the ten largest
standard metropolitan statistical areas, (iii) yield data reported by Lipper
Analytical Services, Inc., (iv) the yield on an investment in 90-day Treasury
bills on a rolling basis, assuming quarterly compounding, (v) performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News & World
Report, Business Week, CDA Investment Technology, Inc., Forbes and Fortune or
(vi) historical yield data relating to other central asset accounts similar to
the CMA program. As with yield quotations, yield comparisons should not be
considered representative of the Treasury Fund's yield or relative performance
for any future period.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Treasury Fund are to seek preservation of
capital, liquidity and current income available from investing exclusively in a
diversified portfolio of short-term marketable securities which are direct
obligations of the U.S. Treasury.
Treasury Fund
4
<PAGE>
Preservation of capital is a prime investment objective of the Treasury Fund
and the direct U.S. Treasury obligations in which it will invest are generally
considered to have the lowest principal risk among money market securities.
Historically, direct U.S. Treasury obligations have generally had lower rates
of return than other money market securities with less safety.
For purposes of its investment objectives, the Treasury Fund defines short-
term marketable securities which are direct obligations of the U.S. Treasury as
any U.S. Treasury obligations having maturities of no more than 762 days (25
months). The dollar-weighted average maturity of the Treasury Fund's portfolio
will not exceed 90 days. During the year ended March 31, 1994, the average
maturity of the Treasury Fund's portfolio ranged from 28 days to 90 days.
Investment in Treasury Fund shares offers several benefits that are offset by
certain expenses borne by investors, including investment advisory fees,
administrative costs and operational costs. The Treasury Fund seeks to provide
as high a yield potential, consistent with its objectives, as is available
through investment in short-term U.S. Treasury obligations utilizing
professional money market management and block purchases of securities. It
provides high liquidity because of its redemption features and reduced market
risk resulting from diversification of assets. The shareholder is also relieved
from administrative burdens associated with direct investment in U.S. Treasury
securities, such as coordinating maturities and reinvestments, and making
numerous buy-sell decisions.
Forward Commitments. The Treasury Fund may purchase portfolio securities on a
forward commitment basis at fixed purchase terms. The purchase will be recorded
on the date the Treasury Fund enters into the commitment and the value of the
security will thereafter be reflected in the calculation of the Treasury Fund's
net asset value. The value of the security on the delivery date may be more or
less than its purchase price. A separate account of the Treasury Fund will be
established with its custodian consisting of cash or Treasury securities having
a market value at all times at least equal to the amount of the forward
commitment.
Investment Restrictions. The Treasury Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Treasury Fund's outstanding voting
securities as defined in the Investment Company Act. Among the more significant
restrictions, the Treasury Fund may not purchase any securities other than
direct obligations of the U.S. Treasury with remaining maturities of 762 days
(25 months) or less.
Treasury Fund
5
<PAGE>
APPENDIX
This Appendix constitutes a part of the Prospectuses of CMA Money Fund (the
"Money Market Fund"), CMA Government Securities Fund (the "Government Fund"),
CMA Tax-Exempt Fund (the "Tax-Exempt Fund") and CMA Treasury Fund (the
"Treasury Fund"). The Money Market Fund, the Government Fund, the Tax-Exempt
Fund and the Treasury Fund are referred to in this Appendix collectively as the
"Funds". Unless otherwise indicated, the information set forth herein is
applicable to each Fund. Management of the Funds has considered the possibility
that the use of a combined prospectus may subject one Fund to liability for an
alleged misstatement relating to another Fund. Management believes that this
possibility is remote.
As described in the description of the Merrill Lynch Cash Management Account
program, a subscriber to CMA financial services may also elect to have free
credit balances in CMA accounts deposited in individual money market deposit
accounts established for such subscriber at designated depository institutions
pursuant to the Insured Savings Account (the "Insured Savings Account"). In
addition, investors may also have their free credit balances invested in
certain series of CMA Multi-State Municipal Series Trust, each of which is
designed to provide income that is exempt from taxation in a particular state
(the "CMA State Funds"). For more information about the CMA State Funds,
investors should contact their Merrill Lynch Financial Consultants. The Funds,
the CMA State Funds and the Insured Savings Account are collectively referred
to in this Appendix as the Money Accounts. However, this Appendix does not
purport to describe the Insured Savings Account or the CMA State Funds.
Prospective participants in the Insured Savings Account are referred to the
fact sheet with respect thereto which is available from Merrill Lynch, and
prospective investors in the CMA State Funds are referred to the prospectuses
for those funds which are available from Merrill Lynch.
PURCHASE OF SHARES
The shares of the Funds are offered to participants in the CMA program to
provide a medium for the investment of free credit balances held in CMA
accounts and to individual investors maintaining accounts directly with the
Funds' Transfer Agent. Persons subscribing to CMA services will have free
credit balances invested in shares of the Money Market Fund, the Government
Fund, the Tax-Exempt Fund or the Treasury Fund, depending on which Fund has
been designated by the participant as the primary investment (the "Primary
Money Account"). Alternatively, subscribers may designate the Insured Savings
Account or one of the CMA State Funds as their Primary Money Account.
Purchases of shares of a Fund designated as the Primary Money Account will be
made pursuant to the CMA automatic or manual purchase procedures described
below. Purchases of shares of the Funds may also be made by investors
maintaining accounts with the Funds' Transfer Agent pursuant to the procedures
described below.
The purchase price for shares of the Funds is the net asset value per share
next determined after receipt by a Fund of an automatic or manual purchase
order in proper form. Shares purchased will receive the next dividend declared
after such shares are issued which will be immediately prior to the 12 noon
pricing on the following business day. A purchase order will not be effective
until cash in the form of Federal funds becomes available to the Fund (see
below for information as to when free credit balances held in CMA accounts
become available to the Funds). There are no minimum investment requirements
for subscribers to the Cash Management Account program other than for manual
purchases.
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<PAGE>
PURCHASE OF SHARES BY CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Subscribers to the CMA service have the option to change the designation of
their Primary Money Account at any time by notifying their Merrill Lynch
Financial Consultants. At that time, a subscriber may instruct his or her
Financial Consultant to redeem shares of a Fund designated as the Primary Money
Account and to transfer the proceeds to the newly-designated Primary Money
Account.
Automatic Purchases. Free credit balances arising in a CMA account are
automatically invested in shares of a Fund designated as the Primary Money
Account not later than the first business day of each week on which either the
New York Stock Exchange or New York banks are open, which normally will be
Monday. Free credit balances arising from the following transactions will be
invested automatically prior to the automatic weekly sweeps. Free credit
balances arising from the sale of securities which do not settle on the day of
the transaction (such as most common and preferred stock transactions) and from
principal repayments on debt securities become available to the Funds and will
be invested in shares on the business day following receipt of the proceeds
with respect thereto in the CMA account. Proceeds from the sale of shares of
Merrill Lynch Ready Assets Trust and Merrill Lynch U.S.A. Government Reserves
and from the sale of securities settling on a same day basis also become
available to the Funds and will be invested in shares on the next business day
following receipt. Free credit balances of $1,000 or more arising from cash
deposits into a CMA account, dividend and interest payments or any other source
become available to the Funds and are invested in shares on the next business
day following receipt in the CMA account unless such balance results from a
cash deposit made after the cashiering deadline of the Merrill Lynch office in
which the deposit is made, in which case the resulting free credit balances are
invested on the second following business day. A CMA participant desiring to
make a cash deposit should contact his or her Merrill Lynch Financial
Consultant for information concerning the local office's cashiering deadline,
which is dependent on such office's arrangements with its commercial banks.
Free credit balances of less than $1,000 are invested in shares in the
automatic weekly sweep. Free credit balances of $1.00 or more are invested
daily in certain accounts including those established under the Working Capital
Management (TM) account program or the CMA for Retirement Plans program.
Additional information on these programs is available from Merrill Lynch.
Manual Purchases. Subscribers to the CMA service may make manual investments
of $1,000 or more at any time in shares of a Fund not selected as their Primary
Money Account. Manual purchases shall be effective on the day following the day
the order is placed with Merrill Lynch, except that orders involving cash
deposits made on the date of a manual purchase shall become effective on the
second business day thereafter if they are placed after the cashiering deadline
referred to in the preceding paragraph. As a result, CMA customers who enter
manual purchase orders which include cash deposits made on that day after such
cashiering deadline will not receive the daily dividend which would have been
received had their orders been entered prior to the deadline. In addition,
manual purchases of $500,000 or more can be made effective on the same day the
order is placed with Merrill Lynch provided that requirements as to timely
notification and transfer of a Federal funds wire in the proper amount are met.
CMA customers desiring further information on this method of purchasing shares
should contact their Financial Consultants.
Merrill Lynch reserves the right to terminate a subscriber's participation in
the Cash Management Account program for any reason.
All purchases of the Funds' shares and dividend reinvestments will be
confirmed to Cash Management Account subscribers (rounded to the nearest share)
in the transaction statement which is sent to all participants in such Account
monthly.
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<PAGE>
PURCHASE OF SHARES BY NON-CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Shares of the Funds may be purchased by investors maintaining accounts
directly with the Funds' Transfer Agent who are not subscribers to the Cash
Management Account program. Shareholders of the Funds not subscribing to such
program will not be charged the applicable program fee, but will not receive
any of the services available to program subscribers, such as the Visa
card/check account or the automatic investment of free credit balances. The
minimum initial purchase for non-program subscribers is $5,000 and the minimum
subsequent purchase is $1,000. Investors desiring to purchase shares directly
through the Transfer Agent as described below should contact Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290 or call (800) 221-7210.
Payment to the Transfer Agent. Investors who are not subscribers to the CMA
program may submit purchase orders directly by mail or otherwise to the
Transfer Agent. Purchase orders by mail should be sent to Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290. Purchase orders which are sent by hand should
be delivered to Financial Data Services, Inc., Transfer Agency Operations
Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Investors opening a new account must enclose a completed Purchase Application
which is available from Financial Data Services, Inc. Existing shareholders
should enclose the detachable stub from a monthly account statement which they
have received. Checks should be made payable to Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Certified checks are not necessary, but checks are accepted
subject to collection at full face value in United States funds and must be
drawn in United States dollars on a United States bank. Payments for the
accounts of corporations, foundations and other organizations may not be made
by third party checks. Since there is a five-day settlement period applicable
to the sale of most securities, delays may occur when an investor is
liquidating other investments for investment in one of the Funds.
----------------
As described under "Investment Objectives and Policies" in its Prospectus,
the Tax-Exempt Fund has reserved the right to suspend or otherwise limit sales
of its shares if, as a result of difficulties in obtaining portfolio
securities, it is determined that it is not in the interests of the Tax-Exempt
Fund's shareholders to issue additional shares. If sales of shares of the Tax-
Exempt Fund are suspended, shareholders who have designated such Fund as their
Primary Money Account will be permitted to designate the Money Market Fund, the
Government Fund, the Treasury Fund, one of the CMA State Funds (if available)
or the Insured Savings Account as their Primary Money Account. Pending such an
election, Merrill Lynch will consider various alternatives with respect to
automatic investments for such accounts, including the investment of free
credit balances in such accounts in shares of the Money Market Fund, the
Government Fund or the Treasury Fund.
Each Fund has entered into a Distribution Agreement with Merrill Lynch
pursuant to which Merrill Lynch acts as the distributor for the Fund.
Each Fund has adopted a Distribution and Shareholder Servicing Plan
("Distribution Plan") in compliance with Rule 12b-1 under the Investment
Company Act pursuant to which Merrill Lynch receives a distribution fee under
the Distribution Agreement from each Fund at the end of each month at the
annual rate of 0.125% of average daily net assets of such Fund attributable to
subscribers to the CMA program and to investors maintaining securities accounts
at Merrill Lynch or maintaining accounts directly with the Transfer Agent who
are not subscribers to such program, except that the value of the Fund shares
in accounts maintained directly with the Transfer Agent which are not serviced
by Merrill Lynch Financial Consultants will be excluded. The fees reimburse
Merrill Lynch only for actual expenses incurred in the fiscal year in
A-3
<PAGE>
which the fees are paid. The distribution fee is to compensate Merrill Lynch
Financial Consultants and other directly involved branch office personnel for
selling shares of each Fund and for providing direct personal services to
shareholders. For the year ended March 31, 1994, $49,043,195 was paid to
Merrill Lynch pursuant to the Distribution Plans: $33,387,092 by the Money
Market Fund, $4,610,312 by the Government Fund, $9,483,835 by the Tax-Exempt
Fund and $1,561,956 by the Treasury Fund. The annual fee paid to Merrill Lynch
for the year ended March 31, 1994 aggregated 0.12% of average daily net assets
of each Fund. At May 31, 1994, the net assets of the Funds aggregated
approximately $39.4 billion. At this asset level, the annual fees payable to
Merrill Lynch pursuant to the Distribution Plans would aggregate approximately
$33.6 million by the Money Market Fund, $4.6 million by the Government Fund,
$9.5 million by the Tax-Exempt Fund and $1.6 million by the Treasury Fund.
REDEMPTION OF SHARES
Each Fund is required to redeem for cash all full and fractional shares of
the Fund. The redemption price is the net asset value per share next
determined after receipt by the Transfer Agent of proper notice of redemption
as described in accordance with either the automatic or manual procedures set
forth below. If such notice is received by the Transfer Agent prior to the
determination of net asset value at 12 noon, New York City time, on any day
that the New York Stock Exchange or New York banks are open for business, the
redemption will be effective on such day. Payment of the redemption proceeds
will be made on the same day the redemption becomes effective. If the notice
is received after 12 noon, New York City time, the redemption will be
effective on the next business day and payment will be made on such next day.
REDEMPTION OF SHARES BY CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Automatic Redemptions. Redemptions will be effected automatically by Merrill
Lynch to satisfy debit balances in the Securities Account created by activity
therein or to satisfy debit balances created by Visa card purchases, card
advances (which may be obtained through participating banks and automated
teller machines) or checks written against the Visa Account. Each CMA account
will be automatically scanned for debits each business day prior to 12 noon,
New York City time. After application of any free credit balances in the
account to such debits, shares of the Funds (or the CMA State Funds, if
applicable) will be redeemed at net asset value at the 12 noon, New York City
time pricing, and funds deposited pursuant to the Insured Savings Account will
be withdrawn, to the extent necessary to satisfy any remaining debits in
either the Securities Account or the Visa Account. Automatic redemptions or
withdrawals will be made first from the participant's Primary Money Account
and then, to the extent necessary, from Money Accounts not designated as the
Primary Money Account. Unless otherwise requested by the participant,
redemptions or withdrawals from non-Primary Money Accounts will be made in the
order the Money Accounts were established; thus, redemptions or withdrawals
will first be made from the non-Primary Money Account which the participant
first established. Margin loans through the Investor CreditLine SM service
will be utilized to satisfy debits remaining after the liquidation of all
funds invested in or deposited through Money Accounts, and shares of the Funds
may not be purchased, nor may deposits be made pursuant to the Insured Savings
Account, until all debits and margin loans in the account are satisfied.
Merrill Lynch, in conjunction with an affiliate, has introduced a modified
feature, the CMA Visa (R) Gold Program, to the CMA account for individual
shareholders. Participants in the CMA Visa (R) Gold Program may purchase
goods or services at participating merchants with the Visa (R) Gold card. Such
purchases may be paid for by automatic debit on the fourth Wednesday of each
month. See the Merrill Lynch Cash Management Account Program Description for
more information concerning the CMA Visa (R) Gold Program.
A-4
<PAGE>
As set forth in the current description of the CMA program, a participant
whose Securities Account is a margin account through the Investor
CreditLine SM service may designate a minimum balance to be maintained in
shares of the Funds or the CMA State Funds or deposits made pursuant to the
Insured Savings Account (the "Minimum Money Accounts Balance"). If a
participant designates a Minimum Money Accounts Balance, the shares or
deposits representing such balance will not be redeemed or withdrawn until
loans equal to the available margin loan value of securities in the Securities
Account have been made. Participants considering the establishment of a
Minimum Money Accounts Balance should review the description of this service
contained in the description of the CMA program which is available from
Merrill Lynch.
Shareholders of the Funds may arrange to have periodic investments made in
certain other mutual funds sponsored by Merrill Lynch through the CMA
Automated Investment Program. Under this program, the shareholder's Money
Account will be automatically debited at periodic intervals in an amount of
$250 or more, as selected by the shareholder, and investment made in the fund
the shareholder has designated. Further information on this program is
available from Merrill Lynch.
Manual Redemptions. Shareholders may redeem shares of a Fund directly by
submitting a written notice of redemption directly to Merrill Lynch, which
will submit the requests to the Funds' Transfer Agent. Cash proceeds from the
manual redemption of Fund shares will be ordinarily mailed to the shareholder
at his or her address of record, or upon request, mailed or wired (if $10,000
or more) to his or her bank account. Redemption requests should not be sent to
the Fund or the Transfer Agent. If inadvertently sent to the Fund or the
Transfer Agent, redemption requests will be forwarded to Merrill Lynch. The
notice requires the signatures of all persons in whose name the shares are
registered, signed exactly as their names appear on their monthly statement.
The signature(s) on the redemption request must be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17 Ad-15 under the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority may be required. CMA customers desiring to effect manual redemptions
should contact their Merrill Lynch Financial Consultants.
All redemptions of Fund shares will be confirmed to Cash Management Account
subscribers (rounded to the nearest share) in the CMA Transaction Statement
which is sent to all CMA participants monthly.
REDEMPTION OF SHARES BY NON-CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Shareholders may redeem shares of the Funds held in a Merrill Lynch
securities account directly by submitting a written notice of redemption to
Merrill Lynch, which will submit the requests to the Funds' Transfer Agent as
described under "Redemption of Shares--Redemption of Shares by Cash Management
Account Subscribers--Manual Redemptions".
Shareholders maintaining an account directly with the Transfer Agent, who
are not CMA program participants, may redeem shares of the Funds by submitting
a written notice by mail directly to the Transfer Agent, Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290. Redemption requests which are sent by hand
should be delivered to Financial Data Services, Inc. Transfer Agency
Operations Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-
6484. Cash proceeds from the manual redemption of Fund shares will be mailed
to the shareholder at his or her address of record. Redemption requests should
not be sent to the Funds or Merrill Lynch. If inadvertently sent to the Funds
or Merrill Lynch such redemption requests will be forwarded to the Transfer
Agent. The notice requires the signatures of all persons in whose names the
shares are registered, signed exactly as their names appear on their monthly
statement. The signature(s) on the notice must be guaranteed by an
A-5
<PAGE>
"eligible guarantor institution" as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent by the use of industry publications. Notarized
signatures are not sufficient. In certain instances, additional documents such
as, but not limited to, trust instruments, death certificates, appointments as
executor or administrator, or certificates of corporate authority may be
required.
At various times the Funds may be requested to redeem shares, in manual or
automatic redemptions, with respect to which good payment has not yet been
received by Merrill Lynch. A Fund may delay, or cause to be delayed, the
payment of the redemption proceeds until such time as it has assured itself
that good payment has been collected for the purchase of such shares.
Normally, this delay will not exceed 10 days. In addition, the Funds reserve
the right not to effect automatic redemptions where the shares to be redeemed
have been purchased by check within 15 days prior to the date the redemption
request is received.
Merrill Lynch, in conjunction with another subsidiary of Merrill Lynch &
Co., Inc., has introduced a modified version of the CMA account which has been
designed for corporations and other businesses. This account, the Working
Capital Management (TM) account ("WCMA(R) account"), provides participants
with the features of a regular CMA account and also optional lines of credit.
A brochure describing the WCMA program, as well as information concerning
charges for participation in the program, is available from Merrill Lynch.
Participants in the WCMA program are able to invest funds in one or more of
the Funds designated by them. Checks and other funds transmitted to a WCMA
account will generally be applied, first to the payment of pending securities
transactions or other charges in the participant's securities account, second,
to reduce outstanding balances in the lines of credit available through such
program and, third, to purchase shares of the designated Fund. To the extent
not otherwise applied, funds transmitted by Federal funds wire or an automated
clearinghouse service will be invested in shares of the designated Fund on the
business day following receipt of such funds by Merrill Lynch. Funds received
in a WCMA account from the sale of securities will be invested in the
designated Fund as described above. The amount payable on a check received in
a WCMA account prior to the cashiering deadline referred to above will be
invested on the second business day following receipt of the check by Merrill
Lynch. Redemptions of Fund shares will be effected as described above to
satisfy debit balances, such as those created by purchases of securities or by
checks written against a bank providing checking services to WCMA
participants. WCMA participants that have a line of credit will, however, be
permitted to maintain a minimum Fund balance; for participants who elect to
maintain such a balance, debits from check usage will be satisfied through the
line of credit so that such balance is maintained. However, if the full amount
of available credit is not sufficient to satisfy the debit, it will be
satisfied from the minimum balance.
From time to time, Merrill Lynch also may offer the Funds to participants in
certain other programs sponsored by Merrill Lynch. Some or all of the features
of the CMA account may not be available in such programs. For more information
on the services available under such programs, participants should contact
their financial consultants.
MANAGEMENT OF THE FUNDS
TRUSTEES
The Trustees of each Fund consist of six individuals, five of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Trustees of each Fund are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the directors
of investment companies by the Investment Company Act.
A-6
<PAGE>
The Trustees of each Fund are:
Arthur Zeikel*--President and Chief Investment Officer of the Investment
Adviser; Executive Vice President of Merrill Lynch & Co., Inc. ("ML &
Co."); Executive Vice President of Merrill Lynch; President and Director
of Princeton Services, Inc. ("Princeton Services"); and Director of
Merrill Lynch Funds Distributor, Inc. (the "Distributor").
Ronald W. Forbes--Professor of Finance, School of Business, State
University of New York at Albany.
Cynthia A. Montgomery--Professor of Finance, Harvard Business School.
Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor,
Columbia University Graduate School of Business.
Kevin A. Ryan--Professor of Education, Boston University, founder and
current Director of the Boston University Center for the Advancement of
Ethics and Character.
Richard R. West--Professor of Finance and former Dean, New York University
Leonard N. Stern School of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act of 1940, of each
Fund.
INVESTMENT ADVISORY ARRANGEMENTS
Fund Asset Management, L.P. (the "Investment Adviser") is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Investment Adviser or an affiliate of the Investment
Adviser, Merrill Lynch Asset Management, L.P. ("MLAM"), acts as the investment
adviser for the Funds and provides the Funds with management services pursuant
to a separate investment advisory agreement with each Fund. The Investment
Adviser or MLAM acts as the investment adviser for more than 100 registered
investment companies and provides investment advisory services to individuals
and institutional accounts. MLAM also offers portfolio management and portfolio
analysis services to individual and institutional accounts. As of June 29,
1994, MLAM and the Investment Adviser had a total of approximately $161.4
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of MLAM.
The investment advisory agreements with the Investment Adviser (the
"Investment Advisory Agreements") provide that, subject to the direction of the
Trustees, the Investment Adviser is responsible for the actual management of
the Funds' portfolios and constantly reviews the Funds' holdings in light of
its own research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to the review of the Board of
Trustees. The Investment Adviser performs certain of the other administrative
services and provides all of the office space, facilities, equipment and
necessary personnel for portfolio management of the Funds.
As compensation for its services under the Investment Advisory Agreements,
the Investment Adviser receives a fee from each Fund at the end of each month
at the annual rates of 0.50% of the first $500 million of average daily net
assets of the Fund, 0.425% of average daily net assets in excess of $500
million but not exceeding $1 billion, and 0.375% of average daily net assets in
excess of $1 billion.
A-7
<PAGE>
The following table sets forth information as to the advisory fees paid by
each Fund for the year ended March 31, 1994 and the annual fees payable at the
net asset level of each Fund as of May 31, 1994. The information does not
include amounts paid under each Fund's Distribution Plan to Merrill Lynch.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION BASED UPON
YEAR ENDED MARCH 31, 1994 NET ASSET LEVEL AS OF MAY 31, 1994
------------------------------- --------------------------------------
AVERAGE ANNUAL FEE
FEE PAID NET ASSETS EFFECTIVE NET ASSETS EFFECTIVE PAYABLE
CMA FUND (MILLIONS) (MILLIONS) FEE RATE (MILLIONS) FEE RATE (MILLIONS)
- -------- ---------- ---------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Money Market............ $101.6 $26,851.5 0.38% $26,984.1 0.38% $102.1
Government.............. $ 14.8 $ 3,708.0 0.40% $ 3,423.6 0.40% $ 13.7
Tax-Exempt.............. $ 29.5 $ 7,624.9 0.39% $ 7,602.0 0.39% $ 29.4
Treasury................ $ 5.6 $ 1,257.7 0.44% $ 1,149.1 0.45% $ 5.2
</TABLE>
- --------
The Investment Advisory Agreements obligate each Fund to pay certain expenses
incurred in its operations, including, among other things, the investment
advisory fee, legal and audit fees, unaffiliated Trustees' fees and expenses,
registration fees, custodian and transfer agency fees, accounting and pricing
costs, and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. Accounting services are
provided to each of the Funds by the Investment Adviser, and each Fund
reimburses the Investment Adviser for its costs in connection with such
services. For the year ended March 31, 1994, the amounts of such reimbursement
paid by the Money Market Fund, the Government Fund, the Tax-Exempt Fund and the
Treasury Fund aggregated $627,978, $123,850, $391,102 and $65,637,
respectively. For the year ended March 31, 1994, the ratio of total expenses to
average net assets was 0.42% for the Money Market Fund, 0.43% for the
Government Fund, 0.42% for the Tax-Exempt Fund (excluding payments under the
Funds' Distribution Plans) and 0.49% for the Treasury Fund (excluding payments
under the Fund's Distribution Plan and net of reimbursement).
TRANSFER AGENCY SERVICES
Each of the Funds has entered into a Transfer Agency, Shareholder Servicing
Agency, and Proxy Agency Agreement (each, a "Transfer Agency Agreement") with
Financial Data Services, Inc. (the "Transfer Agent"), a wholly-owned subsidiary
of ML & Co. Pursuant to the Transfer Agency Agreements, the Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreements, the Funds pay the Transfer Agent a fee of $5.25 per shareholder
account for the first one million accounts and $4.75 per shareholder account
thereafter and the Transfer Agent is entitled to reimbursement from the Funds
for out-of-pocket expenses incurred by the Transfer Agent under the Transfer
Agency Agreements. For the year ended March 31, 1994, $7,473,902 was paid to
the Transfer Agent by the Money Market Fund, $409,908 was paid to the Transfer
Agent by the Government Fund, $994,413 was paid to the Transfer Agent by the
Tax-Exempt Fund and $156,000 was paid to the Transfer Agent by the Treasury
Fund pursuant to their Transfer Agency Agreements, including reimbursement of
out-of-pocket expenses. At May 31, 1994, the Money Market Fund, the Government
Fund, the Tax-Exempt Fund and the Treasury Fund had 1,046,465, 55,752, 134,823
and 18,237 shareholder accounts, respectively. At these levels of accounts, the
annual fees payable to the Transfer Agent would aggregate approximately
$5,470,709, $292,698, $707,821 and $95,744, respectively.
A-8
<PAGE>
PORTFOLIO TRANSACTIONS
The portfolio securities in which the Funds invest are traded primarily in
the over-the-counter market. Where possible, the Funds will deal directly with
the dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principals for their own accounts. On occasion,
securities may be purchased directly from the issuer. Such portfolio securities
generally are traded on a net basis and normally do not involve either
brokerage commissions or transfer taxes. The cost of executing portfolio
transactions primarily will consist of dealer spreads and underwriting
commissions. Under the Investment Company Act, persons affiliated with the
Funds are prohibited from dealing with the Funds as a principal in the purchase
and sale of securities unless an exemptive order allowing such transactions is
obtained from the Securities and Exchange Commission. Affiliated persons of a
Fund may serve as its broker in over-the-counter transactions conducted on an
agency basis.
The Securities and Exchange Commission has issued exemptive orders permitting
the Money Market Fund, the Government Fund, the Tax-Exempt Fund and the
Treasury Fund to conduct certain principal transactions with Merrill Lynch
Government Securities Inc., Merrill Lynch Money Markets Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, subject to certain terms and conditions.
During the fiscal year ended March 31, 1994, the Money Market Fund engaged in
402 transactions pursuant to such orders aggregating approximately $19.9
billion; the Tax-Exempt Fund engaged in 35 transactions aggregating
approximately $603.6 million; the Government Fund engaged in 131 transactions
aggregating approximately $5.0 billion; and the Treasury Fund engaged in 29
transactions pursuant to such order aggregating approximately $478.8 million.
DIVIDENDS
All of the net income of each Fund is declared as dividends daily. Each
Fund's net income for dividend purposes is determined by the Investment Adviser
at 12 noon on each day the New York Stock Exchange or New York banks are open
for business immediately prior to the determination of the Fund's net asset
value on that day (see "Determination of Net Asset Value"). Net income of the
Money Market Fund, the Government Fund and the Treasury Fund (from the time of
the immediately preceding determination thereof) consists of (i) interest
accrued and/or discount earned (including both original issue and market
discount), (ii) less the estimated expenses of the Fund (including the fees
payable to the Investment Adviser) applicable to that dividend period and (iii)
plus or minus all realized gains and losses on the portfolio securities. Net
income of the Tax-Exempt Fund (from the time of the immediately preceding
determination thereof) consists of interest accrued and/or original issue
discount earned, less amortization of premium and the estimated expenses of the
Tax-Exempt Fund (including the fees payable to the Investment Adviser)
applicable to that dividend period. The amount of discount or premium on
portfolio securities is fixed at the time of their purchase and consists of the
difference between the purchase price for such securities and the principal
amount of such securities. Realized gains and losses are reflected in the Tax-
Exempt Fund's net assets and are not included in net income. Dividends are
declared and reinvested daily in the form of additional full and fractional
shares of the Funds at net asset value.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined by the Investment Adviser once
daily, immediately after the daily declaration of dividends, as of 12 noon on
each day the New York Stock Exchange or New York banks are open for business.
A-9
<PAGE>
The net asset value of the Money Market Fund, the Government Fund and the
Treasury Fund is determined pursuant to the "penny-rounding" method by adding
the fair value of all securities and other assets in each portfolio, deducting
such portfolio's liabilities and dividing by the number of shares of that Fund
outstanding. The result of this computation will be rounded to the nearest
whole cent. Securities with remaining maturities of greater than 60 days for
which market quotations are readily available will be valued at market value.
Securities with remaining maturities of 60 days or less will be valued on an
amortized cost basis, i.e. by valuing the instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. Other securities held by the Money Market Fund, the Government
Fund and the Treasury Fund will be valued at their fair value as determined in
good faith by or under direction of the Board of Trustees.
The Tax-Exempt Fund values its portfolio securities based on their amortized
cost. This involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
TAXES
The Funds intend to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If the Money Market Fund, the Government
Fund, the Treasury Fund or the Tax-Exempt Fund so qualifies, such Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains (see below) which it
distributes to shareholders, in any taxable year in which it distributes at
least 90% of its taxable net income and 90% of its tax-exempt net income. Each
Fund intends to distribute substantially all of such income.
TAXATION OF MONEY MARKET FUND, GOVERNMENT FUND AND TREASURY FUND DIVIDENDS
Dividends paid by the Money Market Fund, the Government Fund or the Treasury
Fund from their ordinary income and distributions of such Funds' net realized
short-term capital gains (together referred to hereafter as "ordinary income
dividends") are taxable to shareholders as ordinary income. Distributions made
from such Funds' net realized long-term capital gains from the sale of
securities ("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has owned Fund
shares. Distributions in excess of a Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset).
If the value of assets held by the Money Market Fund, the Government Fund or
the Treasury Fund declines, the Board of Trustees may authorize a reduction in
the number of outstanding shares in respective shareholders' accounts so as to
preserve a net asset value of $1.00 per share. After such a reduction, the
basis of eliminated shares would be added to the basis of shareholders'
remaining Fund shares, and any shareholders disposing of shares at that time
may recognize a capital loss. Distributions, including distributions reinvested
in additional shares of the affected Fund, will nonetheless be fully taxable,
even if the number of shares in shareholders' accounts has been reduced as
described above. Any loss on the sale or exchange of shares in the Funds held
for six months or less, however, will be treated as long-term capital loss to
the extent of any capital gain dividends received by the shareholder.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of a Fund. Not later than 60 days after the close of its
taxable year, each such Fund will provide its shareholders with a
A-10
<PAGE>
written notice designating the amounts of any ordinary income dividends or
capital gain dividends. Distributions by the Money Market Fund, the Government
Fund and the Treasury Fund will not be eligible for the dividends received
deduction allowed to corporations under the Code.
TAXATION OF TAX-EXEMPT FUND DIVIDENDS
The Tax-Exempt Fund intends to qualify to pay "exempt-interest dividends"
under the Code, and if it so qualifies, dividends derived from the interest
earned on tax-exempt securities which are designated by such Fund as exempt-
interest dividends will not be subject to Federal income taxes. To the extent
that the dividends distributed to the Tax-Exempt Fund's shareholders are
derived from interest income exempt from Federal tax and are properly
designated as "exempt-interest dividends" by the Fund, they will be excludable
from a shareholder's gross income for Federal income tax purposes. Exempt-
interest dividends are included, however, in determining the portion, if any,
of a person's social security and railroad retirement benefits subject to
Federal income taxes. Persons who may be "substantial users" (or "related
persons" of substantial users) of facilities financed by industrial development
bonds or private activity bonds held by the Tax-Exempt Fund should consult
their tax advisers before purchasing Fund shares. The Fund will inform
shareholders annually as to the portion of the Tax-Exempt Fund's distributions
which constitutes exempt-interest dividends. Interest on indebtedness incurred
or continued to purchase or carry shares of the Tax-Exempt Fund is not
deductible for Federal income tax purposes to the extent attributable to
exempt-interest dividends.
To the extent that the Tax-Exempt Fund's distributions are derived from
interest on its taxable investments or from an excess of net short-term capital
gains over net long-term capital losses ("ordinary income dividends"), such
distributions are considered ordinary income for Federal income tax purposes.
Such distributions are not eligible for the dividends received deduction for
corporations. Distributions, if any, of net long-term capital gains from the
sale of securities ("capital gain dividends") are taxable at long-term capital
gains rates for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. Under the Revenue Reconciliation Act of
1993, all or a portion of the Tax-Exempt Fund's gain from the sale or
redemption of tax-exempt obligations purchased at a market discount will be
treated as ordinary income rather than capital gain. This rule may increase the
amount of ordinary income dividends received by shareholders. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are
held as a capital asset). Any loss upon the sale or exchange of shares held for
six months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. In addition,
such loss will be disallowed to the extent of any exempt-interest dividends
received by the shareholder.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of the Tax-Exempt Fund, to an alternative minimum tax. The Tax-
Exempt Fund will purchase such "private activity bonds" and will report to
shareholders within 60 days after its taxable year-end the portion of its
dividends declared during the year which constitutes an item of tax preference
for alternative minimum tax purposes. The Code further provides that
corporations are subject to an alternative minimum tax based, in part, on
certain differences between taxable income as adjusted for other tax
preferences and the corporation's "adjusted current
A-11
<PAGE>
earnings", which more closely reflect a corporation's economic income. Because
an exempt-interest dividend paid by the Tax-Exempt Fund will be included in
adjusted current earnings, a corporate shareholder may be required to pay
alternative minimum tax on exempt-interest dividends paid by the Tax-Exempt
Fund.
The Revenue Reconciliation Act of 1993 has added new marginal tax brackets of
36% and 39.6% for individuals and has created a graduated structure of 26% and
28% for the alternative minimum tax applicable to individual taxpayers. These
rate increases may affect an individual investor's after-tax return from an
investment in the Tax-Exempt Fund as compared with such investor's return from
taxable investments.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Tax-Exempt Fund) during the
taxable year.
GENERAL
If the Money Market Fund, the Government Fund, the Treasury Fund or the Tax-
Exempt Fund pays a dividend in January which was declared in the previous
October, November or December to shareholders of record on a specified date in
one of such months, then such dividend will be treated for tax purposes as
being paid by such Fund and received by its shareholders on December 31 of the
year in which such dividend was declared.
Ordinary income dividends paid by a Fund to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax.
Under certain provisions of the Code, some taxpayers may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with a Fund or who, to such Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
A loss realized on a sale or exchange of shares of any of the Funds will be
disallowed if shares of the Fund are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether and what percentage of dividend income attributable to U.S.
Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in any of the Funds.
A-12
<PAGE>
ADDITIONAL INFORMATION
ORGANIZATION OF THE FUNDS
The Money Market Fund, the Government Fund and the Tax-Exempt Fund are
unincorporated business trusts organized on June 5, 1989 under the laws of
Massachusetts. The Money Market Fund is the successor to a Massachusetts
business trust organized on September 19, 1977, the Government Fund is the
successor to a Massachusetts business trust organized on August 3, 1981 and the
Tax-Exempt Fund is the successor to a Massachusetts business trust organized on
January 15, 1981. The Treasury Fund is an unincorporated business trust
organized on October 24, 1990 under the laws of Massachusetts. Each Fund is a
no-load, diversified, open-end investment company. The Declaration of Trust of
each Fund permits the Trustees to issue an unlimited number of full and
fractional shares of a single class. Upon liquidation of any of the Funds,
shareholders of that Fund are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders. Shares are fully paid and
nonassessable by the Funds. Shareholders are entitled to one vote for each full
share held and fractional votes for fractional shares held and to vote in the
election of Trustees and on other matters submitted to the vote of
shareholders.
The Declarations of Trust do not require that the Funds hold annual meetings
of shareholders. However, each Fund will be required to call special meetings
of shareholders in accordance with the requirements of the Investment Company
Act to seek approval of new management and advisory arrangements, of a material
increase in distribution fees or of a change in the fundamental policies,
objectives or restrictions of such Fund. Each Fund also would be required to
hold a special shareholders' meeting to elect new Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders. Each Declaration of Trust provides that a shareholders' meeting
may be called for any reason at the request of 10% of the outstanding shares of
the related Fund or by a majority of the Trustees. Except as set forth above,
the Trustees shall continue to hold office and appoint successor Trustees.
The Declarations of Trust establishing the Funds refer to the Trustees under
the Declarations of Trust collectively as Trustees, but not as individuals or
personally; and except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, no Trustee, shareholder,
officer, employee or agent of any of the Funds shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim of any Fund but the "Trust Property"
(as defined in the Declarations of Trust) only shall be liable. Copies of the
Declarations of Trust, together with all amendments thereto, are on file in the
office of the Commonwealth of Massachusetts.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to each Fund at the address or
telephone number set forth on the cover page of such Fund's Prospectus.
REPORTS TO SHAREHOLDERS
The fiscal year of each Fund ends on the last day of March of each year. Each
Fund will send to its shareholders at least semi-annually reports showing its
portfolio securities and other information. An annual report containing
financial statements audited by independent auditors is sent to shareholders
each year.
A-13
<PAGE>
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: Client Services
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch Financial
Consultant or Financial Data Services, Inc. at 800-221-7210.
A-14
<PAGE>
Investment Adviser
Fund Asset Management, L.P.
Administrative Offices: 800 Scudders Mill Road Plainsboro, New Jersey Mailing
Address: Box 9011 Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch, Pierce, Fenner & Smith Incorporated World Financial Center North
Tower 250 Vesey Street New York, New York 10281
Custodian
State Street Bank and Trust Company P.O. Box 1713 Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc. Administrative Offices: Transfer Agency
Operations Department 4800 Deer Lake Drive East Jacksonville, Florida 32246-
6484 Mailing Address: P.O. Box 45290 Jacksonville, Florida 32232-5290
Independent Auditors
Deloitte & Touche 117 Campus Drive Princeton, New Jersey 08540
Counsel
Brown & Wood One World Trade Center New York, New York 10048-0557
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in these Prospectuses, in
connection with the offers contained therein, and, if given or made, such other
information or representations must not be relied upon as having been
authorized by the Funds, the Investment Adviser or Merrill Lynch, Pierce,
Fenner & Smith Incorporated. These Prospectuses do not constitute an offering
in any state in which such offering may not lawfully be made.
Code #10117
- --------------------------------------------------------------------------------
CMA MONEY FUND
CMA GOVERNMENT
SECURITIES FUND
CMA TAX-EXEMPT
FUND
CMA TREASURY FUND
- --------------------------------------------------------------------------------
PROSPECTUSES
- --------------------------------------------------------------------------------
CMA (R) LOGO
The enclosed prospectuses describe four fully managed money market funds.
Shares of the Funds are offered to participants in the Cash Management
Account (R) ("CMA (R) account") program of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and to investors maintaining accounts directly with the
Transfer Agent.
Investors should be aware that the Cash Management Account service is not a
bank account and that a shareholder's investment in the Funds is not insured by
any governmental agency. As with any investment in securities, the value of a
shareholder's investment in the Funds may fluctuate.
Principal Office of the Funds 800 Scudders Mill Road Plainsboro, New Jersey
08536
July 29,1994
- --------------------------------------------------------------------------------
Merrill Lynch LOGO
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CMA MONEY FUND
CMA GOVERNMENT SECURITIES FUND
CMA TAX-EXEMPT FUND
CMA TREASURY FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Money Fund (the "Money Market Fund"), CMA Government Securities Fund (the
"Government Fund"), CMA Tax-Exempt Fund (the "Tax-Exempt Fund") and CMA
Treasury Fund (the "Treasury Fund") are no-load money market funds whose shares
are offered to participants in the Cash Management Account (R) ("CMA (R)
account") financial service program of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") to provide a medium for the investment of free
credit balances held in CMA accounts. A CMA account is a conventional Merrill
Lynch cash securities account or margin securities account ("Securities
Account") which is linked to the Money Market Fund, the Government Fund, the
Tax-Exempt Fund and the Treasury Fund (collectively, the "Funds"), money market
deposit accounts maintained with depository institutions and to a Visa (R)
card/check account ("Visa Account"). In addition, investors may have their free
credit balances invested in certain series of CMA Multi-State Municipal Series
Trust, each of which is designed to provide income that is exempt from taxation
in a particular state (the "CMA State Funds"). Merrill Lynch markets its margin
account under the name Investor CreditLine(SM) service.
A customer of Merrill Lynch may subscribe to the CMA program with a minimum
of $20,000 in securities or cash. Subject to the conditions described in the
Prospectuses referred to below, free credit balances in the Securities Account
of CMA participants will be invested periodically in shares of one of the four
Funds. This permits the subscriber to earn a return on such funds pending
further investment in other aspects of the CMA program or utilization through
the Visa Account.
Merrill Lynch charges an annual program participation fee, presently $100 for
individuals, for the CMA service (an additional $25 annual program fee is
charged for participation in the CMA Visa (R) Gold Program described in the CMA
Program Description). Merrill Lynch reserves the right to change the fee for
the CMA service or the CMA Visa (R) Gold Program at any time. The shares of
each Fund also may be purchased without the imposition of the annual program
participation fee by investors maintaining accounts directly with the Transfer
Agent who do not subscribe to the CMA program. The minimum initial purchase for
non-CMA subscribers is $5,000 and subsequent purchases must be $1,000 or more.
Such investors will not receive any of the additional services available to CMA
program subscribers, such as a Visa card/check account or the automatic
investment of free credit balances.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Investment Objectives and Policies. 2
Money Market Fund................. 2
Government Fund................... 5
Tax-Exempt Fund................... 5
Treasury Fund..................... 8
Management of the Funds............ 9
Purchase and Redemption of Shares.. 12
Portfolio Transactions............. 14
Determination of Net Asset Value... 16
Yield Information.................. 18
Taxes.............................. 18
General Information................ 22
<CAPTION>
PAGE
----
<S> <C>
Appendix........................... 24
Description of Commercial Paper,
Bank Money Instruments and
Corporate Bond Ratings............ 24
Information Concerning
Tax-Exempt Securities............. 25
Financial Statements
Money Market Fund................. 29
Government Fund................... 41
Tax-Exempt Fund................... 47
Treasury Fund..................... 65
</TABLE>
This Statement of Additional Information of the Funds is not a prospectus and
should be read in conjunction with the Prospectuses of the Funds dated July 29,
1994 (the "Prospectuses"), which have been filed with the Securities and
Exchange Commission and can be obtained without charge by calling or writing to
the Funds at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the
Prospectuses.
----------------
The date of this Statement of Additional Information is July 29, 1994.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUND
The Money Market Fund is a no-load money market fund. Reference is made to
"Investment Objectives and Policies" in the Prospectus of the Money Market Fund
for a discussion of the investment objectives and policies of such Fund.
As discussed in its Prospectus, the Money Market Fund may invest in money
market securities pursuant to repurchase agreements. Repurchase agreements may
be entered into only with a member bank of the Federal Reserve System or
primary dealers in U.S. Government securities or an affiliate thereof. Under
such agreements, the bank or primary dealer or an affiliate thereof agrees,
upon entering into the contract, to repurchase the security at a mutually
agreed upon time and price, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period. Such agreements usually cover short periods,
such as under a week. The Money Market Fund will require the seller to provide
additional collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase agreement. In
the event of a default by the seller, the Money Market Fund ordinarily will
retain ownership of the securities underlying the repurchase agreement, and
instead of a contractually fixed rate of return, the rate of return to the
Money Market Fund shall be dependent upon intervening fluctuations of the
market value of such securities and the accrued interest on the securities. In
such event, the Money Market Fund would have rights against the seller for
breach of contract with respect to any losses arising from market fluctuations
following the failure of the seller to perform. In certain circumstances,
repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
In the event of default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned by the Money
Market Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Money Market Fund may suffer time delays
and incur costs or possible losses in connection with the disposition of the
collateral. From time to time, the Money Market Fund also may invest in money
market securities pursuant to purchase and sale contracts. While purchase and
sale contracts are similar to repurchase agreements, purchase and sale
contracts are structured so as to be in substance more like a purchase and sale
of the underlying security than is the case with repurchase agreements.
Also, as discussed in the Prospectus, the Money Market Fund may invest in
obligations issued by commercial and savings banks and savings and loan
associations. The obligations of commercial banks may be issued by U.S. banks,
foreign branches or subsidiaries of U.S. banks ("Eurodollar" obligations) or
U.S. branches or subsidiaries of foreign banks ("Yankeedollar" obligations). In
addition, the Money Market Fund may also invest in other U.S. dollar-
denominated obligations of foreign depository institutions and their
subsidiaries. Eurodollar and Yankeedollar obligations and other obligations of
foreign depository institutions must be general obligations of the parent bank.
The Money Market Fund may also invest in U.S. dollar-denominated commercial
paper and other short-term obligations issued by foreign entities. Such
investments are subject to quality standards similar to those applicable to
investments in comparable obligations of domestic issuers.
Eurodollar and Yankeedollar obligations, as well as other obligations of
foreign depository institutions and short-term obligations issued by other
foreign entities, may involve additional investment risks, including adverse
political and economic developments, the possible imposition of withholding
taxes on interest income payable on such obligations, the possible seizure or
nationalization of foreign deposits and the possible
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establishment of exchange controls or other foreign governmental laws or
restrictions which might adversely affect the payment of principal and
interest. The issuers of such obligations may not be subject to U.S. regulatory
requirements. Foreign branches or subsidiaries of U.S. banks may be subject to
less stringent reserve requirements than U.S. banks. U.S. branches or
subsidiaries of foreign banks are subject to the reserve requirements of the
state in which they are located. There may be less publicly available
information about a U.S. branch or subsidiary of a foreign bank or other issuer
than about a U.S. bank or other issuer, and such entities may not be subject to
the same accounting, auditing and financial record keeping standards and
requirements as U.S. issuers. Evidence of ownership of Eurodollar and foreign
obligations may be held outside of the United States and the Money Market Fund
may be subject to the risks associated with the holding of such property
overseas. Eurodollar and foreign obligations of the Money Market Fund held
overseas will be held by foreign branches of the Money Market Fund's custodian
or by other U.S. or foreign banks under subcustodian arrangements complying
with the requirements of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
The Investment Adviser will carefully consider the above factors in making
investments in Eurodollar obligations and Yankeedollar obligations of foreign
depository institutions and other foreign short-term obligations, and will not
knowingly purchase obligations which, at the time of purchase, are subject to
exchange controls or withholding taxes. Generally, the Money Market Fund will
limit its Yankeedollar investments to obligations of banks organized in Canada,
France, Germany, Japan, the Netherlands, Switzerland, the United Kingdom and
other western industrialized nations.
The Money Market Fund may enter into reverse repurchase agreements, as
discussed in its Prospectus. The Money Market Fund will use the proceeds of
reverse repurchase agreements to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreements. The Money Market Fund
will utilize reverse repurchase agreements when the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the reverse repurchase transaction.
The Money Market Fund's investments in short-term corporate, partnership and
trust debt and bank money instruments will be rated, or will be issued by
issuers who have been rated, in one of the two highest rating categories for
short-term debt obligations by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, will be of comparable quality as
determined by the Trustees of the Money Market Fund. The Money Market Fund's
investments in corporate, partnership and trust bonds and debentures (which
must have maturities at the date of purchase of 397 days (13 months) or less)
will be in issuers who have received from the requisite NRSROs a rating with
respect to a class of short-term debt obligations that is comparable in
priority and security with the investment in one of the two highest rating
categories for short-term obligations or if not rated, will be of comparable
quality as determined by the Trustees of the Money Market Fund. Currently,
there are six NRSROs: Duff and Phelps, Inc., Fitch Investors Service, Inc.,
IBCA Limited and its affiliate IBCA, Inc., Moody's Investors Service, Inc.,
Standard & Poor's Corporation and Thomson Bankwatch, Inc. See "Appendix--
Description of Commercial Paper, Bank Money Instruments and Corporate Bond
Ratings".
As described in its Prospectus, the Money Market Fund may invest in variable
amount master demand notes. These are demand obligations that permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to arrangements between the issuer and a commercial bank acting as agent for
the
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payees of such notes whereby both parties have the right to vary the amount of
the outstanding indebtedness at any time.
In addition to the investment restrictions set forth in its Prospectus, the
Money Market Fund has adopted the following restrictions and policies relating
to the investment of its assets and its activities, which are fundamental
policies and may not be changed without the approval of the holders of a
majority of the Money Market Fund's outstanding voting securities (which for
this purpose means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (ii) more
than 50% of the outstanding shares). The Money Market Fund may not: (1) make
investments for the purpose of exercising control or management; (2) underwrite
securities issued by other persons; (3) purchase securities of other investment
companies, except in connection with a merger, consolidation, acquisition or
reorganization; (4) purchase or sell real estate (other than money market
securities secured by real estate or interests therein or money market
securities issued by companies which invest in real estate or interests
therein), commodities or commodity contracts, interests in oil, gas or other
mineral exploration or development programs; (5) purchase any securities on
margin, except for use of short-term credit necessary for clearance of
purchases and sales of portfolio securities; (6) make short sales of securities
or maintain a short position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof; (7) make loans to other persons, provided that
the Money Market Fund may purchase money market securities or enter into
repurchase agreements and lend securities owned or held by it pursuant to (8)
below; (8) lend its portfolio securities in excess of 33 1/3% of its total
assets, taken at market value, provided that such loans are made according to
the guidelines set forth below; (9) borrow amounts in excess of 20% of its
total assets, taken at market value (including the amount borrowed), and then
only from banks as a temporary measure for extraordinary or emergency purposes
(The borrowing provisions shall not apply to reverse repurchase agreements.)
[Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the Money Market Fund will not borrow to increase income
but only to meet redemption requests which might otherwise require untimely
dispositions of portfolio securities. The Money Market Fund will not purchase
securities while borrowings are outstanding. Interest paid on such borrowings
will reduce net income.]; (10) mortgage, pledge, hypothecate or in any manner
transfer (except as provided in (8) above) as security for indebtedness any
securities owned or held by the Money Market Fund except as may be necessary in
connection with borrowings referred to in investment restriction (9) above, and
then such mortgaging, pledging or hypothecating may not exceed 10% of the Money
Market Fund's net assets, taken at market value; (11) invest in securities with
legal or contractual restrictions on resale (except for repurchase agreements)
or for which no readily available market exists if, regarding all such
securities, more than 10% of its total assets (taken at market value) would be
invested in such securities; (12) invest in securities of issuers (other than
issuers of U.S. Government agency securities) having a record, together with
predecessors, of less than three years of continuous operation if, regarding
all such securities, more than 5% of its total assets (taken at market value)
would be invested in such securities; (13) enter into reverse repurchase
agreements if, as a result thereof, the Money Market Fund's obligations with
respect to reverse repurchase agreements would exceed one-third of its net
assets (defined to be total assets, taken at market value, less liabilities
other than reverse repurchase arrangements); and (14) purchase or retain the
securities of any issuer, if those individual officers and Trustees of the
Money Market Fund, Fund Asset Management, L.P. (the "Investment Adviser") or
any subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the securities
of the issuer.
Lending of Portfolio Securities. Subject to investment restriction (8) above,
the Money Market Fund may from time to time lend securities from its portfolio
to brokers, dealers and financial institutions and
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receive collateral in cash or securities issued or guaranteed by the U.S.
Government which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such cash collateral
will be invested in short-term securities, the income from which will increase
the return to the Money Market Fund. Such loans will be terminable at any time.
The Money Market Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights. The Money Market Fund may pay
reasonable fees in connection with the arranging of such loans.
GOVERNMENT FUND
The Government Fund is a no-load money market fund. Reference is made to
"Investment Objectives and Policies" in the Prospectus of the Government Fund
for a discussion of the investment objectives and policies of such Fund.
As discussed in its Prospectus, the Government Fund may invest in U.S.
Government securities pursuant to repurchase agreements. Reference is made to
"Investment Objectives and Policies--Money Market Fund" herein for a discussion
of such repurchase agreements.
In addition to the investment restrictions set forth in its Prospectus, the
Government Fund has adopted the following restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Government Fund's outstanding voting securities (which for this purpose means
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). The Government Fund may not: (1) act as an underwriter of
securities issued by other persons; (2) purchase any securities on margin,
except for use of short-term credit necessary for clearance of purchases and
sales of portfolio securities; (3) make short sales of securities or maintain a
short position or write, purchase or sell puts, calls, straddles, spreads or
combinations thereof; (4) make loans to other persons, provided that the
Government Fund may purchase short-term marketable securities which are direct
obligations of the U.S. Government or enter into repurchase agreements
pertaining thereto; (5) borrow amounts in excess of 20% of its total assets,
taken at market value (including the amount borrowed), and then only from banks
as a temporary measure for extraordinary or emergency purposes. [Usually only
"leveraged" investment companies may borrow in excess of 5% of their assets;
however, the Government Fund will not borrow to increase income but only to
meet redemption requests which might otherwise require untimely dispositions of
portfolio securities. The Government Fund will not purchase securities while
borrowings are outstanding. Interest paid on such borrowings will reduce net
income.]; and (6) mortgage, pledge, hypothecate or in any manner transfer as
security for indebtedness any securities owned or held by the Government Fund
except as may be necessary in connection with borrowings mentioned in (5)
above, and then such mortgaging, pledging or hypothecating may not exceed 10%
of the Government Fund's net assets, taken at market value.
TAX-EXEMPT FUND
The Tax-Exempt Fund is a no-load tax-exempt money market fund. Reference is
made to "Investment Objectives and Policies" in the Prospectus of the Tax-
Exempt Fund for a discussion of the investment objectives and policies of such
Fund.
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As discussed in its Prospectus, the Tax-Exempt Fund may invest in variable
rate demand notes ("VRDNs"). VRDNs are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the unpaid principal balance plus accrued
interest upon a short notice period. The interest rates are adjustable at
periodic intervals to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN on the adjustment date. The adjustments
are frequently based upon the prime rate of a bank or some other appropriate
interest rate adjustment index.
The Tax-Exempt Fund may also invest in VRDNs in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically commercial banks ("institutions").
Participating VRDNs provide the Tax-Exempt Fund with a specified undivided
interest (up to 100%) of the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
Participating VRDNs from the institution upon a specified number of days'
notice, presently not to exceed 30 days. In addition, each Participating VRDN
is backed by an irrevocable letter of credit or similar commitment of the
institution. The Tax-Exempt Fund has an undivided interest in the underlying
obligation and thus participates on the same basis as the institution in such
obligation except that the institution typically retains fees out of the
interest paid on the obligation for servicing the obligation, providing the
letter of credit or issuing the repurchase commitment.
The Tax-Exempt Fund has been advised by its counsel that the interest
received on Participating VRDNs will be treated as interest from tax-exempt
obligations as long as the Tax-Exempt Fund does not invest more than a limited
amount (not more than 20%) of its total assets in such investments and certain
other conditions are met. It is contemplated that the Tax-Exempt Fund will not
invest more than a limited amount of its total assets in Participating VRDNs.
The Tax-Exempt Fund can be expected to offer a lower yield than longer-term
municipal bond funds since Tax-Exempt Securities with longer maturities tend to
produce higher yields. Interest rates in the short-term Tax-Exempt Securities
market also may fluctuate more widely from time to time than interest rates in
the long-term municipal bond market. However, because of the shorter
maturities, the market value of the Tax-Exempt Securities held by the Tax-
Exempt Fund can be expected to fluctuate less in value as a result of changes
in interest rates. Because of the interest rate adjustment formula on VRDNs
(including Participating VRDNs), the VRDNs are not comparable to fixed rate
securities. The Tax-Exempt Fund's yield on VRDNs will decline and its
shareholders will forego the opportunity for capital appreciation during
periods when prevailing interest rates have declined. On the other hand, during
periods when prevailing interest rates have increased, the Tax-Exempt Fund's
yield on VRDNs will increase and its shareholders will have a reduced risk of
capital depreciation.
The Tax-Exempt Fund's portfolio of investments in municipal notes and short-
term tax-exempt commercial paper will be limited to those obligations which (i)
are secured by a pledge of the full faith and credit of the United States or
(ii) are rated, or issued by issuers who have been rated, in one of the two
highest rating categories for short-term municipal debt obligations by a
nationally recognized statistical rating organization (an "NRSRO") or, if not
rated, will be of comparable quality as determined by the Trustees of the Tax-
Exempt Fund. The Tax-Exempt Fund's investments in municipal bonds (which must
have maturities at the date of purchase of 397 days (13 months) or less) will
be in issuers who have received from the requisite NRSROs a rating, with
respect to a class of short-term debt obligations that is comparable in
priority and security with the investment, in one of the two highest rating
categories for short-term obligations or, if not
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rated, will be of comparable quality as determined by the Trustees of the Tax-
Exempt Fund. Currently, there are three NRSROs which rate municipal
obligations: Fitch Investors Service, Inc., Moody's Investors Service, Inc. and
Standard & Poor's Corporation. Certain tax-exempt obligations (primarily VRDNs
and Participating VRDNs) may be entitled to the benefit of standby letters of
credit or similar commitments issued by financial institutions and, in such
instances, the Board of Trustees and the Investment Adviser will take into
account the obligation of the financial institution in assessing the quality of
such instrument. The Tax-Exempt Fund may also purchase other types of tax-
exempt instruments if, in the opinion of the Trustees, such obligations are
equivalent to securities having the ratings described above. For a description
of Tax-Exempt Securities and such ratings, see "Appendix--Information
Concerning Tax-Exempt Securities".
Purchase or Sale of Tax-Exempt Securities on a Delayed Delivery Basis or on a
When-Issued Basis. Tax-Exempt Securities may at times be purchased or sold on a
delayed delivery basis or a when-issued basis. These transactions arise when
securities are purchased or sold by the Tax-Exempt Fund with payment and
delivery taking place in the future, often a month or more after the purchase.
The payment obligation and the interest rate are each fixed at the time the
buyer enters into the commitment. The Tax-Exempt Fund will only make
commitments to purchase such securities with the intention of actually
acquiring the securities, but the Fund may sell these securities prior to
settlement date if it is deemed advisable. No new when-issued commitments will
be made if more than 40% of the Tax-Exempt Fund's net assets would become so
committed. Purchasing Tax-Exempt Securities on a when-issued basis involves the
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself; if yields so
increase, the value of the when-issued obligation will generally decrease. The
Tax-Exempt Fund will maintain a separate account at its custodian consisting of
cash or liquid Tax-Exempt Securities (valued on a daily basis) equal at all
times to the amount of the when-issued commitment.
Purchase of Securities with Fixed Price "Puts". The Tax-Exempt Fund has
authority to purchase fixed rate Tax-Exempt Securities and, for a price,
simultaneously acquire the right to sell such securities back to the seller at
an agreed upon price at any time during a stated period or on a certain date.
Such a right is generally denoted as a fixed price put. Puts with respect to
fixed rate instruments are to be distinguished from the demand or repurchase
features of VRDNs and Participating VRDNs which enable the Tax-Exempt Fund to
dispose of the security at a time when the market value of the security
approximates its par value. The Tax-Exempt Fund does not currently intend to
enter into fixed price put transactions but reserves the right to do so in the
future. No such transactions will be entered into unless such transactions are
permissible under applicable rules under the Investment Company Act and the
Trustees of the Tax-Exempt Fund have approved the proposed terms of such
transactions.
In addition to the investment restrictions set forth in its Prospectus, the
Tax-Exempt Fund has adopted the following restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Tax-Exempt Fund's outstanding shares (for this purpose a majority of the shares
means the lesser of (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented or (ii) more than 50%
of the outstanding shares). The Tax-Exempt Fund may not: (1) make investments
for the purpose of exercising control or management; (2) purchase securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization; (3) purchase or sell real estate (provided that
such restriction shall not apply to Tax-Exempt Securities secured by real
estate or interests therein or issued by companies which invest in real estate
or interests therein), commodities or commodity
7
<PAGE>
contracts, interests in oil, gas or other mineral exploration or development
programs; (4) purchase any securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of portfolio securities;
(5) make short sales of securities or maintain a short position or invest in
put, call, straddle, or spread options or combinations thereof; provided,
however, that the Tax-Exempt Fund shall have the authority to purchase Tax-
Exempt Securities subject to put options as set forth under "Investment
Objectives and Policies" and "Appendix--Information Concerning Tax-Exempt
Securities"; (6) make loans to other persons, provided that the Tax-Exempt Fund
may purchase a portion of an issue of Tax-Exempt Securities (the acquisition of
a portion of an issue of Tax-Exempt Securities or bonds, debentures or other
debt securities which are not publicly distributed is considered to be the
making of a loan under the Investment Company Act); (7) borrow amounts in
excess of 20% of its total assets taken at market value (including the amount
borrowed), and then only from banks as a temporary measure for extraordinary or
emergency purposes. [Usually only "leveraged" investment companies may borrow
in excess of 5% of their assets; however, the Tax-Exempt Fund will not borrow
to increase income but only to meet redemption requests which might otherwise
require untimely dispositions of portfolio securities. The Tax-Exempt Fund will
not purchase securities while borrowings are outstanding. Interest paid on such
borrowings will reduce net income.]; (8) mortgage, pledge, hypothecate or in
any manner transfer as security for indebtedness any securities owned or held
by the Tax-Exempt Fund except as may be necessary in connection with borrowings
mentioned in (7) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of its total assets, taken at value; (9) invest in securities
with legal or contractual restrictions on resale or for which no readily
available market exists if, regarding all such securities, more than 10% of its
net assets (taken at value), would be invested in such securities; and (10) act
as an underwriter of securities, except to the extent that the Tax-Exempt Fund
may technically be deemed an underwriter when engaged in the activities
described in (6) above or insofar as the Tax-Exempt Fund may be deemed an
underwriter under the Securities Act of 1933 in selling portfolio securities.
TREASURY FUND
The Treasury Fund is a no-load money market fund. Reference is made to
"Investment Objectives and Policies" in the Prospectus of the Treasury Fund for
a discussion of the investment objectives and policies of the Treasury Fund.
The Treasury Fund has adopted the following restrictions and policies
relating to the investment of its assets and its activities, which are
fundamental policies and may not be changed without the approval of the holders
of a majority of the Treasury Fund's outstanding voting securities (which for
this purpose means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (ii) more
than 50% of the outstanding shares). The Treasury Fund may not: (1) purchase
any securities other than direct obligations of the U.S. Treasury having
maturities of no more than 762 days (25 months), (2) act as an underwriter of
securities issued by other persons; (3) purchase any securities on margin,
except for use of short-term credit necessary for clearance of purchases and
sales of portfolio securities; (4) make short sales of securities or maintain a
short position or write, purchase of sell puts, call, straddles, spreads or
combinations thereof; (5) make loans to other persons, provided that the
Treasury Fund may purchase short-term marketable securities which are direct
obligations of the U.S. Treasury; (6) borrow amounts in excess of 20% of its
total assets, taken at market value (including the amount borrowed), and then
only from banks as a temporary measure for extraordinary or emergency purposes.
[Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the Treasury Fund will not borrow to increase income but
only to meet redemption requests which might otherwise require
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<PAGE>
untimely dispositions of portfolio securities. The Treasury Fund will not
purchase securities while borrowings are outstanding. Interest paid on such
borrowings will reduce net income.]; and (7) mortgage, pledge, hypothecate or
in any manner transfer as security for indebtedness any securities owned or
held by the Treasury Fund except as may be necessary in connection with
borrowings mentioned in (6) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of the Treasury Fund's net assets, taken at
market value.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Funds and their principal
occupations for at least the last five years are set forth below. With the
exception of six officers, the persons named below hold the same positions with
each of the Funds. Unless otherwise noted, the address of each Trustee and
executive officer is P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel--President and Trustee (1)(2)--President and Chief Investment
Officer of the Investment Adviser and its predecessor since 1977; President of
Merrill Lynch Asset Management, L.P. ("MLAM") and its predecessor since 1977
and Chief Investment Officer since 1976; President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Executive Vice President of
Merrill Lynch since 1990 and Senior Vice President from 1985 to 1990, Director
of Merrill Lynch Funds Distributor, Inc. ("MLFD").
Ronald W. Forbes--Trustee (2)--1400 Washington Avenue, Albany, New York
12222. Professor of Finance, School of Business, State University of New York
at Albany since 1989 and Associate Professor prior thereto; Member, Task Force
on Municipal Securities Markets, Twentieth Century Fund.
Cynthia A. Montgomery--Trustee (2)--Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 20163. Professor, Harvard Business School since
1989; Associate Professor, J.L. Kellogg Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate School
of Business Administration, the University of Michigan from 1979 to 1985;
Director, UNUM Corporation.
Charles C. Reilly--Trustee (2)--9 Hampton Harbor Road, Hampton Bays, New York
11946. President and Chief Investment Officer of Verus Capital, Inc. from 1979
to 1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973
to 1990; Adjunct Professor, Columbia University Graduate School of Business
since 1990; Adjunct Professor, Wharton School, University of Pennsylvania,
1990; Director, Harvard Business School Alumni Association.
Kevin A. Ryan--Trustee (2)--127 Commonwealth Avenue, Chestnut Hill
Massachusetts 02167. Founder, current Director and Professor of the Boston
University Center for the Advancement of Ethics & Character; Professor of
Education at Boston University from 1982 until 1994. Formerly taught on the
faculties of the University of Chicago, Stanford University, and Ohio State
University.
Richard R. West--Trustee (2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance, and Dean from 1984 to 1993, New York University Leonard
N. Stern School of Business Administration, Professor of Finance, Amos Tuck
School of Business Administration from 1976 to 1984 and Dean from 1976
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to 1983; Director, Vornado, Inc. (real estate investment trust), Smith Corona
Corporation (manufacturer of typewriters and word processors), Alexander's Inc.
(retailer), Bowne & Co., Inc. (financial printer) and Re Capital Corp.
(reinsurance holding company).
Terry K. Glenn--Executive Vice President (1)(2)--Executive Vice President of
the Investment Adviser and MLAM and their predecessors since 1983; Executive
Vice President and Director of Princeton Services since 1993; President of MLFD
since 1986 and Director since 1991; President of Princeton Administrators.
Vincent R. Giordano--Senior Vice President of the Tax-Exempt Fund (1)(2)--
Senior Vice President of the Investment Adviser and MLAM and their predecessors
since 1984 and Vice President from 1980 to 1984.
Joseph T. Monagle--Senior Vice President of the Money Market Fund, the
Government Fund and the Treasury Fund (1)(2)--Senior Vice President of the
Investment Adviser and MLAM and their predecessors since 1990; Vice President
of MLAM's predecessor from 1978 to 1990; Senior Vice President of Princeton
Services.
Donald C. Burke--Vice President (1)(2)--Vice President and Director of
Taxation of the Investment Adviser and its predecessor since 1990; employee of
Deloitte & Touche from 1982 to 1990.
Donaldo S. Benito--Vice President of the Government Fund (1)--Vice President
of MLAM and its predecessor since 1986; Assistant Vice President of MLAM's
predecessor from 1984 to 1986.
Peter J. Hayes--Vice President of the Tax-Exempt Fund (1)(2)--Vice President
of MLAM and its predecessor since 1988.
Marie Heumiller--Vice President of the Treasury Fund (1)(2)--Vice President
and Portfolio Manager of MLAM and its predecessor since 1991; employed by MLAM
and its predecessor since 1985.
Kenneth A. Jacob--Vice President of the Tax-Exempt Fund (1)(2)--Vice
President of MLAM and its predecessor since 1984.
Kevin J. McKenna--Vice President of the Money Market Fund, the Government
Fund and the Treasury Fund (1)(2)--Vice President of MLAM and its predecessor
since 1985.
Helen Marie Sheehan--Vice President of the Tax-Exempt Fund (1)(2)--Vice
President of MLAM and its predecessor since 1991; Assistant Vice President of
MLAM's predecessor from 1989 to 1991; employee of MLAM and its predecessor
since 1985.
Gerald M. Richard--Treasurer (1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and MLAM and their predecessors since 1984; Vice
President of MLFD since 1981 and Treasurer since 1984.
Robert Harris--Secretary (1)(2)--Vice President of MLAM and its predecessor
since 1984; Secretary of MLFD since 1982.
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(1) Interested person, as defined in the Investment Company Act, of the Funds.
(2) Such Trustee or officer is a director or officer of certain other
investment companies for which the Investment Adviser or MLAM acts as
investment adviser.
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At June 30, 1994 the Trustees and officers of the Funds as a group (18
persons) owned an aggregate of less than 1/4 of 1% of the outstanding shares of
beneficial interest of the Funds. At such date, Mr. Zeikel and the officers of
the Funds owned an aggregate of less than 1/4 of 1% of the outstanding Common
Stock of ML & Co.
Pursuant to the terms of its Investment Advisory Agreements (the "Investment
Advisory Agreements") with the Funds, the Investment Adviser pays all
compensation of officers and employees of the Funds as well as the fees of all
Trustees of the Funds who are affiliated persons of ML & Co. or its
subsidiaries. Each Fund pays each unaffiliated Trustee an annual fee plus a fee
for each meeting attended and pays all Trustees' actual out-of-pocket expenses
relating to attendance at meetings. Each Fund also compensates members of its
audit and nominating committee, which consists of all of the non-affiliated
Trustees. The fees and expenses paid by the Money Market Fund, the Government
Fund, the Tax-Exempt Fund and the Treasury Fund for the year ended March 31,
1994 aggregated $100,097, $35,097, $41,097, and $40,094, respectively.
INVESTMENT ADVISORY ARRANGEMENTS
Reference is made to "Management of the Funds--Investment Advisory
Arrangements" in the Appendix to the Prospectuses of the Funds for certain
information concerning the investment advisory arrangements of the Funds.
Subject to the direction of the Board of Trustees, the Investment Adviser is
responsible for the actual management of the Funds' portfolio and constantly
reviews the Funds' holdings in light of its own research analysis and that from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to the
review of the Board of Trustees. The Investment Adviser performs certain of the
other administrative services and provides all of the office space, facilities,
equipment and necessary personnel for portfolio management of the Funds.
Securities held by the Funds may also be held by, or be appropriate
investments for, other funds or clients (collectively referred to as "clients")
for which the Investment Adviser or MLAM acts as an investment adviser. Because
of different investment objectives or other factors, a particular security may
be bought for one or more clients when one or more clients are selling the
security. If purchases or sales of securities for the Funds or other clients
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective clients in a
manner deemed equitable to all by the Investment Adviser or MLAM. To the extent
that transactions on behalf of more than one client of the Investment Adviser
or MLAM during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse
effect on price.
The Investment Adviser presently receives a fee from each Fund at the end of
each month at the annual rates of 0.50% of the first $500 million of average
daily net assets of the Fund, 0.425% of the average daily net assets in excess
of $500 million but not exceeding $1 billion, and 0.375% of average daily net
assets in excess of $1 billion. The State of California imposes limitations on
the expenses of the Fund. This annual expense limitation applicable to each
Fund requires that the Investment Adviser reimburse the Fund in any amount
necessary to prevent such operating expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions and extraordinary charges
such as litigation costs) of the Fund from exceeding in any fiscal year 2.5% of
the Fund's first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of the remaining average daily net
assets. No fee payment will be made to the Investment Adviser during the year
which will cause such expenses to exceed the pro rata expense limitation at the
time of such payment.
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Money Market Fund. For the years ended March 31, 1992, 1993 and 1994 the
total advisory fees paid by the Money Market Fund to the Investment Adviser
aggregated $112,597,101, $103,584,527 and $101,568,034, respectively.
Government Fund. For the years ended March 31, 1992, 1993 and 1994 the total
advisory fees paid by the Government Fund to the Investment Adviser aggregated
$18,312,597, $16,323,136 and $14,779,998, respectively.
Tax-Exempt Fund. For the years ended March 31, 1992, 1993 and 1994 the total
advisory fees paid by the Tax-Exempt Fund to the Investment Adviser aggregated
$31,049,754, $29,159,137 and $29,468,384, respectively.
Treasury Fund. For the years ended March 31, 1993 and 1994 the total advisory
fees paid by the Treasury Fund to the Investment Adviser aggregated $5,629,043
and $5,591,419, respectively.
The Investment Advisory Agreements obligate the Investment Adviser to provide
investment advisory services, to furnish administrative services, office space
and facilities for management of the affairs of each Fund, to pay all
compensation of and furnish office space for officers and employees of the
Fund, as well as the fees of all Trustees of the Funds who are affiliated
persons of ML & Co. or any of its subsidiaries. Except for certain expenses
incurred by Merrill Lynch (see "Purchase and Redemption of Shares"), the Funds
pay all other expenses incurred in their operations, including, among other
things, taxes, expenses for legal and auditing services, costs of printing
proxies, reports, prospectuses and statements of additional information sent to
current shareholders (except to the extent paid for by the Distributor),
charges of the custodian and transfer agent, expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering the shares
under Federal and state securities laws, fees and expenses of unaffiliated
Trustees, accounting and pricing costs (including the daily calculation of net
asset value), insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable by
the Funds. Accounting services are provided by the Investment Adviser and each
Fund reimburses the Investment Adviser for its costs in connection with such
services provided to that Fund.
For information as to the distribution fee to be paid by each Fund to Merrill
Lynch pursuant to the Distribution Agreements, see "Purchase and Redemption of
Shares".
Duration and Termination. Unless earlier terminated as described below, each
Investment Advisory Agreement will continue in effect from year to year if
approved annually (a) by the Trustees of the Fund or by a majority of the
outstanding voting shares of the Fund and (b) by a majority of the Trustees who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Fund.
PURCHASE AND REDEMPTION OF SHARES
Reference is made to "Purchase of Shares" and "Redemption of Shares" in the
Appendix to the Prospectuses of the Funds for certain information as to the
purchase and redemption of Fund shares.
Each Fund has entered into a distribution agreement (the "Distribution
Agreement") with Merrill Lynch as the distributor. The Distribution Agreements
obligate Merrill Lynch to pay certain expenses in connection
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with the offering of the shares of the Funds. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, Merrill Lynch will pay for the printing
and distribution of copies thereof used in connection with the offering to
investors. Merrill Lynch will also pay for other supplementary sales literature
and advertising costs. The Distribution Agreements are subject to the same
renewal requirements and termination provisions as the Investment Advisory
Agreements described above.
Each Fund has adopted a Distribution and Shareholder Servicing Plan (each, a
"Distribution Plan") in compliance with Rule 12b-1 under the Investment Company
Act pursuant to which Merrill Lynch receives a distribution fee under the
Distribution Agreement from each Fund at the end of each month at the annual
rate of 0.125% of average daily net assets of such Fund attributable to
subscribers to the CMA program and to investors maintaining securities accounts
with Merrill Lynch or maintaining accounts directly with the Transfer Agent who
are not subscribers to such program, except that the value of Fund shares in
accounts maintained directly with the Transfer Agent which are not serviced by
Merrill Lynch Financial Consultants will be excluded. The Distribution Plans
reimburse Merrill Lynch only for actual expenses incurred in the fiscal year in
which the fees are paid. The distribution fees are principally to provide
compensation to Merrill Lynch Financial Consultants and other Merrill Lynch
personnel for selling shares of each Fund and for providing direct personal
services to shareholders of the Funds. The distribution fee is not compensation
for the administrative and operational services rendered to shareholders by
Merrill Lynch which are covered by Investment Advisory Agreements (see
"Management of the Funds--Investment Advisory Arrangements") between each Fund
and the Investment Adviser.
The Trustees believe that each Fund's expenditures under its Distribution
Plan benefit such Fund and its shareholders by providing better shareholder
services and by facilitating the sale and distribution of Fund shares. For the
years ended March 31, 1992, 1993 and 1994, the Money Market Fund paid
$37,048,902, $33,934,955 and $33,387,092, respectively, to Merrill Lynch
pursuant to its Distribution Plan. For the years ended March 31, 1992, 1993 and
1994, the Government Fund paid $5,786,721, $5,101,796 and $4,610,312,
respectively, to Merrill Lynch pursuant to its Distribution Plan. For the years
ended March 31, 1992, 1993 and 1994, the Tax-Exempt Fund paid $10,035,665,
$9,361,603 and $9,483,835, respectively, to Merrill Lynch pursuant to its
Distribution Plan. For the years ended March 31, 1993 and 1994, the Treasury
Fund paid $1,576,608 and $1,561,956, respectively to Merrill Lynch pursuant to
the Distribution Plan. All of the amounts expended under the Distribution Plans
for the years ended March 31, 1992, 1993 and 1994 were allocated to Merrill
Lynch Financial Consultants, other Merrill Lynch personnel and related
administrative costs.
Among other things, each Distribution Plan provides that Merrill Lynch shall
provide and the Trustees of each Fund shall review quarterly reports of the
distribution expenses made by Merrill Lynch pursuant to the Distribution Plan.
In their consideration of each Distribution Plan, the Trustees must consider
all factors they deem relevant, including information as to the benefits of the
Distribution Plan to the related Fund and its shareholders. Each Distribution
Plan further provides that, so long as the Distribution Plan remains in effect,
the selection and nomination of Trustees of the Fund who are not "interested
persons" of the Fund as defined in the Investment Company Act ("Independent
Trustees") shall be committed to the discretion of the Independent Trustees
then in office. Each Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Trustees or by the vote
of the holders of a majority of the outstanding voting securities of each Fund.
Finally, the Distribution Plans cannot be amended to increase materially the
amount to be spent by the Fund thereunder without shareholder approval, and all
material
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amendments are required to be approved by vote of the Trustees of the Fund,
including a majority of the Independent Trustees, cast in person at a meeting
called for that purpose.
The right to receive payment with respect to any redemption of Fund shares
may be suspended by each Fund for a period of up to seven days. Suspensions of
more than seven days may not be made except (1) for any period (A) during which
the New York Stock Exchange is closed other than customary weekend and holiday
closings or (B) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
securityholders of the Fund. The Commission shall by rules and regulations
determine the conditions under which (i) trading shall be deemed to be
restricted and (ii) an emergency shall be deemed to exist within the meaning of
clause (2) above.
Merrill Lynch has offered the CMA program since September, 1977. While no
significant problems have occurred to date, no predictions can be made as to
the rate of purchases and redemptions of shares which will result from the
automatic features of the CMA program. The portfolio securities of the Funds
are highly liquid and the Funds have the right to borrow up to 20% of their
total assets on a temporary basis to meet unexpected redemptions. Nevertheless,
an erratic redemption pattern could force the Investment Adviser to invest in
securities or maintain an average portfolio maturity which might lessen the
yield that would otherwise be available to the Funds.
PORTFOLIO TRANSACTIONS
The Funds have no obligations to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Trustees and officers of each Fund, the Investment Adviser
is primarily responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing orders, it is the policy of the
Funds to obtain the best net results taking into account such factors as price
of the securities offered, the type of transaction involved, the firm's general
execution and operational facilities, and the firm's risk in positioning the
securities involved. While the Investment Adviser generally seeks reasonably
competitive spreads or commissions, the Funds will not necessarily be paying
the lowest spread or commission available. The Fund's policy of investing in
securities with short maturities will result in high portfolio turnover.
The securities in which each Fund invests are traded primarily in the over-
the-counter market. Where possible, the Funds will deal directly with the
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principals for their own accounts. On occasion,
securities may be purchased directly from the issuer. The money market
securities in which the Money Market Fund, the Government Fund and the Treasury
Fund invest and the tax-exempt securities in which the Tax-Exempt Fund invests
are generally traded on a net basis and do not normally involve either
brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Funds primarily will consist of dealer spreads
and underwriting
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<PAGE>
commissions. Under the Investment Company Act, a person affiliated with the
Funds is prohibited from dealing with the Funds as a principal in the purchase
and sale of securities unless an exemptive order allowing such transactions is
obtained from the Securities and Exchange Commission. Since over-the-counter
transactions are usually principal transactions, an affiliated person of the
Funds may not serve as the Funds' dealer in connection with such transactions,
except pursuant to the exemptive order described below. However, affiliated
persons of the Funds may serve as the Funds' broker in over-the-counter
transactions conducted on an agency basis. The Funds may not purchase
securities from any underwriting syndicate of which Merrill Lynch is a member,
except in accordance with applicable rules under the Investment Company Act.
The Securities and Exchange Commission has issued an exemptive order
permitting the Money Market Fund, the Government Fund and the Treasury Fund to
conduct principal transactions with Merrill Lynch Government Securities Inc.
("GSI") in U.S. Government and U.S. Government agency securities, with Merrill
Lynch Money Markets Inc. ("MMI") in certificates of deposit and other short-
term bank money instruments and commercial paper and with Merrill Lynch in
fixed income securities including medium-term notes. The order contains a
number of conditions, including conditions designed to insure that the price to
the Money Market Fund, the Government Fund and the Treasury Fund from GSI, MMI
or Merrill Lynch is equal to or better than that available from other sources.
GSI, MMI and Merrill Lynch have informed such Funds that they will in no way,
at any time, attempt to influence or control the activities of the Fund or the
Investment Adviser in placing such principal transactions. The exemptive order
allows GSI, MMI or Merrill Lynch to receive a dealer spread on any transaction
with the Money Market Fund, the Government Fund or the Treasury Fund no greater
than its customary dealer spread for transactions of the type involved.
Generally such spreads do not exceed 0.25% of the principal amount of the
securities involved. During the fiscal year ended March 31, 1992, the Money
Market Fund engaged in 526 such transactions aggregating approximately $15.8
billion. The Government Fund did not engage in any principal transactions
during such fiscal year. During the period April 15, 1991 (commencement of
operations) to March 31, 1992, the Treasury Fund engaged in 66 such
transactions aggregating approximately $1.6 billion. During the fiscal year
ended March 31, 1993, the Money Market Fund engaged in 609 such transactions
aggregating approximately $23.5 billion, the Government Fund engaged in three
such transactions aggregating approximately $35.2 million and the Treasury Fund
engaged in 19 such transactions aggregating approximately $380.9 million.
During the fiscal year ended March 31, 1994, the Money Market Fund engaged in
402 such transactions aggregating approximately $19.9 billion, the Government
Fund engaged in 131 such transactions aggregating approximately $5.0 billion
and the Treasury Fund engaged in 29 such transactions aggregating approximately
$478.8 million.
Prior to the receipt of a separate exemptive order also described below, the
Tax-Exempt Fund could not purchase securities in principal transactions with
Merrill Lynch, although it could purchase tax-exempt securities from
underwriting syndicates of which Merrill Lynch was a member under certain
conditions in accordance with the provisions of a rule adopted under the
Investment Company Act. In 1987, the Securities and Exchange Commission issued
an exemptive order permitting the Tax-Exempt Fund to conduct principal
transactions with Merrill Lynch in Tax-Exempt Securities with remaining
maturities of one year or less. This order contains a number of conditions,
including conditions designed to insure that the price to the Tax-Exempt Fund
from Merrill Lynch is equal to or better than that available from other
sources. Merrill Lynch has informed the Tax-Exempt Fund that it will in no way,
at any time, attempt to influence or control the activities of the Fund or the
Investment Adviser in placing such principal transactions. The exemptive order
allows Merrill Lynch to receive a dealer spread on any transaction with the
Tax-Exempt Fund no greater
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than its customary dealer spread for transactions of the type involved. During
the fiscal year ended March 31, 1992, the Tax-Exempt Fund engaged in 48
principal transactions with Merrill Lynch, aggregating approximately $2.1
billion. During the fiscal year ended March 31, 1993, the Tax-Exempt Fund
engaged in 50 principal transactions with Merrill Lynch, aggregating
approximately $1.2 billion. During the fiscal year ended March 31, 1994, the
Tax-Exempt Fund engaged in 35 principal transactions with Merrill Lynch,
aggregating approximately $603.6 million.
The Trustees of each Fund have considered the possibilities of recapturing
for the benefit of the Funds expenses of possible portfolio transactions, such
as dealers' spreads and underwriting commissions, by conducting such portfolio
transactions through affiliated entities, including Merrill Lynch. After
considering all factors deemed relevant, the Trustees made a determination not
to seek such recapture. The Trustees will reconsider this matter from time to
time. The Investment Adviser has arranged for the Funds' custodian to receive
any tender offer solicitation fees on behalf of the Funds payable with respect
to portfolio securities of the Funds.
The Funds do not expect to use one particular dealer, but, subject to
obtaining the best price and execution, dealers who provide supplemental
investment research to the Investment Adviser may receive orders for
transactions by the Funds. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under its Investment Advisory Agreement and the expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information.
DETERMINATION OF NET ASSET VALUE
MONEY MARKET FUND, GOVERNMENT FUND AND TREASURY FUND
The net asset value of the Money Market Fund, the Government Fund and the
Treasury Fund is determined by the Investment Adviser at 12:00 noon, New York
time, on each day during which the New York Stock Exchange or New York banks
are open for business, immediately after the daily declaration of dividends. As
a result of this procedure, the net asset value is determined each day except
for days on which both the New York Stock Exchange and New York banks are
closed. Both the New York Stock Exchange and New York banks are closed for New
Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share of the Money
Market Fund, the Government Fund and the Treasury Fund is determined under the
"penny rounding" method by adding the value of all securities and other assets
in each Fund's portfolio, deducting such Fund's liabilities, dividing by the
number of shares of the Fund outstanding and rounding the result to the nearest
whole cent. Securities with remaining maturities of greater than 60 days for
which market quotations are readily available will be valued at market value.
Securities with remaining maturities of 60 days or less will be valued on an
amortized cost basis. Other securities held by the Money Market Fund, the
Government Fund and the Treasury Fund will be valued at their fair value as
determined in good faith by or under direction of the Board of Trustees.
TAX-EXEMPT FUND
The net asset value of the Tax-Exempt Fund for the purpose of pricing orders
for the purchase and redemption of shares is determined by the Investment
Adviser at 12:00 noon, New York time, on each day the New York Stock Exchange
or New York banks are open for business, immediately after the daily
declaration of dividends. As a result of this procedure, the net asset value is
determined each day except for
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days on which both the New York Stock Exchange and New York banks are closed.
Both the New York Stock Exchange and New York banks are closed on New Year's
Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value is determined by adding the value of
all securities and other assets in the portfolio, deducting its liabilities and
dividing by the number of shares outstanding.
The Tax-Exempt Fund values its portfolio securities based upon their
amortized cost in accordance with the terms of a rule adopted by the Securities
and Exchange Commission. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Tax-Exempt Fund would receive if it sold the
instrument.
----------------
In accordance with the Securities and Exchange Commission rule applicable to
the valuation of portfolio securities, the Funds will maintain a dollar-
weighted average portfolio maturity of 90 days or less and will purchase
instruments having remaining maturities of not more than 397 days (13
months),with the exception of U.S. Government and U.S. Government agency
securities, which may have remaining maturities of up to 762 days (25 months).
The Funds will invest only in securities determined by the Trustees to be of
high quality with minimal credit risks. In addition, the Trustees have
established procedures designated to stabilize, to the extent reasonably
possible, each Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Deviations of more than an insignificant amount between
the net asset value calculated using market quotations and that calculated on a
"penny rounded" basis or, in the case of the Tax-Exempt Fund, an amortized cost
basis, will be reported to the Trustees of the Fund by the Investment Adviser.
In the event the Trustees determine that a deviation exists with respect to any
Fund which may result in material dilution or other unfair results to investors
or existing shareholders of that Fund, the Fund will take such corrective
action as it regards necessary and appropriate, including the reduction of the
number of outstanding shares of the Fund by having each shareholder
proportionately contribute shares to the Fund's capital; the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends; or establishing a net asset
value per share solely by using available market quotations. If the number of
outstanding shares is reduced in order to maintain a constant net asset value
of $1.00 per share, the shareholders will contribute proportionately to the
Fund's capital the number of shares which represent the difference between the
"penny rounded" valuation or, for the Tax-Exempt Fund, the amortized cost
valuation and market valuation of the portfolio. Each shareholder will be
deemed to have agreed to such contribution by such shareholder's investment in
such Fund.
Since the net income of the Funds is determined and declared as a dividend
immediately prior to each time the net asset value of each Fund is determined,
the net asset value per share of the Funds normally remains at $1.00 per share
immediately after each such dividend declaration. Any increase in the value of
a shareholder's investment in a Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in the
account and any decrease in the value of a shareholder's investment may be
reflected by a decrease in the number of shares in the account. See "Taxes".
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YIELD INFORMATION
Each Fund normally computes its annualized yield by determining the net
income for a seven-day base period for a hypothetical pre-existing account
having a balance of one share at the beginning of the base period, dividing the
net income by the net asset value of the account at the beginning of the base
period to obtain the base period return, multiplying the result by 365 and then
dividing by seven. Under this calculation, the yield on the Money Market Fund,
the Government Fund and the Treasury Fund shares reflects, and the yield on the
Tax-Exempt Fund does not reflect, realized gains and losses on portfolio
securities. In accordance with regulations adopted by the Securities and
Exchange Commission, each Fund is required to disclose its annualized yield for
certain seven-day periods in a standardized manner which does not take into
consideration any realized or unrealized gains or losses on portfolio
securities. The Securities and Exchange Commission also permits the calculation
of a standardized effective or compounded yield. This is computed by
compounding the unannualized base period return which is done by adding one to
the base period return, raising the sum to a power equal to 365 divided by
seven and subtracting one from the result. In the case of the Money Market
Fund, the Government Fund and the Treasury Fund, this compounded yield
calculation also reflects realized gains or losses on portfolio securities.
Realized gains and losses are not reflected in the compounded yield calculation
of the Tax-Exempt Fund.
The yield on the Funds' shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Fund of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on money
market securities (or short-term Tax-Exempt Securities in the case of the Tax-
Exempt Fund), average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. The yield on Government Fund shares and
Treasury Fund shares for various reasons may not be comparable to the yield on
shares of other money market funds or other investments.
TAXES
FEDERAL
The Funds intend to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If the Money Market Fund, the Government
Fund, the Treasury Fund or the Tax-Exempt Fund so qualifies, such Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains (see below) which it
distributes to shareholders in any taxable year in which it distributes at
least 90% of its taxable net income and 90% of its tax-exempt net income. The
Funds intend to distribute substantially all of such income.
Taxation of Money Market Fund, Government Fund and Treasury Fund Dividends
Dividends paid by the Money Market Fund, the Government Fund or the Treasury
Fund from their ordinary income and distributions of such Funds' net realized
short-term capital gains (together referred to hereafter as "ordinary income
dividends") are taxable to shareholders as ordinary income. Distributions made
from such Funds' net realized long-term capital gains from the sale of
securities ("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has
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owned the Money Market Fund, the Government Fund or the Treasury Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less
will be treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder. Distributions in excess of a Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of a Fund. Not later than 60 days after the close of their
taxable years, the Money Market Fund, the Government Fund and the Treasury Fund
will provide their respective shareholders with a written notice designating
the amounts of any ordinary income or capital gain dividends. Distributions by
the Money Market Fund, the Government Fund and the Treasury Fund will not be
eligible for the dividends received deduction allowed to corporations under the
Code.
If the value of assets held by the Money Market Fund, the Government Fund or
the Treasury Fund declines, the Board of Trustees may authorize a reduction in
the number of outstanding shares in the respective shareholders' accounts so as
to preserve a net asset value of $1.00 per share. After such a reduction, the
basis of eliminated shares would be added to the basis of shareholders'
remaining Fund shares, and any shareholders disposing of shares at that time
may recognize a capital loss. Distributions, including distributions reinvested
in additional shares of an affected Fund, will nonetheless be fully taxable,
even if the number of shares in shareholders' accounts has been reduced as
described above.
Interest received by the Money Market Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Taxation of Tax-Exempt Fund Dividends
The Tax-Exempt Fund intends to qualify to pay "exempt-interest dividends" as
defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of its taxable year, at least 50% of the value of its total
assets consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Tax-Exempt Fund shall
be qualified to pay exempt-interest dividends to its shareholders. Exempt-
interest dividends are dividends or any part thereof paid by the Tax-Exempt
Fund which are attributable to interest on tax-exempt obligations and
designated by the Tax-Exempt Fund as exempt-interest dividends in a written
notice mailed to the Tax-Exempt Fund's shareholders within sixty days after the
close of its taxable year. To the extent that the dividends distributed to the
Fund's shareholders are derived from interest income exempt from Federal income
tax under Code Section 103(a) and are properly designated as exempt-interest
dividends, they will be excludable from a shareholder's gross income for
Federal income tax purposes. Exempt-interest dividends are included, however,
in determining the portion, if any, of a person's social security and railroad
retirement benefits subject to Federal income taxes. Interest on indebtedness
incurred or continued to purchase or carry shares of a RIC paying exempt-
interest dividends, such as the Tax-Exempt Fund, will not be deductible by the
investor for Federal income tax purposes. Shareholders are advised to consult
their tax advisers with respect to whether exempt-interest dividends retain the
exclusion under Code Section 103(a) if a shareholder would be treated as a
"substantial user" or "related person" under Code Section 147(a) with respect
to property financed with the proceeds of an issue of "industrial development
bonds" or "private
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activity bonds", if any, held by the Tax-Exempt Fund. The Tax-Exempt Fund will
inform shareholders annually regarding the portion of its distributions which
constitutes exempt-interest dividends.
To the extent that the Tax-Exempt Fund's distributions are derived from
interest on its taxable investments or from an excess of net short-term capital
gains over net long-term capital losses ("ordinary income dividends"), such
distributions are considered ordinary income for Federal income tax purposes.
Such distributions are not eligible for the dividends received deduction for
corporations. Distributions, if any, of net long-term capital gains from the
sale of securities ("capital gain dividends") are taxable as long-term capital
gains for Federal income tax purposes, regardless of the length of time the
shareholder has owned Fund shares. Under the Revenue Reconciliation Act of
1993, all or a portion of the Tax-Exempt Fund's gain from the sale or
redemption of tax-exempt obligations purchased at a market discount will be
treated as ordinary income rather than capital gain. This rule may increase the
amount of ordinary income dividends received by shareholders. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are
held as a capital asset). Any loss upon the sale or exchange of Tax-Exempt Fund
shares held for six months or less will be treated as long-term capital loss to
the extent of any capital gain dividends received by the shareholder. In
addition, such loss will be disallowed to the extent of any exempt-interest
dividends received by the shareholder.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of the Tax-Exempt Fund, to an alternative minimum tax. The Tax-
Exempt Fund will purchase such "private activity bonds" and will report to
shareholders within 60 days after its taxable year-end the portion of the Tax-
Exempt Fund's dividends declared during the year which constitutes an item of
tax preference for alternative minimum tax purposes. The Code further provides
that corporations are subject to an alternative minimum tax based, in part, on
certain differences between taxable income as adjusted for other tax
preferences and the corporation's "adjusted current earnings", which more
closely reflects a corporation's economic income. Because an exempt-interest
dividend paid by the Tax-Exempt Fund will be included in adjusted current
earnings, a corporate shareholder may be required to pay alternative minimum
tax on exempt-interest dividends paid by the Tax-Exempt Fund.
The Revenue Reconciliation Act of 1993 has added new marginal tax brackets of
36% and 39.6% for individuals and has created a graduated structure of 26% and
28% for the alternative minimum tax applicable to individual taxpayers. These
rate increases may affect an individual investor's after-tax return from an
investment in the Tax-Exempt Fund as compared with such investor's return from
taxable investments.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Tax-Exempt Fund) during the
taxable year.
Environmental Tax. The Code imposes a deductible tax (the "Environmental
Tax") on a corporation's modified alternative minimum taxable income (computed
without regard to the alternative tax net operating
20
<PAGE>
loss deduction and the deduction for the Environmental Tax) at a rate of $12
per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000. The Environmental Tax is imposed for taxable years beginning after
December 31, 1986 and before January 1, 1996. The Environmental Tax is imposed
even if the corporation is not required to pay an alternative minimum tax
because the corporation's regular income tax liability exceeds its minimum tax
liability. The Code provides, however, that a RIC, such as the Tax-Exempt Fund,
is not subject to the Environmental Tax. However, exempt-interest dividends
paid by the Tax-Exempt Fund that create alternative minimum tax preferences for
corporate shareholders (as described above) may subject corporate shareholders
of the Tax-Exempt Fund to the Environmental Tax.
General Taxation
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with a Fund or who, to such Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Ordinary income dividends paid by a Fund to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year-end, plus certain undistributed
amounts from previous years. The required distributions, however, are based
only on the taxable income of a RIC. The excise tax, therefore, will generally
not apply to the Tax-Exempt Fund to the extent that it pays exempt-interest
dividends. Although the Funds intend to distribute their income and capital
gains in the manner necessary to avoid imposition of the 4% excise tax, there
can be no assurance that sufficient amounts of the Funds' taxable ordinary
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, any such Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
A loss realized on a sale or exchange of shares of any of the Funds will be
disallowed if shares of the Fund are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income dividends and capital gain dividends may also be subject to
state and local taxes.
21
<PAGE>
Certain states exempt from state income taxation dividends paid by RICs which
are derived in whole or in part from interest on U.S. Government obligations.
State law varies as to whether and what percentage of dividend income
attributable to U.S. Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Funds.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of each Fund permits the Trustees to issue an
unlimited number of full and fractional shares of a single class and to divide
or combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in the Fund. Each share
represents an equal proportionate interest in the Fund with each other share.
Upon liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders. Shares
have no preemptive or conversion rights. The rights of redemption and exchange
are described elsewhere herein and in the Prospectuses of the Funds. Shares of
each Fund are fully paid and non-assessable by the Fund.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held in the election of Trustees and on other
matters submitted to the vote of shareholders. Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting in the
election of Trustees can, if they choose to do so, elect all of the Trustees of
a Fund, in which event the holders of the remaining shares are unable to elect
any person as a Trustee. No amendment may be made to any Declaration of Trust
without the affirmative vote of a majority of the outstanding shares of the
related Fund.
The Investment Adviser provided the initial capital for each Fund by
purchasing 100,000 shares of such Fund for $100,000. Such shares were acquired
for investment and can only be disposed of by redemption. The organizational
expenses of the Money Market Fund, the Government Fund and the Tax-Exempt Fund
were paid by each respective Fund and were amortized over a period not
exceeding five years from such Fund's commencement of operations. The
organizational expenses of the Treasury Fund ($64,239) were paid by the
Treasury Fund and are being amortized over a period not exceeding five years.
The proceeds realized by the Investment Adviser on the redemption of any of the
shares initially purchased by it will be or have been reduced by the
proportionate amount of unamortized organizational expenses which the number of
shares redeemed bears or bore to the number of shares initially purchased.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts
02101 (the "Custodian"), acts as Custodian of the Funds' assets. The Custodian
is responsible for safeguarding and controlling the Funds' cash and securities,
handling the receipt and delivery of securities and collecting interest on the
Funds' investments.
22
<PAGE>
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484 (the "Transfer Agent"), acts as the Funds' transfer agent.
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
INDEPENDENT AUDITORS
Deloitte & Touche, 117 Campus Drive, Princeton, New Jersey 08540, has been
selected as the independent auditors of each Fund. The selection of independent
auditors is subject to ratification by the shareholders of the Funds. The
independent auditors are responsible for auditing the annual financial
statements of the Funds.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Funds.
REPORT TO SHAREHOLDERS
The fiscal year of each Fund ends on the last day of March of each year. Each
Fund will send to its shareholders at least semi-annually reports showing its
portfolio and other information. An annual report containing financial
statements audited by independent auditors is sent to the shareholders each
year. After the end of each year, shareholders will receive Federal income tax
information regarding ordinary income dividends and capital gain dividends.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statements and the
exhibits relating thereto, which each Fund has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act, to which reference is hereby made.
The Declarations of Trust establishing the Funds refer to the Trustees under
the Declarations of Trust collectively as Trustees, but not as individuals or
personally; and except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, no Trustee, shareholder,
officer, employee or agent of any of the Funds shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim of any Fund but the "Trust Property"
(as defined in the Declarations of Trust) only shall be liable. Copies of the
Declarations of Trust, together with all amendments thereto, are on file in the
office of the Commonwealth of Massachusetts.
23
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APPENDIX
DESCRIPTION OF COMMERCIAL PAPER, BANK MONEY INSTRUMENTS AND CORPORATE BOND
RATINGS
COMMERCIAL PAPER AND BANK MONEY INSTRUMENTS
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's Corporation ("Standard & Poor's"). Issues within this
category are further redefined with designations 1, 2 and 3 to indicate the
relative degree of safety; A-1+, the highest, indicates that an issue has been
determined to possess extremely strong safety characteristics; A-1 indicates
the degree of safety is strong; A-2 indicates that capacity for timely
repayment is satisfactory.
Moody's Investors Service, Inc. ("Moody's") employs the designations of
Prime-1, Prime-2 and Prime-3 to indicate the relative capacity of the rated
issuers to repay punctually. Prime-1 issues have a superior capacity for
repayment. Prime-2 issues have a strong capacity for repayment, but to a lesser
degree than Prime-1.
Commercial paper rated A.1+ by IBCA Limited or its affiliate IBCA, Inc.
(together, "IBCA") are obligations supported by the highest capacity for timely
repayment. Commercial paper rated A.1 has a very strong capacity for timely
repayment. Commercial paper rated A.2 has a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Fitch Investors Service, Inc. ("Fitch") employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
Duff & Phelps, Inc. ("Duff & Phelps") employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term liquidity is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations. Duff 1- indicates high certainty of timely payment. Duff 2
indicates good certainty of timely payment: liquidity factors and company
fundamentals are sound.
CORPORATE BONDS
Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
Bonds rated Aaa by Moody's are judged to be of the best quality. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because the margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in each generic rating classification from Aa
through B in its corporate bond rating system. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category;
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<PAGE>
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Bonds rated AAA by IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated AAA by Duff & Phelps are deemed to be of the highest credit
quality: the risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. AA indicates high credit quality: protection
factors are strong, and risk is modest but may vary slightly from time to time
because of economic conditions.
INFORMATION CONCERNING TAX-EXEMPT SECURITIES
DESCRIPTION OF TAX-EXEMPT SECURITIES
Tax-Exempt Securities include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining of funds for
general operating expenses and loans to other public institutions and
facilities. In addition certain types of industrial development bonds are
issued by or on behalf of public authorities to finance various facilities
operated for private profit, including pollution control facilities. Such
obligations are included within the term Tax-Exempt Securities if the interest
paid thereon is exempt from Federal income tax.
The two principal classifications of Tax-Exempt Securities are "general
obligation" bonds and "revenue" or "special obligation" bonds. General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the repayment of principal and the payment of interest.
Revenue or special obligation bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as from
the user of the facility being financed. Industrial development bonds are in
most cases revenue bonds and do not generally constitute the pledge of the
credit or taxing power of the issuer of such bonds. The repayment of the
principal and the payment of interest on such industrial revenue bonds depends
solely on the ability of the user of the facilities financed by the bonds to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment. The portfolio may generally
include "moral obligation" bonds which are normally issued by special purpose
public authorities. If an issuer of moral obligations bonds is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
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<PAGE>
Yields on Tax-Exempt Securities are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The ability of the Tax-Exempt Fund to achieve its
investment objective is also dependent on the continuing ability of the issuers
of the Tax-Exempt Securities in which the Tax-Exempt Fund invests to meet their
obligations for the payment of interest and repayment of principal when due.
There are variations in the risks involved in holding Tax-Exempt Securities,
both within a particular classification and between classifications, depending
on numerous factors. Furthermore, the rights of holders of Tax-Exempt
Securities and the obligations of the issuers of such Tax-Exempt Securities may
be subject to applicable bankruptcy, insolvency and similar laws and court
decisions affecting the rights of creditors generally, and such laws, if any,
which may be enacted by Congress or state legislatures affecting specifically
the rights of holders of Tax-Exempt Securities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Tax-Exempt Securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the ability of the Tax-Exempt Fund to
pay "exempt-interest dividends" would be adversely affected and the Tax-Exempt
Fund would re-evaluate its investment objective and policies and consider
changes in its structure. See "Taxes".
RATINGS OF MUNICIPAL NOTES AND SHORT-TERM TAX-EXEMPT COMMERCIAL PAPER
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's. Issues within this category are further redefined with
designations 1, 2 and 3 to indicate the relative degree of safety; A-1
indicates the degree of safety is strong; issues that possess extremely strong
safety characteristics will be given an A-1+ designation; A-2 indicates that
capacity for timely repayment is satisfactory. A Standard & Poor's rating with
respect to certain municipal note issues with a maturity of less than three
years reflects the liquidity concerns and market access risks unique to notes.
SP-1, the highest note rating, indicates a very strong, or strong, capacity to
repay principal and pay interest. Issues that possess overwhelming safety
characteristics will be given an "SP-1+" designation. SP-2, the second highest
note rating, indicates a satisfactory capacity to repay principal and pay
interest.
Moody's employs the designations of Prime-1, Prime-2 and Prime-3 with respect
to commercial paper to indicate the relative capacity of the rated issuers (or
related supporting institutions) to repay punctually. Prime-1 issues have a
superior capacity for repayment. Prime-2 issues have a strong capacity for
repayment, but to a lesser degree than Prime-1. Moody's highest rating for
short-term notes and VRDOs is MIG-1/VMIG-1; MIG-1/VMIG-1 denotes "best
quality", enjoying "strong protection by established cash flows"; MIG-2/VMIG-2
denotes "high quality" with margins of protection that are ample although not
so large as MIG-1/VMIG-1.
Fitch employs the rating F-1+ to indicate short-term debt issues regarded as
having the strongest degree of assurance for timely payment. The rating F-1
reflects an assurance of timely payment only slightly less in degree than
issues rated F-1+. The rating F-2 indicates a satisfactory degree of assurance
for timely payment, although the margin of safety is not as great as indicated
by the F-1+ and F-1 categories.
RATINGS OF MUNICIPAL BONDS
Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. A
Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with
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<PAGE>
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors and insurers of lessees.
Bonds rated Aaa by Moody's are judged to be of the best quality. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because the margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies the
numerical modifer 1 to the classifications Aa through B to indicate that
Moody's believes the issue possesses the strongest investment attributes in its
rating category. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA. The
ratings take into consideration special features of the issue, its relationship
to other obligations of the issuer, the current and prospective financial
condition and operative performance of the issuer and of any guarantor, as well
as the economic and political environment that might affect the issuer's future
financial strength and credit quality. Bonds that have the same rating are of
similar but not necessarily identical credit quality since the rating
categories do not fully reflect small differences in the degrees of credit
risk.
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<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Money Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of CMA Money Fund as of March 31, 1994, 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, 1994 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 Money Fund as
of March 31, 1994, 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
Princeton, New Jersey
April 29, 1994
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<PAGE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Bank Notes--1.8%
Banc One, Texas $125,000 3.50 % 1/26/95 $123,888
Bank (Delaware), 38,000 3.40 10/14/94 37,802
Wilmington
Nations Bank 10,000 3.65 6/07/94 9,996
North Carolina 95,000 3.375 9/30/94 94,573
PNC Bank, Kentucky 52,000 3.40 10/14/94 51,730
PNC Bank, N.A. 64,000 3.20 4/28/94 63,973
78,250 3.80 4/29/94 78,268
Trust Co. Bank 37,800 3.375 9/30/94 37,630
Total Bank Notes
(Cost--$499,886) 497,860
Bankers' Acceptances--Yankee--0.1%
Generale Bank, NY 5,000 3.23 4/07/94 4,997
Mitsubishi Bank, NY 20,600 3.20 4/18/94 20,565
Total Bankers' Acceptances--Yankee
(Cost--$25,564) 25,562
Certificates of Deposit--0.2%
American Express 20,000 3.50 4/06/94 20,000
Centurion Bank 30,000 3.58 4/08/94 30,000
Total Certificates of Deposit
(Cost--$50,000) 50,000
Certificates of Deposit--European--2.6%
Abbey National PLC, 100,000 3.27 4/07/94 100,001
London 100,000 3.42 4/15/94 99,999
Banco Bilboa Vizcaya, 25,000 3.27 4/07/94 25,000
London
Barclays Bank, London 21,000 3.17 4/11/94 20,999
Dresdner Bank, London 35,000 3.22 4/11/94 34,999
Harris Trust & Savings 100,000 3.23 4/05/94 100,000
Bank, London
Kredietbank N.V., London 20,000 3.25 4/11/94 19,999
Mitsubishi Bank, London 20,000 3.17 4/07/94 19,999
Morgan Guaranty Trust, 200,000 3.63 4/28/94 200,003
London
Sanwa Bank, London 60,000 3.18 4/13/94 59,996
15,000 3.18 4/19/94 14,999
Sumitomo Bank, London 20,000 3.32 4/11/94 20,000
Total Certificates of Deposit--European
(Cost--$716,005) 715,994
Certificates of Deposit--Yankee--3.5%
Banque Nationale de 20,000 3.34 4/27/94 19,998
Paris, NY 25,000 3.39 5/03/94 24,995
Barclays Bank, NY 79,000 3.20 5/03/94 78,974
Canadian Imperial 45,000 3.61 4/25/94 44,999
Bank of Commerce, NY
Dai-Ichi Kangyo 15,000 3.18 4/25/94 14,998
Bank, NY 10,000 3.63 4/28/94 10,000
13,000 3.84 6/14/94 12,997
50,000 3.90 6/24/94 49,995
100,000 3.89 7/05/94 99,957
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Certificates of Deposit--Yankee (concluded)
Deutsche Bank, NY $50,000 3.21% 4/07/94 $ 50,000
83,000 3.22 4/07/94 83,000
Mitsubishi Bank, NY 100,000 3.17 4/18/94 99,991
Sanwa Bank, NY 40,000 3.70 4/25/94 40,001
20,000 3.89 6/21/94 19,998
Societe Generale, NY 25,000 3.25 4/07/94 25,000
Sumitomo Bank, NY 15,000 3.56 4/04/94 15,000
100,000 3.57 4/05/94 100,000
65,000 3.19 4/21/94 64,994
Westdeutsche Landesbank 33,000 3.16 5/13/94 32,984
Girozentrale, NY 50,000 3.17 5/20/94 49,973
Total Certificates of Deposit--Yankee
(Cost--$938,004) 937,854
Commercial Paper--52.3%
ABN-AMRO North 76,000 3.10 4/12/94 75,915
America Finance Inc. 50,000 3.17 5/27/94 49,707
A.I. Credit Corp. 9,000 3.10 4/20/94 8,983
AIG Funding, Inc. 8,500 3.53 4/08/94 8,493
ANZ (Delaware), Inc. 33,500 3.10 4/27/94 33,417
26,500 3.15 5/13/94 26,384
20,000 4.00 8/29/94 19,672
APRECO, Inc. 18,500 3.11 4/11/94 18,481
19,200 3.13 4/18/94 19,168
Abbey National North 40,000 3.22 4/07/94 39,974
America Corp. 85,000 3.13 5/02/94 84,730
175,000 3.13 5/03/94 174,414
Alcatel Alsthom Inc. 15,000 3.52 4/11/94 14,984
Alpha Finance Corp. 5,000 3.60 4/15/94 4,993
American Express 200,000 3.45 4/04/94 199,923
Credit Corp. 200,000 3.21 4/06/94 199,888
35,000 3.17 4/07/94 34,977
58,000 3.12 4/18/94 57,903
Asset Securitization 50,000 3.58 4/11/94 49,945
Cooperative Corp. 10,000 3.65 4/19/94 9,981
Associates Corp. of 125,000 3.375 4/14/94 124,837
North America 50,000 3.61 4/25/94 49,875
Avco Financial Services, 40,000 3.48 4/08/94 39,969
Inc. 14,000 3.48 4/12/94 13,984
16,000 3.65 4/25/94 15,959
50,000 3.80 6/28/94 49,524
BASF Corp. 10,000 3.80 6/27/94 9,906
B.A.T. Capital Corp. 38,400 3.15 4/05/94 38,383
10,000 3.55 4/06/94 9,994
15,000 3.53 4/12/94 14,982
B.B.V. Finance 50,000 3.22 4/04/94 49,983
(Delaware), Inc.
BNP U.S. Finance Corp. 130,000 3.15 4/15/94 129,819
70,000 4.05 9/29/94 68,549
BTR Dunlop Finance 12,645 3.55 4/14/94 12,628
Inc. 43,418 3.80 6/21/94 43,037
18,000 3.80 6/23/94 17,838
29
<PAGE>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Banc One Diversified $30,000 3.52% 4/11/94 $29,968
Services 35,000 3.52 4/12/94 34,959
Bankers Trust NY Corp. 60,000 3.44 4/11/94 59,937
100,000 3.10 4/26/94 99,758
40,000 3.17 5/03/94 39,866
Barclays U.S. Funding 100,000 3.12 4/18/94 99,833
Corp. 100,000 3.10 4/26/94 99,758
Bass Finance (C.I.) Ltd. 10,580 3.12 4/18/94 10,562
19,455 3.12 4/19/94 19,421
17,000 3.10 4/28/94 16,956
18,000 3.15 4/28/94 17,953
9,000 3.80 6/17/94 8,925
34,655 3.80 6/28/94 34,325
Bayerische Vereinsbank 27,000 3.10 4/27/94 26,932
AG
Bear Stearns Cos., Inc. 40,000 3.60 4/11/94 39,956
25,000 3.55 4/13/94 24,968
25,000 3.13 4/20/94 24,953
25,000 3.14 4/20/94 24,953
Beneficial Corp. 41,200 3.11 4/11/94 41,158
18,000 3.11 4/12/94 17,980
125,000 3.12 4/18/94 124,791
65,000 3.12 4/20/94 64,879
Beta Finance Inc. 11,500 3.11 4/13/94 11,486
Bowater PLC 19,000 3.55 4/04/94 18,993
10,000 3.60 4/05/94 9,995
10,000 3.15 4/07/94 9,993
7,500 3.60 4/08/94 7,494
20,000 3.10 4/13/94 19,976
Budget Funding Corp. 54,500 3.10 4/26/94 54,368
CIT Group Holdings, 50,000 3.18 4/04/94 49,982
Inc. (The) 50,000 3.18 4/08/94 49,963
50,000 3.53 4/08/94 49,961
50,000 3.12 4/21/94 49,902
50,000 3.12 4/25/94 49,884
125,000 3.57 4/28/94 124,653
50,000 3.80 6/21/94 49,562
75,000 3.80 6/27/94 74,294
CS First Boston Inc. 50,000 3.15 4/11/94 49,949
60,000 3.60 4/13/94 59,922
15,000 3.10 4/28/94 14,961
5,000 3.80 6/20/94 4,957
CSW Credit, Inc. 12,500 3.44 4/05/94 12,494
35,000 3.55 4/18/94 34,938
27,500 3.55 4/20/94 27,446
CXC Inc. 25,000 3.53 4/07/94 24,983
5,000 3.13 4/08/94 4,996
18,000 3.53 4/14/94 17,975
17,000 3.58 4/20/94 16,966
9,600 3.13 5/02/94 9,570
Caisse des Depots et 25,000 3.53 4/15/94 24,963
Consignations
Canadian Wheat Board 30,000 3.20 4/22/94 29,939
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED)
(IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Central & South $20,200 3.45% 4/04/94 $20,192
West Corp. 25,000 3.43 4/07/94 24,983
7,000 3.55 4/19/94 6,987
20,000 3.60 4/21/94 19,958
Central Hispano N.A. 10,000 3.25 4/06/94 9,994
Capital Corp. 20,000 3.16 4/08/94 19,985
25,000 3.11 4/14/94 24,967
25,000 3.11 4/28/94 24,935
Cheltenham & Glouster 25,000 3.20 4/11/94 24,974
Building Society 50,000 3.17 5/03/94 49,833
Ciba-Geigy Corp. 9,000 3.54 4/11/94 8,990
Ciesco L.P. 43,900 3.45 4/04/94 43,883
15,000 3.48 4/04/94 14,994
50,000 3.41 4/06/94 49,972
20,000 3.10 4/07/94 19,987
10,000 3.13 4/11/94 9,990
30,000 3.55 4/18/94 29,947
9,500 3.53 4/19/94 9,482
14,000 3.12 4/22/94 13,971
40,200 3.13 5/02/94 40,072
Coles Meyer Finance 20,000 3.55 4/29/94 19,943
(USA) Ltd.
Commercial Credit Corp. 25,000 3.48 4/04/94 24,990
50,000 3.50 4/06/94 49,971
25,000 3.55 4/08/94 24,980
50,000 3.58 4/12/94 49,940
25,000 3.53 4/13/94 24,968
25,000 3.58 4/14/94 24,965
Commerzbank U.S. 50,000 3.20 4/04/94 49,983
Finance Inc. 88,000 3.10 4/28/94 87,771
5,000 4.05 9/30/94 4,896
Commonwealth Bank of 75,000 3.20 4/05/94 74,967
Australia
Corporate Asset 25,000 3.12 4/11/94 24,974
Funding Co. Inc. 25,000 3.10 5/02/94 24,921
25,000 3.10 5/03/94 24,916
Corporate Asset 20,000 3.60 4/04/94 19,992
Securitization Australia 15,000 3.47 4/06/94 14,991
Ltd, Inc. 15,000 3.60 4/11/94 14,984
25,000 3.65 4/18/94 24,954
Corporate Receivables 16,900 3.55 4/11/94 16,882
Corp. 17,100 3.57 4/11/94 17,081
48,050 3.11 4/14/94 47,988
15,000 3.12 4/14/94 14,980
15,000 3.12 4/18/94 14,975
21,300 3.53 4/18/94 21,262
15,000 3.12 4/20/94 14,972
27,000 3.53 4/20/94 26,947
8,000 3.10 4/22/94 7,984
16,000 3.63 5/03/94 15,947
Creditanstalt Finance, Inc. 35,000 3.21 4/04/94 34,988
Delaware Funding Corp. 16,035 3.54 4/11/94 16,018
20,080 3.55 4/15/94 20,050
32,445 3.80 6/20/94 32,164
30
<PAGE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED)
(IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Deutsche Bank $72,000 3.13% 4/05/94 $71,969
Financial Inc.
Dresdner U.S. Finance 25,000 3.10 4/15/94 24,965
Inc. 100,000 4.05 10/04/94 97,890
Dun & Bradstreet Corp., 6,100 3.53 4/05/94 6,097
The
ESC Securitization Inc. 25,000 3.53 4/11/94 24,973
40,000 3.12 4/19/94 39,929
Eiger Capital Corp. 24,000 3.53 4/18/94 23,958
25,026 3.53 4/19/94 24,979
Falcon Asset 54,000 3.48 4/06/94 53,969
Securitization Corp. 31,500 3.60 4/07/94 31,478
29,000 3.57 4/11/94 28,968
22,000 3.55 4/12/94 21,974
31,000 3.57 4/15/94 30,954
7,500 3.60 4/20/94 7,485
Ford Motor Credit Co. 100,000 3.48 4/05/94 99,952
25,000 3.50 4/07/94 24,983
200,000 3.45 4/08/94 199,847
100,000 3.25 4/11/94 99,898
100,000 3.45 4/12/94 99,885
175,000 3.52 4/12/94 174,795
79,500 3.55 4/14/94 79,390
47,000 3.11 4/18/94 46,921
75,000 3.17 4/18/94 74,874
75,000 3.10 4/28/94 74,805
11,050 3.25 4/28/94 11,021
50,000 3.10 4/29/94 49,865
Gaz de France 30,000 3.80 6/28/94 29,714
General Electric 100,000 3.22 4/04/94 99,965
Capital Corp. 50,000 3.42 4/04/94 49,981
50,000 3.22 4/05/94 49,978
100,000 3.42 4/05/94 99,953
100,000 3.22 4/08/94 99,926
40,000 3.53 4/08/94 39,969
50,000 3.18 4/12/94 49,944
100,000 3.18 4/13/94 99,879
50,000 3.12 4/18/94 49,916
50,000 3.12 4/19/94 49,912
100,000 3.55 4/27/94 99,734
50,000 3.20 5/02/94 49,841
50,000 3.82 6/21/94 49,562
100,000 3.97 8/18/94 98,437
100,000 3.97 8/19/94 98,426
General Electric 10,000 3.12 4/06/94 9,994
Capital Services 25,000 3.22 4/07/94 24,984
50,000 3.53 4/08/94 49,961
50,000 3.18 4/12/94 49,944
40,000 3.53 4/12/94 39,953
25,000 3.82 6/21/94 24,781
Generale Bank, Inc. 25,000 3.20 4/05/94 24,989
25,000 3.25 5/04/94 24,914
20,000 3.80 6/28/94 19,810
Goldman Sachs 300,000 3.60 4/06/94 299,820
Group, L.P. 350,000 3.60 4/07/94 349,755
150,000 3.60 4/08/94 149,880
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Halifax Building Society $25,000 3.20% 4/06/94 $24,986
19,000 3.10 4/26/94 18,954
58,000 3.55 4/29/94 57,834
Hanson Finance 66,000 3.20 4/06/94 65,963
(U.K.) PLC 30,000 3.11 4/12/94 29,967
60,000 3.11 4/13/94 59,927
68,000 3.11 4/14/94 67,911
30,000 3.11 4/15/94 29,958
20,000 3.13 4/25/94 19,953
70,000 3.13 4/29/94 69,811
56,000 3.13 5/02/94 55,822
Hertz Funding Corp. 10,000 3.82 6/06/94 9,928
4,700 3.80 6/13/94 4,663
7,000 3.80 6/22/94 6,938
Hewlett-Packard Co. 30,000 3.50 4/07/94 29,980
12,000 4.00 8/29/94 11,798
Household Finance 40,000 3.57 4/05/94 39,980
Corp. 15,000 3.12 4/13/94 14,982
50,000 3.54 4/18/94 49,912
25,000 3.79 6/27/94 24,765
Hypo U.S. Finance Inc. 15,000 3.17 5/05/94 14,947
International Lease 20,000 3.55 4/12/94 19,976
Finance Corp. 20,000 3.10 4/13/94 19,976
13,000 3.65 4/18/94 12,976
25,000 3.10 4/25/94 24,942
6,252 3.65 4/26/94 6,236
15,000 3.55 4/29/94 14,957
Internationale Nederlan- 100,000 3.20 4/04/94 99,965
den (U.S.) Funding Corp. 38,000 3.80 6/23/94 37,659
Kimberly-Clark Corp. 6,000 3.53 4/11/94 5,994
Kingdom of Sweden 30,000 3.45 4/12/94 29,966
Kredietbank North 40,000 3.11 4/15/94 39,944
America Finance Corp.
Leeds Permanent 17,700 3.29 7/18/94 17,491
Building Society 25,000 3.29 7/20/94 24,699
Lincoln National Corp. 25,000 3.53 4/11/94 24,973
31,000 3.55 4/15/94 30,954
MCA Funding Corp. 39,000 3.53 4/08/94 38,969
15,000 3.53 4/11/94 14,984
50,000 4.05 9/16/94 49,038
40,000 4.05 9/19/94 39,216
Matterhorn Capital Corp. 10,029 3.56 4/06/94 10,023
7,000 3.55 4/07/94 6,995
85,979 3.53 4/11/94 85,886
McKenna Triangle 25,000 3.20 4/07/94 24,984
National Corp. 43,000 3.63 4/18/94 42,922
50,000 3.12 4/20/94 49,907
40,000 3.53 4/20/94 39,922
25,000 3.17 4/22/94 24,949
17,000 3.60 5/03/94 16,944
Merck & Co., Inc. 10,000 3.32 4/25/94 9,977
Morgan Stanley 100,000 3.43 4/04/94 99,962
Group, Inc. 100,000 3.53 4/11/94 99,892
100,000 3.85 6/21/94 99,123
32,000 3.80 6/23/94 31,713
31
<PAGE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED)
(IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Motorola Credit Corp. $ 10,179 3.54% 4/07/94 $ 10,172
19,800 3.54 4/08/94 19,784
National Australia 100,000 3.47 4/06/94 99,942
Funding (Delaware) Inc. 150,000 3.60 5/06/94 149,460
National Rural Utilities 54,150 3.10 4/12/94 54,090
Cooperative Finance 20,000 3.11 4/14/94 19,974
Corp.
NationsBank Corp. 10,000 3.35 4/05/94 9,996
New Center Asset Trust 40,000 3.21 4/04/94 39,986
36,000 3.49 4/06/94 35,979
146,000 3.57 4/12/94 145,826
10,000 3.57 4/18/94 9,982
53,000 3.14 4/19/94 52,906
30,000 3.13 4/20/94 29,944
35,000 3.81 6/22/94 34,689
New South Wales 45,000 3.11 4/18/94 44,925
Treasury Corp. 50,000 3.15 5/03/94 49,833
40,000 3.13 5/11/94 39,833
65,000 4.05 9/28/94 63,660
Nomura Holding 5,000 3.12 4/06/94 4,997
America, Inc. 10,000 3.12 4/07/94 9,993
45,000 3.58 4/07/94 44,969
25,000 3.22 4/12/94 24,972
5,000 3.12 4/18/94 4,992
25,000 3.22 4/18/94 24,958
20,000 3.57 4/25/94 19,950
25,000 3.82 6/06/94 24,821
25,000 3.82 6/07/94 24,818
15,000 3.80 6/08/94 14,889
Norwest Financial, Inc. 44,000 3.45 4/04/94 43,983
Oesterreichische 62,425 3.18 4/29/94 62,257
Kontrollbank
Aktiengesellschaft
PHH Corp. 30,000 3.50 4/07/94 29,980
24,100 3.54 4/11/94 24,074
30,350 3.55 4/11/94 30,317
15,707 3.55 4/15/94 15,684
49,000 3.55 4/18/94 48,913
Panasonic Finance, Inc. 30,000 3.53 4/12/94 29,965
25,000 3.13 4/29/94 24,933
20,000 3.80 6/30/94 19,805
Paribas Finance, Inc. 50,000 3.55 4/04/94 49,980
50,000 3.21 4/08/94 49,963
PepsiCo, Inc. 15,000 3.53 4/05/94 14,993
20,100 3.53 4/08/94 20,084
43,000 3.10 4/25/94 42,900
23,000 3.10 4/27/94 22,942
Preferred Receivables 103,075 3.62 4/06/94 103,013
Funding Corp. 14,000 3.55 4/11/94 13,985
12,875 3.58 4/11/94 12,861
63,250 3.55 4/13/94 63,169
50,000 3.55 4/20/94 49,901
31,975 3.10 4/25/94 31,901
73,650 3.60 4/29/94 73,436
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Procter & Gamble Co., $13,500 3.18% 4/28/94 $13,465
The
Prudential Funding 50,000 4.05 9/27/94 48,975
Corp.
Queensland Treasury 50,000 3.56 4/26/94 49,871
Corp.
RTZ America Inc. 6,000 3.55 4/11/94 5,993
10,800 3.57 4/11/94 10,788
14,500 3.55 4/14/94 14,480
Rabobank USA 11,000 3.35 4/14/94 10,986
Financial Corp.
Raytheon Co. 50,000 3.55 4/25/94 49,877
25,000 3.55 4/28/94 24,931
Sanwa Business 7,900 3.50 4/04/94 7,897
Credit Corp. 7,000 3.55 4/14/94 6,990
5,923 3.12 4/15/94 5,915
Sheffield Receivables 38,000 3.57 4/11/94 37,959
Corp. 50,000 3.53 4/18/94 49,912
12,000 3.55 4/18/94 11,979
Sony Capital Corp. 25,000 3.12 4/11/94 24,974
10,000 3.10 4/29/94 9,973
South Australia 24,750 3.42 4/05/94 24,738
Government Financing 25,250 3.11 4/21/94 25,201
Authority
Southwestern Bell 15,000 3.55 4/14/94 14,979
Capital Corp. 24,000 3.55 4/22/94 23,948
6,900 3.55 4/27/94 6,882
Student Loan Corp. 22,000 3.54 4/04/94 21,991
21,000 3.10 4/27/94 20,947
Svenska Handelsbanken, 23,000 3.45 4/04/94 22,991
Inc. 10,000 3.22 4/05/94 9,996
50,000 3.12 4/08/94 49,963
9,800 3.12 4/26/94 9,776
7,000 3.25 5/09/94 6,972
Swedish Export 7,000 3.21 4/25/94 6,984
Credit Corp. 40,000 3.15 5/02/94 39,872
Toronto-Dominion 48,000 3.21 4/06/94 47,973
Holdings (USA), Inc. 152,000 3.21 4/07/94 151,901
Toshiba America, Inc. 20,000 3.22 4/05/94 19,991
5,000 3.55 4/11/94 4,995
Toshiba International 22,650 3.50 4/12/94 22,624
Finance (UK) PLC
Transamerica Finance 7,036 3.53 4/06/94 7,032
Corp. 30,500 3.22 4/08/94 30,477
31,371 3.54 4/08/94 31,346
60,000 3.65 4/21/94 59,872
6,750 3.62 5/10/94 6,723
60,000 3.80 6/21/94 59,474
USL Capital Corp. 45,000 3.55 4/18/94 44,920
United States Borax 20,000 3.48 4/04/94 19,992
Inc. 10,550 3.55 4/13/94 10,535
19,400 3.80 6/20/94 19,232
32
<PAGE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED)
(IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (concluded)
WCP Funding Inc. $15,000 3.53% 4/12/94 $14,981
10,000 3.55 4/14/94 9,986
50,000 3.53 4/19/94 49,907
WMX Technologies 17,200 3.45 4/06/94 17,190
Inc.
Western Australia 22,000 3.37 4/19/94 21,961
Treasury Corp. 18,000 3.27 7/18/94 17,787
10,000 4.00 8/31/94 9,829
Wool International 25,000 3.48 4/07/94 24,982
30,000 3.53 4/15/94 29,956
15,000 3.10 4/28/94 14,961
20,000 3.13 5/20/94 19,898
Total Commercial Paper
(Cost--$14,150,129) 14,148,943
Corporate Notes--0.1%
Bear Stearns Cos., 15,000 3.70 9/29/94 14,945
Inc. (The)
Total Corporate Notes
(Cost--$15,000) 14,945
Master Notes++--5.4%
Bear Stearns Cos., 174,000 3.70 5/23/94 174,000
Inc. (The)
Goldman Sachs 300,000 3.69 9/01/94 300,000
Group, L.P.
Kingdom of Sweden 1,000,000 3.5625 7/15/94 1,000,000
Total Master Notes
(Cost--$1,474,000) 1,474,000
Medium-Term Notes--0.2%
Bear Stearns Cos., 46,000 3.6875 8/12/94 46,015
Inc. (The)
General Electric Capital 10,000 9.50 5/23/94 10,077
Corp.
Total Medium-Term Notes
(Cost--$56,111) 56,092
US Government & Agency Obligations--
Discount Notes--11.4%
Federal Farm Credit Bank 5,000 3.06 4/05/94 4,998
12,000 3.07 4/05/94 11,995
20,000 3.14 4/06/94 19,989
5,360 3.07 4/11/94 5,355
26,955 3.09 4/14/94 26,921
10,000 3.32 4/14/94 9,987
33,000 3.18 7/25/94 32,596
5,000 3.26 10/14/94 4,889
Federal Home Loan Bank 50,000 3.06 4/08/94 49,964
50,000 3.385 9/30/94 48,994
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government & Agency Obligations--
Discount Notes (concluded)
Federal Home Loan $ 91,825 3.35% 4/04/94 $ 91,791
Mortgage Corp. 182,237 3.36 4/04/94 182,168
15,108 3.06 4/05/94 15,101
54,400 3.09 4/05/94 54,377
100,000 3.13 4/05/94 99,957
100,000 3.15 4/05/94 99,956
16,500 3.35 4/05/94 16,492
29,283 3.36 4/05/94 29,269
12,330 3.06 4/06/94 12,323
26,415 3.07 4/06/94 26,401
44,045 3.09 4/06/94 44,021
85,000 3.36 4/08/94 84,937
114,000 3.06 4/11/94 113,887
50,000 3.065 4/11/94 49,950
89,000 3.07 4/11/94 88,911
36,245 3.13 4/11/94 36,209
50,725 3.43 4/11/94 50,672
10,000 3.43 4/15/94 9,986
188,500 3.32 4/18/94 188,194
47,710 3.34 4/25/94 47,602
75,000 3.32 4/29/94 74,801
Federal National 8,000 3.07 4/04/94 7,997
Mortgage Association 150,000 3.13 4/05/94 149,935
9,355 3.72 7/08/94 9,257
30,000 3.19 7/26/94 29,630
75,000 3.38 8/15/94 73,887
29,200 3.37 8/16/94 28,763
14,785 3.37 8/19/94 14,559
181,470 3.26 8/25/94 178,580
100,000 3.29 8/25/94 98,408
35,000 3.35 8/25/94 34,443
82,435 3.85 8/25/94 81,122
100,000 3.21 8/26/94 98,397
50,000 3.26 8/30/94 49,177
50,000 3.38 8/31/94 49,171
43,900 3.93 9/08/94 43,123
6,550 3.96 9/20/94 6,425
25,000 3.31 9/23/94 24,516
13,000 3.31 9/26/94 12,744
125,000 3.96 9/27/94 122,525
100,000 3.96 9/29/94 97,998
17,000 3.47 10/07/94 16,637
5,060 3.49 10/11/94 4,950
15,700 3.44 10/12/94 15,356
20,000 3.445 10/12/94 19,561
6,330 3.49 10/12/94 6,191
5,000 3.44 10/13/94 4,889
36,865 3.445 10/13/94 36,052
150,000 3.38 11/25/94 145,817
Total US Government & Agency Obligations--
Discount Notes (Cost--$3,095,982) 3,092,803
33
<PAGE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED)
(IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government & Agency Obligations--
Non-Discount Notes--22.3%
Federal Farm $ 34,000 3.15 % 4/04/94 $ 34,000
Credit Bank++ 50,000 3.16 4/04/94 50,001
70,000 3.03 5/02/94 69,981
25,000 3.20 2/09/95 25,000
Federal Home 168,000 3.43 6/21/95 168,000
Loan Bank++ 277,000 3.83 8/09/95 277,000
280,000 3.43 12/28/95 280,000
274,000 3.46 6/17/96 274,000
109,000 3.46 6/21/96 109,000
Federal Home Loan 546,000 3.7625 1/06/95 545,856
Mortgage Corp.++ 277,000 3.95 8/09/95 277,000
250,000 3.36 9/01/95 249,932
149,000 3.37 9/01/95 148,980
58,400 3.33 5/06/96 58,400
55,000 3.50 5/13/98 55,000
Federal National 218,860 3.31 7/08/94 218,800
Mortgage Association++ 120,000 3.40 12/20/95 120,000
374,000 3.33 5/13/96 374,000
270,000 3.33 5/24/96 270,000
267,700 3.45 5/19/97 267,700
267,000 3.50 5/14/98 267,000
Student Loan 39,700 3.58 5/12/94 39,699
Marketing Association++ 116,000 3.59 7/14/94 116,000
194,300 3.93 7/22/94 194,250
90,000 3.88 9/09/94 89,980
20,000 3.88 12/30/94 19,999
42,000 3.93 8/07/95 42,000
94,000 3.93 3/20/96 93,985
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government & Agency Obligations--
Non-Discount Notes (concluded)
Student Loan $ 50,000 3.76% 5/14/96 $ 50,081
Marketing Association++ 150,000 3.94 1/14/97 150,000
(concluded) 7,095 3.98 1/23/97 7,104
Tennessee Valley 100,000 3.50 1/27/95 99,203
Authority
US Treasury Notes 50,000 4.25 7/31/94 50,055
20,000 4.25 8/31/94 20,022
225,000 6.00 11/15/94 227,495
470,000 4.625 11/30/94 471,176
175,000 3.875 2/28/95 174,016
65,000 3.875 8/31/95 64,128
Total US Government & Agency Obligations--
Non-Discount Notes (Cost--$6,055,472) 6,048,843
Face
Amount Issue
Repurchase Agreements**--0.7%
$179,771 Nikko Securities International, Inc.,
purchased on 3/31/94 to yield 3.60% to
4/04/94 179,771
Total Repurchase Agreements
(Cost--$179,771) 179,771
Total Investments
(Cost--$27,255,924)--100.6% 27,242,667
Liabilities in Excess of Other Assets--(0.6%) (170,785)
-----------
Net Assets--100.0% $27,071,882
===========
[FN]
*Commercial Paper and certain US Government & Agency
Obligations are traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by
the Fund. Other securities bear interest at the rates shown,
payable at fixed dates through maturity. Interest rates on
variable rate securities are adjusted periodically based on
appropriate indexes. The interest rates shown are the rates in
effect at March 31, 1994.
**Repurchase Agreements are fully collateralized by US
Government Obligations.
++Variable Rate Notes.
See Notes to Financial Statements
34
<PAGE>
CMA MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$27,255,924,155*) (Note 1a) $ 27,242,667,495
Cash 1,000,459
Interest receivable 60,966,151
Prepaid registration fees and other assets (Note ld) 151,433
----------------
Total assets 27,304,785,538
----------------
Liabilities:
Payables:
Securities purchased (Note 2) $ 217,612,053
Investment adviser (Note 2) 8,816,007
Distributor (Note 2) 4,748,388 231,176,448
---------------
Accrued expenses and other liabilities 1,727,054
----------------
Total liabilities 232,903,502
----------------
Net Assets $ 27,071,882,036
================
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 2,708,513,869
Paid-in capital in excess of par 24,376,624,827
Unrealized depreciation on investments--net (13,256,660)
----------------
Net Assets--Equivalent to $1.00 per share based on 27,085,138,696 shares of
beneficial interest outstanding $ 27,071,882,036
================
<FN>
*Cost for Federal income tax purposes. As of March 31, 1994, net unrealized depreciation
for Federal income tax purposes amounted to $13,256,660, of which $20,693
related to appreciated securities and $13,277,353 related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
35
<PAGE>
CMA MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 887,385,921
Expenses:
Investment advisory fees (Note 2) $ 101,568,034
Distribution fees (Note 2) 33,387,092
Transfer agent fees (Note 2) 7,473,902
Registration fees (Note ld) 2,185,800
Custodian fees 691,875
Accounting services (Note 2) 627,978
Printing and shareholder reports 527,000
Trustees' fees and expenses 100,097
Professional fees 79,093
Other 162,568
---------------
Total expenses 146,803,439
----------------
Investment income--net 740,582,482
Realized Gain on Investments--Net (Note lc) 7,543,550
Change in Unrealized Depreciation on Investments--Net (21,286,112)
----------------
Net Increase in Net Assets Resulting from Operations $ 726,839,920
================
</TABLE>
CMA MONEY FUND
<TABLE>
<CAPTION>
For the Year Ended March 31,
STATEMENTS OF CHANGES IN NET ASSETS 1994 1993
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 740,582,482 $ 849,468,188
Realized gain on investments--net 7,543,550 41,705,149
Change in unrealized appreciation/depreciation on investments--net (21,286,112) 10,664,647
---------------- ----------------
Net increase in net assets resulting from operations 726,839,920 901,837,984
---------------- ----------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (740,582,482) (849,468,188)
Realized gain on investments (7,543,550) (41,705,149)
---------------- ----------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (748,126,032) (891,173,337)
---------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 106,435,848,948 98,624,273,654
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 746,378,060 889,645,413
---------------- ----------------
107,182,227,008 99,513,919,067
Cost of shares redeemed (107,182,740,698) (101,537,528,468)
---------------- ----------------
Net decrease in net assets derived from beneficial interest transactions (513,690) (2,023,609,401)
---------------- ----------------
Net Assets:
Total decrease in net assets (21,799,802) (2,012,944,754)
Beginning of year 27,093,681,838 29,106,626,592
---------------- ----------------
End of year $ 27,071,882,036 $ 27,093,681,838
================ ================
See Notes to Financial Statements.
</TABLE>
36
<PAGE>
CMA MONEY FUND
<TABLE>
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: 1994 1993 1992 1991 1990
<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 .0276 .0309 .0498 .0734 .0837
Realized and unrealized gain (loss) on
investments--net (.0005) .0019 .0019 .0017 (.0001)
----------- ----------- ----------- ----------- -----------
Total from investment operations .0271 .0328 .0517 .0751 .0836
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.0276) (.0309) (.0498) (.0734) (.0836)
Realized gain on investments--net (.0003) (.0015) (.0020) (.0017)* --
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (.0279) (.0324) (.0518) (.0751) (.0836)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Investment Return 2.82% 3.30% 5.27% 7.81% 8.69%
=========== =========== =========== =========== ===========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .42% .42% .42% .41% .43%
=========== =========== =========== =========== ===========
Expenses .55% .55% .54% .54% .55%
=========== =========== =========== =========== ===========
Investment income and realized gain on
investments--net 2.79% 3.25% 5.18% 7.51% 8.33%
=========== =========== =========== =========== ===========
Supplemental Data:
Net assets, end of year (in thousands) $27,071,882 $27,093,682 $29,106,627 $31,163,167 $29,768,495
=========== =========== =========== =========== ===========
<FN>
*Includes unrealized gain (loss).
See Notes to Financial Statements.
</TABLE>
37
<PAGE>
CMA MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Money Fund (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end investment
management company. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than
sixty days after the valuation date are valued at the most recent
bid price or yield equivalent as obtained from dealers that make
markets in such securities. When securities are valued with sixty
days or less to maturity, the difference between the valuation
existing on the sixty-first day before maturity and maturity
value is amortized on a straight-line basis to maturity.
Investments maturing within sixty days from their date of
acquisition are valued at amortized cost, which approximates
market.
For the purpose of valuation, the maturity of variable rate
certificates of deposit, variable rate commercial paper, short-
term corporate bond notes and variable rate corporate notes is
deemed to be the next coupon date on which the interest rate is
to be adjusted.
(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 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) Dividends 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 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"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million, but not exceeding $1 billion; and 0.375%
of the average daily net assets in excess of $1 billion. The most
restrictive annual expense limitation requires that the Adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next
$70 million of average daily net assets, and 1.5% of the average
daily net assets in excess thereof.
38
<PAGE>
CMA MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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.
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 under the
Distribution Agreement 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.
At March 31, 1994 the Fund owed affiliated brokers $99,997,470
for securities purchased.
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, MLIM, MLPF&S, FDS, and/or ML & Co.
3. 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.
39
<PAGE>
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,
1994, 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, 1994 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, 1994, 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
Princeton, New Jersey
April 29, 1994
40
<PAGE>
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--36.8%
US Treasury $200,000 3.47 % 4/21/94 $ 199,595
Bills 55,000 3.00 5/26/94 54,705
80,000 3.03 5/26/94 79,571
15,000 3.095 6/16/94 14,887
150,000 3.165 8/04/94 148,073
US Treasury 27,750 7.00 4/15/94 27,789
Notes 19,225 9.50 5/15/94 19,362
138,000 5.125 5/31/94 138,302
185,956 5.00 6/30/94 186,537
132,000 4.25 8/31/94 132,144
30,000 4.00 9/30/94 30,000
64,000 4.25 10/31/94 64,050
100,000 6.00 11/15/94 101,109
70,000 4.625 11/30/94 70,175
45,000 5.50 2/15/95 45,380
Total US Government Obligations
(Cost--$1,313,659) 1,311,679
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**--62.9%
$ 165,000 Bankers Trust Securities Inc., purchased
on 3/31/94 to yield 3.55% to 4/04/94 165,000
165,000 Bear Stearns & Co., Inc., purchased on
3/31/94 to yield 3.45% to 4/04/94 165,000
45,000 Carroll McEntee & McGinley, Inc.,
purchased on 3/31/94 to yield 3.55%
to 4/04/94 45,000
165,000 Citicorp Securities Inc., purchased
on 3/31/94 to yield 3.40% to 4/04/94 165,000
150,000 Daiwa Securities America, Inc., purchased
on 3/31/94 to yield 3.55% to 4/04/94 150,000
165,000 Deutsche Bank Securities Corp.,
purchased on 3/31/94 to yield 3.55%
to 4/04/94 165,000
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**(concluded)
$ 125,000 Fuji Securities Inc., purchased on
3/31/94 to yield 3.58% to 4/04/94 $ 125,000
155,000 Kidder Peabody & Co., Inc., purchased
on 3/31/94 to yield 3.45% to 4/04/94 155,000
152,322 Merrill Lynch Government Securities
Inc., purchased on 3/31/94 to yield
3.40% to 4/04/94 152,322
150,000 Morgan Stanley & Co., Inc.,
purchased on 3/31/94 to yield
3.45% to 4/04/94 150,000
160,000 Nikko Securities International, Inc.,
purchased on 3/31/94 to yield
3.55% to 4/04/94 160,000
165,000 Nomura Securities International, Inc.,
purchased on 3/31/94 to yield 3.58%
to 4/04/94 165,000
165,000 PaineWebber Inc., purchased on
3/31/94 to yield 3.55% to 4/04/94 165,000
150,000 Sanwa Securities USA Co. L.P.,
purchased on 3/31/94 to yield 3.50%
to 4/04/94 150,000
165,000 UBS Securities, Inc., purchased on
3/31/94 to yield 3.50% to 4/04/94 165,000
Total Repurchase Agreements
(Cost--$2,242,322) 2,242,322
Total Investments
(Cost--$3,555,980)--99.7% 3,554,001
Other Assets Less Liabilities--0.3% 9,594
----------
Net Assets--100.0% $3,563,595
==========
[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.
41
<PAGE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,555,980,498++) (Notes 1a & 1e) $3,554,000,949
Cash 901
Interest receivable 11,478,326
Prepaid registration fees and other assets (Note 1d) 200,198
--------------
Total assets 3,565,680,374
--------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 1,230,527
Distributor (Note 2) 633,244
Beneficial interest redeemed 2,068 1,865,839
---------------
Accrued expenses and other liabilities 219,119
--------------
Total liabilities 2,084,958
--------------
Net Assets $3,563,595,416
==============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 356,557,495
Paid-in capital in excess of par 3,209,017,470
Unrealized depreciation on investments--net (1,979,549)
--------------
Net Assets--Equivalent to $1.00 per share based on 3,565,574,965 shares of
beneficial interest outstanding $3,563,595,416
==============
<FN>
++Cost for Federal income tax purposes. As of March 31, 1994, net unrealized
depreciation for Federal income tax purposes amounted to $1,979,549, of
which $196,860 related to appreciated securities and $2,176,409 related
to depreciated securities.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 121,014,273
Expenses:
Investment advisory fees (Note 2) $ 14,779,998
Distribution fees (Note 2) 4,610,312
Transfer agent fees (Note 2) 409,908
Registration fees (Note 1d) 357,570
Custodian fees 201,571
Accounting services (Note 2) 123,850
Printing and shareholder reports 55,408
Professional fees 44,098
Trustees' fees and expenses 35,097
Other 34,224
---------------
Total expenses 20,652,036
--------------
Investment income--net 100,362,237
Realized Gain on Investments--Net (Note 1c) 1,638,506
Change in Unrealized Appreciation/Depreciation on Investments--Net (6,268,035)
--------------
Net Increase in Net Assets Resulting from Operations $95,732,708
==============
See Notes to Financial Statements.
</TABLE>
42
<PAGE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 100,362,237 $ 121,609,939
Realized gain on investments--net 1,638,506 10,657,600
Change in unrealized appreciation/depreciation on investments--net (6,268,035) 5,223,345
--------------- ----------------
Net increase in net assets resulting from operations 95,732,708 137,490,884
--------------- ----------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (100,362,237) (121,609,939)
Realized gain on investments--net (1,638,506) (10,657,600)
--------------- ----------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (102,000,743) (132,267,539)
--------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 13,417,186,906 14,178,403,925
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1f) 101,906,587 132,155,015
--------------- ----------------
13,519,093,493 14,310,558,940
Cost of shares redeemed (13,807,246,615) (14,910,012,663)
--------------- ----------------
Net decrease in net assets derived from beneficial interest transactions (288,153,122) (599,453,723)
--------------- ----------------
Net Assets:
Total decrease in net assets (294,421,157) (594,230,378)
Beginning of year 3,858,016,573 4,452,246,951
--------------- ----------------
End of year $ 3,563,595,416 $ 3,858,016,573
=============== ================
</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: 1994 1993 1992 1991 1990
<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 .0271 .0294 .0473 .0704 .0819
Realized and unrealized gain (loss) on
investments--net (.0013) .0038 .0034 .0014 .0006
---------- ---------- ---------- ---------- ----------
Total from investment operations .0258 .0332 .0507 .0718 .0825
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0271) (.0294) (.0473) (.0704) (.0819)
Realized gain on investments--net (.0004) (.0026) (.0036) (.0014)* (.0006)*
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0275) (.0320) (.0509) (.0718) (.0825)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 2.79% 3.25% 5.17% 7.46% 8.57%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .43% .43% .43% .43% .45%
========== ========== ========== ========== ==========
Expenses .56% .55% .56% .56% .57%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net. 2.75% 3.20% 5.05% 7.11%* 8.21%*
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $3,563,595 $3,858,017 $4,452,247 $5,228,619 $3,515,578
========== ========== ========== ========== ==========
<FN>
* Includes unrealized gains (losses).
</TABLE>
43
<PAGE>
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 diversified, open-end
investment management company. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than
sixty days after the valuation date are valued at the most recent
bid price or yield equivalent as obtained from dealers that make
markets in such securities. When securities are valued with sixty
days or less to maturity, the difference between the valuation
existing on the sixty-first day before maturity and maturity value
is amortized on a straight-line basis to maturity. Investments mat-
uring within sixty days from their date of acquisition are valued
at amortized cost, which approximates market. 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 re-
quirements 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 trans-
actions 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. Real-
ized 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"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets, at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of the average daily net assets in excess of $1 billion. The most
restrictive annual expense limitation requires that the
44
<PAGE>
Adviser reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions, and
extraordinary items) exceed 2.5% of the Fund's first $30 million of average
daily net assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof. No fee
payment will be made to the Adviser during any year which will cause such
expenses to exceed the pro rata expense limitation at the time of such payment.
NOTES TO FINANCIAL STATEMENTS (concluded)
The Fund has adopted a Distribution and Shareholder Servicing
Plan in compliance with Rule 12b-1 under the Investment Company
Act of 1940, pursuant to which Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S") 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, MLIM, FDS, MLPF&S, and/or ML & Co.
3. Transactions in Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
45
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
CMA Tax-Exempt Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of CMA Tax-Exempt Fund as of March 31, 1994, 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, 1994 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 Tax-Exempt Fund
as of March 31, 1994, 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
Princeton, New Jersey
April 29, 1994
46
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Alabama-- $ 9,750 Alabama Higher Education Loan Corporation, Student Loan Revenue Bonds,
1.0% VRDN, AMT, Series B, 2.50% due 6/01/2017 (a) $ 9,750
10,090 Alabama Special Care Facilities Financing Authority, Daughters of Charity,
National Health System, Birmingham Revenue Bonds (Saint Vincent's Hospital),
VRDN, 2.30% due 11/01/2013 (a) 10,090
14,400 Birmingham, Alabama, Medical Clinic Board Revenue Bonds (U.A.H.S.F.), DDN,
3.25% due 12/01/2026 (a) 14,400
7,600 McIntosh, Alabama, IDB, PCR (Ciba-Geigy Corporation Project), VRDN, Series A,
2.25% due 12/01/2003 (a) 7,600
37,900 McIntosh, Alabama, IDB, Solid Waste Disposal Revenue Bonds (Ciba-Geigy
Corporation Project), VRDN, AMT, 2.50% due 7/01/2004 (a) 37,900
2,200 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Bonds (Scott Paper
Company), VRDN, Series E, 2.40% due 12/01/2019 (a) 2,200
Alaska-- 35,000 Alaska Housing Finance Corporation Revenue Bonds, VRDN, Series C, 2.15% due
1.0% 6/01/2026 (a) 35,000
10,650 Alaska Industrial Development and Export Authority, IDR, Refunding (Pacific
Corp. Project), VRDN, 2.35% due 12/01/1995 (a) 10,650
30,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Exxon Pipeline Co.
Project), Series B, 2.20% due 5/31/1994 30,010
Arizona-- 11,700 Arizona Educational Loan Marketing Corp., Educational Loan Revenue Bonds,
1.5% VRDN, AMT, Series A, 2.35% due 3/01/2015 (a) 11,700
1,100 Maricopa County, Arizona, IDA, PCR (Motorola Inc., Project), 2.20% due
10/01/1995 1,100
11,900 Maricopa County, Arizona, PCR (Arizona Public Service Co. Palo Verde Project),
VRDN, 2.25% due 12/01/2009 (a) 11,900
84,300 Maricopa County, Arizona, TAN, 3.10% due 7/29/1994 84,350
6,300 Salt River Project, Arizona, Agricultural Improvement and Power District,
CP, 2.55% due 5/10/1994 6,300
Arkansas-- Arkansas State Student Loan Authority Revenue Bonds, VRDN, AMT (a):
0.5% 20,000 Series B-1, 2.45% due 6/01/2013 20,000
4,100 Series B-4, 2.45% due 6/01/2013 4,100
19,000 Little River County, Arkansas, Solid Waste Disposal Revenue Bonds (Nekoosa
Papers, Inc. Project), VRDN, AMT, 2.40% due 2/01/2025 (a) 19,000
California-- 4,190 Alameda County, California, M/F Mortgage Revenue Refunding Bonds (Quail Run
16.5% Apartments), Series A, VRDN, Series A, 2.35% due 6/01/2015 (a) 4,190
107,580 California HFA, Home Mortgage Revenue Bonds, Series F, 2.50% due 5/02/1994 107,479
California Higher Education Loan Authority, Inc., Student Loan Revenue
Bonds, Series C, AMT:
65,375 2.80% due 6/01/1994 65,375
15,250 2.80% due 7/01/1994 15,250
California Higher Education Loan Authority, Inc., Student Loan Revenue
Refunding Bonds:
20,750 Series A-1, 2.70% due 7/01/1994 20,750
39,900 Series A-2, 2.55% due 5/01/1994 39,900
33,000 VRDN, AMT, Series E-1, 2.25% due 12/01/2022 (a) 33,000
11,950 VRDN, Series A, 2.25% due 6/01/2001 (a) 11,950
15,000 VRDN, Series D-1, 2.25% due 4/01/2000 (a) 15,000
50,000 California Public Capital Improvements, Financing Authority Revenue Bonds
(Pooled Project), Series D, 2.75% due 6/15/1994 50,000
77,000 California State Floating Rate Notes, 2.39% due 6/28/1994 77,004
40,600 California State, RAN, 3.50% due 6/28/1994 40,717
California State, RAW:
62,725 Series A, 3.75% due 12/21/1994 63,053
150,000 Series B, 3.50% due 7/26/1994 150,284
</TABLE>
47
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California $ 40,000 California Statewide Community Development Authority Revenue Bonds,
(concluded) Series A, 3.25% due 6/30/1994 $ 40,045
27,880 Eastern Municipal Water District, California, Water and Sewer Revenue
Refunding Bonds, VRDN, COP, Series B, 2.15% due 7/01/2020 (a) 27,880
9,100 Fresno County, California, TRAN, 3.25% due 7/29/1994 9,111
7,800 Irvine Ranch, California, Water District, Refunding Bonds, DDN, Series B,
3.25% due 8/01/2009 (a) 7,800
15,000 Long Beach, California, CP, AMT, Series A, 2.55% due 5/18/1994 15,000
52,050 Los Angeles, California, Unified School District, TRAN, 3.25% due 7/15/1994 52,124
Los Angeles County, California, TRAN:
82,950 Series A, 3% due 6/30/1994 83,166
15,000 Series B, 2.60% due 5/02/1994 15,000
4,000 Series B, 2.70% due 6/08/1994 4,000
3,300 Mountain View, California, M/F Housing Revenue Bonds (Villa Mariposa
Project), VRDN, Series A, 2.15% due 3/01/2017 (a) 3,300
68,905 Orange County, California, Various Sanitation Districts, COP, Refunding, VRDN,
2.15% due 8/01/2013 (a) 68,905
23,025 Riverside County, California, TRAN, Series A, 3% due 6/30/1994 23,040
11,000 Sacramento County, California, M/F Housing Revenue Bonds (River Oaks
Apartments), VRDN, Series E, 2.35% due 9/15/2007 (a) 11,000
Sacramento County, California, M/F Housing Revenue Bonds, VRDN (a):
7,800 Series A, 2.35% due 4/15/2007 7,800
6,400 Series B, 2.35% due 4/15/2007 6,400
6,000 Series C, 2.35% due 4/15/2007 6,000
21,500 Sacramento County, California, TRAN, 3% due 7/29/1994 21,521
44,030 San Diego County, California, TRAN, 3.25% due 7/29/1994 44,094
155,600 San Francisco, California, City and County, TRAN, 3.25% due 7/15/1994 156,026
11,300 Student Education Loan Marketing Corporation, California Student Loan
Revenue Refunding Bonds, Series A, 2.65% due 11/01/1994 11,300
Colorado-- Arapahoe County, Colorado, Capital Improvement Trust Fund, Highway
3.5% Revenue Bonds (E-470 Project):
23,785 Series C, 2.80% due 8/31/1994 23,785
8,000 Series D, 2.85% due 8/31/1994 8,000
22,000 Series F, 2.90% due 8/31/1994 22,000
57,000 Series G, 2.90% due 8/31/1994 57,000
66,095 Series I, 2.80% due 8/31/1994 66,095
35,905 Series K, 2.90% due 8/31/1994 35,905
17,000 Colorado Student Obligation Bond Authority, Student Loan Revenue Bonds,
VRDN, AMT, Series B, 2.40% due 7/01/2020 (a) 17,000
Denver, Colorado, City and County Airport Revenue Bonds, AMT:
5,000 CP, Series B, 2.70% due 5/10/1994 5,000
15,000 CP, Series C, 2.70% due 5/12/1994 15,000
10,500 VRDN, Series F, 2.60% due 11/15/2025 (a) 10,500
11,500 VRDN, Series G, 2.55% due 11/15/2025 (a) 11,500
8,000 Westminster, Colorado, IDR, Refunding (Ball Corp. Project), VRDN, 2.20% due
6/01/2005 (a) 8,000
Connecticut-- Connecticut State, HFA (Housing Mortgage Finance Project):
2.4% 24,170 Series H-1, 2.80% due 11/15/1994 24,170
10,000 Series H-2, 2.90% due 11/15/1994 10,000
22,600 Sub-Series E-1, 2.80% due 11/15/1994 22,600
3,900 Sub-Series E-2, 2.90% due 11/15/1994 3,900
75,000 Connecticut State Special Assessment Unemployment Compensation,
Advance Fund Revenue Bonds, Series C, 3% due 7/01/1994 75,037
50,700 Connecticut State Special Tax Obligation Revenue Bonds, VRDN, 2.30% due
12/01/2010 (a) 50,700
</TABLE>
48
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Delaware-- Delaware State, EDA, Revenue Bonds (Delmarva Power & Light Co. Project),
0.1% VRDN, AMT (a):
$ 4,400 3.15% due 10/01/2017 $ 4,400
2,100 Series A, 3.15% due 10/01/2017 2,100
District of District of Columbia, General Fund Revenue Bonds, DDN (a):
Columbia-- 21,000 Series B, 2.95% due 6/01/2003 21,000
0.8% 7,600 Series B-2, 2.95% due 6/01/2003 7,600
2,700 Series B-3, 2.95% due 6/01/2003 2,700
18,000 District of Columbia, Hospital Revenue Bonds (Providence Hospital--
Daughters of Charity), VRDN, Series 89A, 2.30% due 12/01/2019 (a) 18,000
13,100 District of Columbia Revenue Bonds (George Washington University), VRDN,
Series A, 2.35% due 3/01/2006 (a) 13,100
Florida-- 3,400 Broward County, Florida, HFA, M/F Housing Revenue Bonds (Margate
1.7% Investments Projects), VRDN, 2.25% due 11/01/2005 (a) 3,400
38,690 Dade County, Florida, Aviation Revenue Refunding Bonds, VRDN, Series V,
2.30% due 10/01/2007 (a) 38,690
Dade County, Florida, Solid Waste Authority, IDR (Montenay-Dade Limited
Project), VRDN (a):
17,800 AMT, 2.50% due 12/01/2010 17,800
900 Series A, 2.50% due 12/01/2013 900
9,900 Dade County, Florida, Special Obligation Capital Asset Acquisition Revenue
Bonds, VRDN, 2.30% due 10/01/2010 (a) 9,900
25,900 Dade County, Florida, Water and Sewer System Revenue Bonds, VRDN, 2.25%
due 10/05/2022 (a) 25,900
16,000 Floating Rate Trust Certificate, Florida, Series 1992--D, 2.40% due 7/01/1994 16,000
400 Hillsborough County, Florida, IDA, PCR, Refunding (Tampa Electric Company
Project), DDN, 2.85% due 9/01/2025 (a) 400
9,900 Martin County, Florida, IDA, Revenue Bonds (Indiantown Cogeneration), VRDN,
AMT, Series A, 2.35% due 7/01/2025 (a) 9,900
6,200 Sunshine State Governmental Financing Commission of Florida Revenue Bonds,
CP, 2.75% due 7/14/1994 6,200
6,860 Volusia County, Florida, Health Facilities Authority Revenue Bonds (Pooled
Hospital Loan Program), ACES, VRDN, 2.30% due 11/01/2015 (a) 6,860
Georgia-- Burke County, Georgia, Development Authority, PCR:
2.4% 18,750 (Georgia Power Company--Plant Vogtle Project), AMT, CP, 2.35%
due 4/14/1994 18,750
41,490 (Oglethorpe Power Corp.), Series A, 2.25% due 1/01/2016 41,490
5,200 DeKalb County, Georgia, IDA Revenue Bonds (Hitachi Chemical America),
VRDN, 2.40% due 8/01/2004 (a) 5,200
Floating Rate Trust Certificates, Georgia:
12,700 Series 1994 A, 2.50% due 7/02/2006 12,700
18,000 Series 1994 D, 2.80% due 5/02/1994 18,000
9,682 Georgia Municipal Association, Pooled Bonds, COP, VRDN, 2.20% due
12/15/2020 (a) 9,682
32,325 Georgia State Housing and Finance Authority Revenue Bonds (Home Ownership
Opportunity), VRDN, AMT, Series B, 2.50% due 6/01/2025 (a) 32,325
22,288 Georgia Trust Certificates, Series 7, VRDN, 2.45% due 1/01/1996 (a) 22,288
6,600 Hapeville, Georgia, Development Authority, IDR (Hapeville Hotel Limited),
DDN, 2.65% due 11/01/2015 (a) 6,600
17,175 Municipal Electric Authority, Georgia, Revenue Bonds, Series B, 2.55% due
6/01/1994 17,175
6,000 Private Colleges and Universities Facilities Authority, Revenue Refunding Bonds
(Emory University Project), CP, Series B, 2.60% due 5/20/1994 6,000
</TABLE>
49
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Illinois-- $ 9,000 Chicago, Illinois, Gas Supply Revenue Bonds (Peoples Gas Light & Coke Co.),
8.0% AMT, Series B, 2.55% due 12/01/1994 $ 9,000
Chicago, Illinois, O'Hare International Airport Revenue Bonds (a):
17,200 (American Airlines), DDN, Series C, 2.95% due 12/01/2017 17,200
29,100 (General Airport Second Lien), VRDN, AMT, Series A, 2.45% due 1/01/2018 29,100
14,800 Chicago, Illinois, O'Hare International Airport, Special Facilities Revenue
Bonds (Compagnie Nationale, Air France), VRDN, 2.45% due 5/01/2018 (a) 14,800
23,600 Chicago, Illinois, Revised Tender Agent, VRDN, Series B, 2.20% due
1/01/2012 (a) 23,600
Chicago, Illinois, Tender Notes:
15,400 CP, Series C, 3.25% due 11/30/1994 15,400
35,000 CP, Series C-1, 3.25% due 11/30/1994 35,000
20,000 VRDN, Series B, 2.15% due 10/31/1995 (a) 20,000
19,400 Chicago, Illinois, Tender Notes, Series B, 3.15% due 10/31/1994 19,400
25,000 Cook County, Illinois, TAN, 3.20% due 4/01/1994 25,000
27,150 Evanston, Illinois, BAN, 3% due 6/01/1994 27,175
Illinois Development Finance Authority (a):
12,700 PCR (Diamond Star Motors Project), DDN, 3.25% due 12/01/2008 12,700
3,800 PCR (Illinois Power Co.), VRDN, AMT, Series C, 2.25% due 3/01/2017 3,800
15,000 Revenue Bonds (Lyric Opera Chicago Project), VRDN, 2.25% due 12/01/2028 15,000
10,000 Revenue Bonds (Residential Rental--River Oaks Project), VRDN, AMT,
2.40% due 12/15/2019 10,000
Illinois Educational Facilities Authority Revenue Bonds, VRDN (a):
5,300 (Chicago Historical Society), 2.20% due 12/01/2025 5,300
7,500 (Cultural Pooled Financing Program), 2.25% due 12/01/2025 7,500
15,600 (Illinois Institute of Technology), Series A, 2.20% due 9/01/2025 15,600
Illinois Health Facilities Authority Revenue Bonds:
30,000 (Evangelical Hospital Corporation), VRDN, Series A, 2.20% due
1/01/2010 (a) 30,000
25,000 (Evanston Hospital Corporation Project), 2.40% due 6/16/1994 25,000
35,000 (Evanston Hospital Corporation Project), 3% due 10/17/1994 35,000
10,000 (Evanston Hospital Corporation Project), Series A, 2.65% due 5/05/1994 10,000
30,000 (Evanston Hospital Corporation Project), Series A, 2.80% due 8/31/1994 30,000
10,000 (Evanston Hospital Corporation Project), Series B, 2.65% due 5/05/1994 10,000
50,000 (Evanston Hospital Corporation Project), Series B, 2.65% due 7/28/1994 50,000
10,000 (Evanston Hospital Corporation Project), Series C, 2.65% due 5/05/1994 10,000
5,000 (Evanston Hospital Corporation Project), Series E, 2.65% due 5/05/1994 5,000
14,000 (Highland Park Hospital), VRDN, Series A, 2.65% due 6/01/1994 (a) 14,000
8,700 (Hospital Sisters Services, Inc.), VRDN, 1985 Series E, 2.20%
due 12/01/2014 (a) 8,700
20,000 (Lutheran Institute), VRDN, Series C, 2.35% due 4/01/2015 (a) 20,000
19,500 (Revolving Fund, Pooled Loan Program), VRDN, Series B, 2.20% due
8/01/2015 (a) 19,500
7,000 (Revolving Fund, Pooled Loan Program), VRDN, Series F, 2.20% due
8/01/2015 (a) 7,000
8,550 Illinois State Refunding Bonds, 4% due 6/01/1994 8,569
46,200 Illinois State Toll Highway Authority, Revenue Refunding Bonds
(Toll Highway Priority), VRDN, Series B, 2.20% due 1/01/2010 (a) 46,200
Indiana-- 39,275 Evansville, Indiana, Hospital Authority Revenue Bonds (Saint Mary's Medical
2.7% Center--Daughters of Charity), VRDN, 2.30% due 11/01/2013 (a) 39,275
Fort Wayne, Indiana, Hospital Authority Revenue Bonds (Parkview Memorial
Hospital), VRDN (a):
1,645 Series B, 2.50% due 1/01/2016 1,645
2,700 Series B, 2.50% due 1/01/2020 2,700
3,505 Series C, 2.50% due 1/01/2016 3,505
5,670 Series D, 2.50% due 1/01/2016 5,670
14,000 Indiana Bond Bank, Advanced Funding Program Notes, Series A-1, 2.85%
due 7/07/1994 14,017
</TABLE>
50
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Indiana $ 3,845 Indiana Bond Bank, GO, 3.50% due 2/01/1995 $ 3,853
(concluded) Indiana Health Facilities Financing Authority, Hospital Revenue Bonds,
VRDN (a):
1,700 (Daughters of Charity National Health System), ACES, Series B, 2.30%
due 11/01/2022 1,700
5,400 (Daughters of Charity National Health System), Series A, 2.30%
due 11/01/2022 5,400
7,900 (Methodist Hospital of Indiana, Inc.), ACES, Series B, 2.30% due 9/01/2022 7,900
34,200 (Methodist Hospital of Indiana, Inc.), ACES, Series C, 2.30% due 9/01/2022 34,200
Indiana Secondary Market Educational Loans Incorporated, Student Loan
Revenue Bonds, VRDN, AMT (a):
26,900 Series B, 2.25% due 12/01/2013 26,900
9,000 Series F, 2.25% due 12/01/2014 9,000
3,520 Indiana State HFA, S/F Mortgage Revenue Bonds, VRDN, Series C, 2.45%
due 1/01/2016 (a) 3,520
47,810 Marion County, Indiana, Hospital Authority, Hospital Facility Revenue Bonds
(Saint Vincent's Hospital--Daughters of Charity), VRDN, 2.30% due 11/01/2013 (a) 47,810
5,900 Mt. Vernon, Indiana, Pollution Control and Solid Waste Disposal Revenue Bonds
(General Electric Company Project), Series A, CP, 2.55% due 5/11/1994 5,900
Iowa-- 5,000 Chillicothe, Iowa, PCR, Refunding (Iowa-Illinois Gas & Electric Project), VRDN,
1.4% 2.20% due 1/01/2023 (a) 5,000
Iowa Finance Authority, S/F Revenue Bonds (Mortgage-Backed Securities
Program):
13,080 AMT, Series E, 2.85% due 7/01/1994 13,080
10,520 Series D, 2.65% due 7/01/1994 10,520
9,900 Iowa Finance Authority, Solid Waste Disposal Revenue Bonds (Cedar River
Paper Company Project), VRDN, Series A, 3% due 7/01/2023 (a) 9,900
4,100 Iowa Higher Education Loan Authority Revenue Bonds (Private College
Facilities), VRDN, 2.35% due 12/01/2015 (a) 4,100
50,000 Iowa State, TRAN, Series A, 3.25% due 6/30/1994 50,037
14,500 Iowa Student Loan Liquidity Corporation, Student Loan Revenue Bonds,
VRDN, AMT, Series B, 2.40% due 12/01/2013 (a) 14,500
Kansas-- Wichita, Kansas, Hospital Revenue Bonds (CSJ Health Systems), VRDN (a):
0.2% 1,800 2.30% due 10/01/2002 1,800
15,300 2.30% due 10/01/2008 15,300
Kentucky-- 5,100 Ashland, Kentucky, PCR (Merck & Co./Calgon Carbon Project), VRDN, 1983
0.2% Series A, 2.45% due 10/01/2006 (a) 5,100
9,000 Pendleton County, Kentucky, Multi-County Lease Revenue Bonds (Kentucky
Association of Counties Leasing Program), CP, 2.55% due 5/13/1994 9,000
Louisiana-- 5,200 Louisiana Public Facilities Authority, Hospital Revenue Bonds (Hospital
2.6% Equipment Financing and Refunding Program), VRDN, Series A, 2.45% due
12/01/2005 (a) 5,200
Louisiana State Offshore Terminal Authority, Deepwater Port Revenue
Refunding Bonds (Loop Inc.) (a):
12,485 DDN, Series A, 2.85% due 9/01/2008 12,485
20,000 VRDN, 2.65% due 5/16/1994 20,000
11,500 New Orleans, Louisiana, Exhibition Hall Authority Revenue Bonds (Hotel
Occupancy Tax), VRDN, Series B, 2.50% due 7/01/2018 (a) 11,500
4,400 New Orleans, Louisiana, Levee District, Levee Improvement Revenue Bonds,
VRDN, 3.95% due 11/01/2014 (a) 4,400
Saint Charles Parish, Louisiana, PCR (a):
13,600 (Shell Oil Company Project), DDN, AMT, Series A, 2.90% due 10/01/2022 13,600
4,400 (Shell Oil Company Project), VRDN, 2.05% due 6/01/2005 4,400
17,100 (Shell Oil Company--Norco Project), DDN, AMT, 2.90% due 11/01/2021 17,100
Saint James Parish, Louisiana, PCR, Refunding (Texaco Project), CP:
77,030 Series A, 2.80% due 8/16/1994 77,030
40,030 Series B, 2.80% due 8/16/1994 40,030
</TABLE>
51
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Maine-- $ 13,815 Jay, Maine, Solid Waste Disposal Revenue Bonds (International Paper),
0.6% Series A, AMT, 3.25% due 6/01/1994 $ 13,815
31,000 Maine State Housing Authority, Mortgage Purchase Bonds, AMT, 4.60%
due 5/15/1994 31,082
Maryland-- 26,100 Maryland State Health and Higher Educational Facilities Authority Revenue
0.3% Bonds (Daughters of Charity Systems, Incorporated--Saint Agnes Hospital),
VRDN, 2.30% due 7/01/2013 (a) 26,100
Massachusetts-- 32,130 Clipper Tax Exempt Trust, Massachusetts, Class A, VRDN, 2.18%
3.7% due 10/17/2002 (a) 32,130
19,000 Commonwealth of Massachusetts, CP, 2.65% due 6/01/1994 19,000
Eagle Tax Exempt Trust, Massachusetts, VRDN (a):
25,000 2.49% due 10/01/2007 25,000
14,400 Series 1993-J, 2.49% due 8/01/2005 14,400
91,500 Massachusetts Bay Transportation Authority Notes, Series B, 3.25% due
9/30/1994 91,705
11,500 Massachusetts State HFA, Housing Revenue Tender Option Certificates,
Series U1, VRDN, 2.65% due 1/05/2003 (a) 11,500
Massachusetts State, Industrial Finance Agency, PCR, Refunding:
9,000 (New England Power Company Project), Series A, 2.40% due 5/05/1994 9,000
8,700 (North East Power Company Project), CP, 2.60% due 5/03/1994 8,700
65,495 Massachusetts State Notes, Series B, 3.40% due 11/22/1994 65,833
Massachusetts State, VRDN (a):
13,000 Series B, 3.05% due 12/01/1997 13,000
1,700 Series E, 3.05% due 12/01/1997 1,700
Michigan-- 1,600 Delta County, Michigan, Economic Development Corporation, Environment
2.1% Improvement Revenue Bonds (Mead Escambia), DDN, 2.90% due
12/01/2023 (a) 1,600
19,000 Eagle Tax Exempt Trust, Michigan, Series 1994 C, Class 2201, VRDN, 2.85% due
6/01/2021 (a) 19,000
25,000 Floating Rate Trust Certificates, Michigan, VRDN, Series 1993 K, 2.50% due
10/01/2011 (a) 25,000
6,100 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds,
DDN, 3% due 1/01/2020 (a) 6,100
100 Kent Hospital Finance Authority, Michigan, Hospital Facilities Revenue Bonds
(Butterworth Hospital), VRDN, Series A, 2.30% due 1/15/2020 (a) 100
Michigan Municipal Bond Authority Revenue Notes:
10,955 Series A-7, 3% due 5/05/1994 10,961
24,180 Series B-1, 3% due 5/05/1994 24,190
8,060 Michigan State Building Authority Revenue Bonds, CP, Series I, 2.35% due
4/21/1994 8,060
Michigan State Hospital Finance Authority Revenue Bonds, VRDN (a):
4,400 (Providence Hospital--Daughters of Charity Systems, Incorporated),
2.30% due 11/01/2014 4,400
14,500 (Saint Mary's Hospital), 2.30% due 11/01/2013 14,500
33,450 Michigan State School Loan Notes, GO, 3.25% due 4/29/1994 33,466
2,300 Michigan State Strategic Fund, PCR (Dow Chemical Company Project), CP,
2.15% due 4/06/1994 2,300
Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds, DDN,
AMT (a):
4,200 (Genessee Power Station Project), 2.90% due 7/01/2033 4,200
1,000 (Grayling Generating Project), 2.45% due 1/01/2014 1,000
3,500 Midland County, Michigan, Economic Development Corporation Revenue
Bonds, DDN, AMT, Series A, 3.15% due 12/01/2023 (a) 3,500
3,700 University of Michigan, University Revenue Refunding Bonds, DDN, Series A,
2.85% due 12/01/2019 (a) 3,700
</TABLE>
52
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Minnesota-- $ 13,400 Becker, Minnesota, PCR (Northern State Power Company), CP, Series A,
2.1% 2.65% due 5/17/1994 $ 13,400
16,500 Eagle Tax Exempt Trust, Minnesota, Series 1994-C-5, VRDN, 2.49%
due 2/01/2015 (a) 16,500
45,000 Eagle Tax Exempt Trust, Minnesota, VRDN, Series A, 2.49% due 8/01/2006 (a) 45,000
15,700 Minneapolis, Minnesota, Community Development Agency Revenue Bonds
(Riverplace Project-Pinnacle Apartments), VRDN, 2.45% due 2/01/2012 (a) 15,700
74,000 Minnesota State, HFA, S/F Mortgage Bonds, AMT, Series D, 2.60% due 1/12/1995 74,000
4,000 Minnesota State, HFA, State-Assisted Home Improvement Bonds, Series A,
2.50% due 5/17/1994 4,000
Mississippi-- 10,000 Harrison County, Mississippi, PCR, Refunding (E.I. du Pont de Nemours & Co.),
0.2% DDN, Series E, 2.85% due 9/01/2010 (a) 10,000
3,000 Mississippi Hospital Equipment and Facilities Authority Revenue Bonds
(Mississippi Baptist Medical Center), VRDN, Series B, 2.35% due 7/01/2012 (a) 3,000
Missouri-- 30,000 Eagle Tax Exempt Trust, Missouri, VRDN, Series 1993-E, 2.49% due 8/01/2006 (a) 30,000
1.6% Missouri Higher Education Loan Authority, Student Loan Revenue Bonds,
VRDN, AMT (a):
7,800 Series A, 2.35% due 6/01/2017 7,800
11,700 Series B, 2.35% due 6/01/2020 11,700
Missouri State Health and Educational Facilities Authority, Health Facilities
Revenue Bonds (Sisters of Mercy Health System), VRDN (a):
5,000 Series A, 2.20% due 6/01/2019 5,000
15,500 Series C, 2.20% due 6/01/2019 15,500
4,700 Series D, 2.20% due 6/01/2019 4,700
Missouri State Health and Educational Facilities Authority Revenue Bonds
(Washington University Project) (a):
3,200 DDN, Series A, 3.25% due 3/01/2017 3,200
19,600 DDN, Series B, 3.25% due 3/01/2017 19,600
1,300 VRDN, Series A, 2.35% due 9/01/2010 1,300
29,100 Saint Louis County, Missouri, IDA, Hospital Revenue Bonds (DePaul Hospital--
Daughters of Charity), VRDN, 2.30% due 11/01/2014 (a) 29,100
Nebraska-- Nebraska Higher Education Loan Program, Multiple Mode Student Loan
0.8% Revenue Bonds, VRDN (a):
9,000 Series D, 2.25% due 12/01/2015 9,000
20,100 Series N, 2.25% due 12/01/2015 20,100
Nebraska Higher Education Loan Program, Student Loan Revenue Bonds, AMT:
3,550 Series A, VRDN, 2.40% due 12/01/2016 (a) 3,550
30,150 Series C, 2.10% due 8/01/2018 30,150
Nevada-- 37,000 Clark County, Nevada, Airport Improvement Revenue Refunding Bonds,
0.8% Series A, VRDN, 2.25% due 7/01/2012 (a) 37,000
20,200 Eagle Tax Exempt Trust, Nevada, Series 1993K, VRDN, 2.70% due 8/01/2007 (a) 20,200
Nevada Housing Division, S/F Program Revenue Bonds, VRDN, AMT (a):
740 Series B-2, 2.60% due 10/01/2025 740
7,200 Series D-2, 2.60% due 10/01/2025 7,200
New Hampshire-- 30,000 New Hampshire State, Business Finance Authority, PCR (Northeast Power
1.0% Company Project), AMT, 2.95% due 7/01/1994 30,000
38,400 New Hampshire State, Business Finance Authority, PCR, Refunding (Public
Service Co.), Series E, 2.45% due 5/01/2021 38,400
14,000 New Hampshire State, IDA, Solid Waste Disposal Facilities Revenue Bonds
(United Illuminating Company Project), VRDN, AMT, Series A, 3.05%
due 9/01/1994 (a) 14,000
</TABLE>
53
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New Jersey-- $ 13,800 Cape May County, New Jersey, Municipal Utilities Authority, Solid Waste
1.7% Resource Recovery Revenue Bonds (Daneco Project), AMT, 2.80%
due 11/30/1994 $ 13,800
22,500 Floating Rate Trust Certificate (State of New Jersey Transportation Trust
Fund), Series 92 C, 3% due 6/16/1994 22,500
New Jersey EDA, Dock Facilities, Revenue Refunding Bonds (Bayonne/IMTT
Project), VRDN, Series A (a):
2,300 2.45% due 12/01/2027 2,300
4,000 2.90% due 12/01/2027 4,000
84,500 New Jersey Sports and Exposition Authority, State Contract Revenue Bonds,
VRDN, Series C, 2.20% due 9/01/2024 (a) 84,500
9,700 New Jersey State, TRAN, Series A, 3% due 6/15/1994 9,715
New Mexico-- 10,350 Farmington, New Mexico, PCR (Arizona Public Service Co.- Four Corners
0.5% Project), 2.20% due 5/01/2013 10,350
New Mexico Educational Assistance Foundation, Student Loan Revenue
Bonds, VRDN, AMT (a):
4,900 Series B, 2.40% due 4/01/2005 4,900
17,600 Series I, 2.45% due 9/01/2008 17,600
6,430 New Mexico State Hospital Equipment Loan Council, Hospital Equipment and
Improvement Revenue Bonds, VRDN, 2.25% due 5/01/2009 (a) 6,430
New York-- 35,500 Buffalo, New York, RAN, Series A, 3% due 7/14/1994 35,541
5.5% 11,400 Monroe County, New York, Public Improvement, BAN, Series C, 2.50%
due 6/10/1994 11,407
73,500 New York City, New York, Indexed, TAN, Series A, 2.19% due 4/08/1994 73,498
New York City, New York, Municipal Water Finance Authority, Water and
Sewer Systems Revenue Bonds, BAN, Series A:
6,300 2.75% due 4/15/1994 6,300
103,120 3.75% due 12/15/1994 103,764
New York City, New York, RAN:
5,400 Series A, 3.25% due 4/15/1994 5,401
7,200 Series B, 3.50% due 6/30/1994 7,214
111,400 New York City, New York, TAN, Series A, 3.125% due 4/08/1994 111,412
545 New York State Job Development Authority, Revenue Bonds, Series A, DDN,
AMT, 3.10% due 3/01/2005 (a) 545
16,000 New York State Local Government Assistance Corporation, VRDN, Series B,
2.30% due 4/26/1994 (a) 16,000
6,500 Port Authority, New York and New Jersey, Special Obligation Revenue Bonds
(Versatile Structure Obligations), DDN, Series 1, 2.80% due 8/01/2028 (a) 6,500
14,500 Rochester, New York, BAN, 2.74% due 11/04/1994 14,522
40,700 Suffolk County, New York, TAN, Series I, 2.70% due 8/16/1994 40,755
North Carolina-- 12,800 Craven County, North Carolina, Industrial Facilities and Pollution Control
1.9% Finance Authority Revenue Bonds (Cravenwood Energy Project), DDN, AMT,
Series C, 2.75% due 5/01/2011 (a) 12,800
2,600 Halifax County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority Revenue Bonds (Westmoreland), DDN, 3% due
12/01/2019 (a) 2,600
North Carolina Educational Facilities Finance Agency Revenue Bonds, VRDN (a):
23,950 (Bowman Grey School of Medicine Project), 2.20% due 9/01/2020 23,950
20,240 (Duke University Project), Series A, 2.15% due 6/01/2027 20,240
15,000 (Duke University Project), Series B, 2.15% due 12/01/2021 15,000
North Carolina Medical Care Commission, Hospital Revenue Bonds, VRDN (a):
2,000 (Duke University Hospital Project), Series C, 2.15% due 6/01/2015 2,000
1,700 (Duke University Hospital), Series B, 2.15% due 6/01/2015 1,700
18,500 (North Carolina Baptist Hospital Project), Series B, 2.20% due 6/01/2022 18,500
13,600 (Pooled Equipment Financing Project), ACES, 2.30% due 12/01/2025 13,600
3,500 (Pooled Financing Project), ACES, Series B, 2.95% due 10/01/2013 3,500
</TABLE>
54
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North Carolina $ 9,000 North Carolina Medical Care Commission, Hospital Revenue Refunding Bonds
(concluded) (Moses H. Cone Memorial Hospital Project), VRDN, 2.20% due 10/01/2023 (a) $ 9,000
10,300 North Carolina Medical Care Commission Revenue Bonds (Carol Woods
Project), DDN, 3.05% due 4/01/2021 (a) 10,300
11,000 University of North Carolina, Chapel Hill, School of Medicine and Ambulatory
Care Revenue Bonds, CP, 2.55% due 4/14/1994 11,000
3,300 Wake County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority Revenue Bonds (Carolina Power and Light Company),
DDN, 3.10% due 3/01/2017 (a) 3,300
Ohio-- 16,400 Cincinnati, Ohio, Student Loan Funding Corporation, Student Loan Revenue
2.8% Bonds, VRDN, Series 1983-A, 2.25% due 12/29/1998 (a) 16,400
5,000 Clinton County, Ohio, Airport Facilities Revenue Refunding Bonds
(Wilmington Air Park, Inc.), VRDN, 2.35% due 6/01/2011 (a) 5,000
3,700 Columbus, Ohio, Sewer Revenue Bonds, VRDN, Series B, 2.20% due
6/01/2011 (a) 3,700
10,300 Cuyahoga County, Ohio, Hospital Revenue Improvement Bonds (Cleveland
University Hospital), DDN, 2.90% due 1/01/2016 (a) 10,300
2,800 Hamilton County, Ohio, Health Care Systems Revenue Bonds (Franciscan
Sister Poor Health), DDN, Series A, 2.90% due 3/01/2017 (a) 2,800
1,865 Ohio HFA, M/F Housing Revenue Bonds (Kenwood Congregate Retirement
Program), VRDN, 2.25% due 12/01/2015 (a) 1,865
Ohio HFA, S/F Mortgage Revenue Bonds, AMT:
81,740 Series A-1, 2.95% due 6/01/1994 81,740
19,000 Series A-2, 2.95% due 6/01/1994 19,000
Ohio State Air Quality Development Authority, PCR:
10,500 (Cleveland Electric), Series B, 2.65% due 5/05/1994 10,500
17,000 (Ohio Education), AMT, Series C, 3.125% due 9/01/1994 17,017
Ohio State Air Quality Development Authority, Revenue Refunding Bonds
(JMG Funding Project), VRDN, AMT (a):
23,400 Series A, 2.30% due 10/01/2027 23,400
19,000 Series B, 2.45% due 10/01/2027 19,000
5,000 Ohio State Public Facilities Commission, Higher Education Capital Facilities,
Refunding Bonds, Series II-A, 4.60% due 6/01/1994 5,016
3,000 Scioto County, Ohio, Hospital Facilities Revenue Bonds (VHA Central Inc.
Capital Asset), VRDN, Series C, 2.20% due 12/01/2025 (a) 3,000
6,100 Scioto County, Ohio, Marine Terminal Facility, Revenue Refunding Bonds
(Norfolk Southern Corporation Project), VRDN, 2.20% due 8/15/2013 (a) 6,100
Oklahoma-- 10,800 Oklahoma City, Oklahoma, Industrial and Cultural Facilities Revenue Bonds,
0.1% ACES, VRDN, Series A, 2.35% due 6/01/2006 (a) 10,800
Oregon-- Oregon State GO, Veterans' Welfare Bonds, VRDN (a):
1.0% 53,000 Series 73-E, 2.20% due 12/01/2016 53,000
15,000 Series 73-G, 2.50% due 12/01/2018 15,000
7,300 Port of Portland, Oregon, Public Grain Elevator Revenue Bonds (Columbia
Grain Incorporated Project), VRDN, Series A, 2.45% due 12/01/2014 (a) 7,300
Pennsylvania-- 1,400 Allegheny County, Pennsylvania, Hospital Development Authority Revenue
5.0% Bonds (Presbyterian Health Center), VRDN, 2.25% due 3/01/2020 (a) 1,400
27,000 Allegheny County, Pennsylvania, IDA, PCR (Duquesne Light Project), Series A,
2.75% due 10/20/1994 27,000
1,000 Authority Improvement Municipalities of Allegheny County, Pennsylvania,
Hospital Equipment Leasing Revenue Bonds, VRDN, 2.30% due 9/01/1995 (a) 1,000
2,500 Butler County, Pennsylvania, IDA, Revenue Refunding Bonds (Wetterau
Finance Co. Project), VRDN, 2.35% due 12/01/2014 (a) 2,500
4,800 Cambria County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Cambria Cogen Project), VRDN, AMT, Series V-1, 2.35% due 9/01/2019 (a) 4,800
3,000 Delaware County, Pennsylvania, IDA, Solid Waste Revenue Bonds (Scott
Paper Company), VRDN, Series B, 2.55% due 12/01/2018 (a) 3,000
</TABLE>
55
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania Emmaus, Pennsylvania, General Authority Revenue Bonds (Local
(concluded) Government), VRDN (a):
$ 12,500 Sub-Series E-4, 2.50% due 3/01/2024 $ 12,500
12,500 Sub-Series E-5, 2.50% due 3/01/2024 12,500
19,500 Geisinger Authority, Pennsylvania, Health Systems Revenue Bonds, DDN,
Series B, 3.25% due 7/01/2022 (a) 19,500
6,400 Montgomery County, Pennsylvania, Higher Education and Health Authority,
Hospital Revenue Bonds (Holy Redeemer Hospital), VRDN, 2.30% due
9/01/2018 (a) 6,400
34,800 Northampton County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Glendon Energy Company Project), AMT, Series A, 3.75% due 10/01/1994 34,800
7,300 Pennsylvania Economic Development Financing Authority, Solid Waste
Disposal Revenue Bonds (Inter-Power/AITLCON Partners Project), 1992
Series A, CP, AMT, 2.55% due 4/20/1994 7,300
17,450 Pennsylvania Energy Development Authority Revenue Bonds (B&W Ebensburg
Project), VRDN, 2.40% due 12/01/2011 (a) 17,450
Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, VRDN (a):
57,800 1984 Series A, 2% due 12/01/2000 57,800
11,000 AMT, Series A, 2.45% due 1/01/2008 11,000
8,200 AMT, Series B, 2.25% due 7/01/2018 8,200
Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Bonds (a):
8,000 (Carnegie-Mellon University), VRDN, Series A, 2.35% due 11/01/2015 8,000
38,200 (Temple University), DDN, 3.25% due 10/01/2009 38,200
21,645 Pennsylvania State, TAN, First Series, 3.25% due 6/30/1994 21,699
46,350 Philadelphia, Pennsylvania, Hospital and Higher Education Facilities Authority,
Hospital Revenue Bonds (Children's Hospital of Philadelphia Project), DDN,
3.25% due 3/01/2027 (a) 46,350
Philadelphia, Pennsylvania, IDA, VRDN, Revenue Bonds (a):
10,200 (30th Street Station Project), AMT, 2.35% due 1/01/2011 10,200
8,800 (Institute for Cancer Research Project), Series A, 3.25% due 7/01/2013 8,800
9,000 (Philadelphia Airport Hotel), AMT, 2.35% due 12/01/2017 9,000
20,880 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds (VHA of
Pennsylvania, Inc., Capital Assets Financing Program), VRDN, Series L, 2.20%
due 12/01/2020 (a) 20,880
9,000 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Northeastern Power Company Project), DDN, 2.85% due 12/01/2011 (a) 9,000
Rhode Island-- Rhode Island Housing and Mortgage Finance Corp., Homeowner Opportunity
0.9% Revenue Bonds, VRDN (a):
13,800 AMT, Series 9-B, 2.60% due 4/01/2013 13,800
16,000 Series 10-B, 2.50% due 10/01/2025 16,000
41,100 Series 14-A, 2.50% due 4/01/2027 41,100
South Carolina-- 11,200 Charleston County, South Carolina, IDR, Refunding (Massey Coal Terminal SC
0.9% Corporation), DDN, 2.90% due 1/01/2007 (a) 11,200
13,349 Floating Rate Trust Certificate, South Carolina, VRDN, Series C, 2.40%
due 1/02/1995 (a) 13,349
28,840 Georgetown County, South Carolina, Pollution Control Facilities, Revenue
Refunding Bonds (International Paper Co. Project), Series A, 3.125% due
9/01/1994 28,840
South Carolina EDA Revenue Bonds, DDN (a):
4,700 (Saint Francis Hospital Project), 2.90% due 7/01/2022 4,700
1,200 (Wellman, Inc. Project), AMT, 3.05% due 12/01/2012 1,200
13,000 South Carolina State Housing Finance and Development Authority Revenue
Bonds, 2.80% due 6/01/1994 13,000
South Dakota-- 18,000 South Dakota Student Loan Assistance Corporation, Student Loan Revenue
0.2% Bonds, VRDN, AMT, Sub-Series B, 2.45% due 8/01/2010 (a) 18,000
</TABLE>
56
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Tennessee-- $ 9,500 Cleveland, Tennessee, IDB, Revenue Bonds (Newly Wed Foods Incorporated
1.7% Project), VRDN, AMT, 2.45% due 1/01/2012 (a) $ 9,500
8,100 Loudon, Tennessee, IDB, PCR, Refunding (A.E. Staley Manufacturing Co.
Project), VRDN, 2.35% due 9/01/2001 (a) 8,100
14,955 Morristown, Tennessee, IDB, PCR, Refunding (Akzo Chemicals, Inc. Project),
VRDN, 2.35% due 8/01/2001 (a) 14,955
17,300 Nashville, Tennessee, Metropolitan Airport Authority, Revenue Refunding and
Improvement Bonds, VRDN, 2.20% due 7/01/2019 (a) 17,300
5,500 Tennessee State, BAN, VRDN, 2.75% due 5/01/1996 (a) 5,500
9,500 Tennessee State, Local Development Authority Revenue Bonds (State Loan
Programs), BAN, Series A, 3% due 6/02/1994 9,507
Volunteer State Student Funding Corporation, Tennessee, Student Loan
Revenue Bonds, VRDN (a):
12,000 Series A-1, 2.30% due 12/01/2017 12,000
54,000 Series A-3, 2.30% due 12/01/2017 54,000
Texas-- Brazos, Texas, Higher Education Authority Incorporated, Student Loan
9.4% Revenue Bonds, AMT:
5,000 Series B-1, 2.80% due 6/01/1994 5,000
23,000 VRDN, Series B, 2.70% due 5/02/1994 (a) 23,000
4,000 Corpus Christi, Texas, IDR (Dedietrich USA Incorporated Project), VRDN, AMT,
2.30% due 11/01/2008 (a) 4,000
9,110 Galveston County, Texas, Health Facilities Development Corporation Revenue
Bonds (Devereux Foundation Project), VRDN, 2.35% due 1/01/2016 (a) 9,110
18,800 Grapevine, Texas, IDR, Airport Revenue Refunding (Southern Air
Transportation Project), VRDN, 2.25% due 3/01/2010 (a) 18,800
22,500 Gulf Coast Waste Disposal Authority, Texas, PCR (Amoco Oil Co. Project),
DDN, AMT, 2.90% due 5/01/2023 (a) 22,500
9,315 Gulf Coast Waste Disposal Authority, Texas, PCR, Refunding (Amoco Oil
Company Project), VRDN, 2.75% due 10/01/2017 (a) 9,315
Harris County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds (Saint Luke's Episcopal Hospital), DDN (a):
7,300 Series B, 3.25% due 2/15/2016 7,300
21,100 Series C, 3.25% due 2/15/2016 21,100
3,900 Series D, 3.25% due 2/15/2016 3,900
7,100 Harris County, Texas, Industrial Development Corporation, PCR (Exxon
Project), Series 1984-A, VRDN, 2.60% due 3/01/2024 (a) 7,100
Harris County, Texas, Toll Road Revenue Bonds, VRDN (a):
27,500 Series B, 2.20% due 8/01/2015 27,500
8,400 Series C, 2.20% due 8/01/2015 8,400
20,500 Series D, 2.20% due 8/01/2015 20,500
Houston, Texas, Health Facilities Development Corporation, Hospital Revenue
Bonds (Methodist Hospital Project), DDN (a):
15,400 3.25% due 12/01/2014 15,400
12,300 3.25% due 12/01/2015 12,300
11,500 3.25% due 12/01/2021 11,500
7,000 Houston, Texas, Public Improvement Bonds, VRDN, Series A, 2.35% due
4/01/2013 (a) 7,000
23,500 Lubbock, Texas, Health Facilities Development Corporation Revenue Bonds
(Saint Joseph Health System), DDN, Series A, 2.85% due 7/01/2013 (a) 23,500
North Texas Higher Education Authority Incorporated, Student Loan
Revenue Bonds, VRDN (a):
5,000 AMT, 2.55% due 12/01/2005 5,000
13,700 AMT, Series F, 2.35% due 4/01/2020 13,700
3,000 Refunding, 2.25% due 3/01/1999 3,000
23,700 Refunding, 2.25% due 3/01/2005 23,700
29,000 Refunding, Series A, 2.25% due 4/01/2005 29,000
5,000 Refunding, Series A, 2.25% due 4/01/2020 5,000
</TABLE>
57
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Texas $ 9,000 Panhandle Plains, Texas, Higher Education Authority Incorporated, Student
(concluded) Loan Revenue Bonds, VRDN, AMT, Series A, 2.65% due 4/01/1994 (a) $ 9,000
San Antonio, Texas, Electric and Gas Revenue Bonds, CP, Series A:
14,000 2.70% due 5/19/1994 14,000
9,000 2.60% due 5/26/1994 9,000
20,000 San Antonio, Texas Electric and Gas Revenue Refunding Bonds (Sub Lien),
7% due 8/01/1994 20,576
19,600 San Antonio, Texas, Higher Education Authority Revenue Refunding Bonds
(Trinity University Project), VRDN, 2.30% due 4/01/2004 (a) 19,600
10,500 San Antonio, Texas, Tender Options, Refunding, VRDN, 2.60% due 5/19/1994 (a) 10,500
34,500 Tarrant County, Texas, Health Facilities Revenue Bonds (Daughters of
Charity--National Health Systems), VRDN, 2.30% due 9/01/2021 (a) 34,500
7,800 Texas State, Multi-Modal Water Development Board, DDN,
Series A, 3.25% due 3/01/2015 (a) 7,800
Texas State, Public Finance Authority Revenue Bonds, CP:
10,000 Series A, 2.20% due 8/03/1994 10,000
19,000 Series A, 2.50% due 10/27/1994 19,000
13,500 Series B, 2.75% due 7/21/1994 13,500
182,590 Texas State, TRAN, 3.25% due 8/31/1994 183,387
28,360 Travis County, Texas, Health Facility Development Corporation Revenue Bonds
(Daughters of Charity--Seton Medical Center), VRDN, 2.30% due 11/01/2013 (a) 28,360
Waco, Texas, Health Facilities Development Corporation, Health Facilities
Revenue Bonds (Daughters of Charity--Providence Hospital), VRDN (a):
18,775 2.30% due 11/01/2013 18,775
12,400 Series 88A, 2.30% due 11/01/2018 12,400
Utah-- Intermountain Power Agency, Utah, Power Supply Revenue Bonds:
1.1% 16,000 CP, Series E, 2.65% due 4/21/1994 16,000
13,400 CP, Series E, 2.65% due 5/09/1994 13,400
10,000 CP, Series E, 2.75% due 7/20/1994 10,000
17,000 VRDN, Series E, 3% due 9/15/1994 (a) 17,000
22,400 VRDN, Series F, 3% due 9/15/1994 (a) 22,400
6,000 Utah State Board of Regents, Student Loan Revenue Bonds, VRDN, AMT,
Series C, 2.25% due 11/01/2013 (a) 6,000
Virginia-- 5,330 Fairfax County, Virginia, Redevelopment and Housing Authority, M/F Housing
3.2% Revenue Bonds (Chase Commons Apartments Project), VRDN, 2.325%
due 12/01/2006 (a) 5,330
2,400 Roanoke, Virginia, IDA, Hospital Revenue Bonds (Roanoke Memorial Hospital),
DDN, Series A, 3.25% due 7/01/2017 (a) 2,400
16,000 Rockingham County, Virginia, IDA, Revenue Bonds (Merck & Company Project),
VRDN, Series A, 2.45% due 10/01/2020 (a) 16,000
1,000 Rockingham County, Virginia, IDA, Revenue Bonds, VRDN, 2.70% due
10/01/2022 (a) 1,000
Virginia State Housing Development Authority, Commonwealth Mortgage
Revenue Bonds:
41,500 AMT, Series E, Sub-Series E, 3.05% due 8/10/1994 41,507
19,500 VRDN, Series A, Sub-Series A, 2.80% due 11/04/1994 (a) 19,500
55,000 VRDN, Series C, Sub-Series C, 2.30% due 4/20/1994 (a) 55,000
16,500 VRDN, Series C, Sub-Series C, 2.95% due 5/12/1994 (a) 16,500
Virginia State Housing Development Authority, VRDN, AMT (a):
71,800 Series I, Sub-Series I, 2.80% due 11/04/1994 71,807
27,400 Series J, Sub-Series J, 2.70% due 11/04/1994 27,403
Washington-- 26,700 Eagle Tax Exempt Trust, Washington, Series 1994--A, VRDN, 2.49%
2.0% due 6/01/2005 (a) 26,700
7,690 Washington State HFA, S/F Mortgage Revenue Bonds (Mortgaged-Backed
Securities Program), VRDN, Series D, 2.80% due 6/10/1994 (a) 7,690
</TABLE>
58
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Washington $ 10,955 Washington State Housing Finance Commission, S/F Mortgage Revenue
(concluded) Refunding Bonds (Mortgage-Backed Securities Program), VRDN, Series B,
2.60% due 6/10/1994 (a) $ 10,955
Washington State Public Power Supply System, Revenue Refunding
Bonds, VRDN (a):
21,580 (Nuclear Project No.1), Series 1A-3, 2.50% due 7/01/2017 21,580
25,000 (Nuclear Project No.3), Series 3A-1, 2.15% due 7/01/2018 25,000
9,500 (Nuclear Project No.3), Series 3A-2, 2.20% due 7/01/2018 9,500
14,630 Washington State Refunding Bonds, Series R-94A, 3.25% due 8/01/1994 14,640
Washington Student Loan Finance Association Revenue Bonds (Guaranteed
Student Loan Program), VRDN (a):
12,100 AMT, Series A, 2.35% due 12/01/2002 12,100
6,000 AMT, Series B, 2.35% due 12/01/2002 6,000
10,680 AMT, Series B, 2.05% due 1/01/2004 10,680
10,400 Series A, 1.90% due 1/01/2001 10,400
West Virginia-- 19,500 Grant County, West Virginia, PCR (Virginia Electric Power Co.), 2.90%
0.4% due 7/29/1994 19,500
11,220 Hancock County, West Virginia, County Commission, IDR, Refunding (The Boc
Group Inc. Project), VRDN, 2.35% due 8/01/2005 (a) 11,220
Wisconsin-- Eagle Tax Exempt Trust, Wisconsin, VRDN (a):
1.3% 13,400 Series 94, C4902, 2.64% due 9/01/2016 13,400
30,300 Series 1993 H, 2.70% due 11/01/2008 30,300
7,600 Series 1994, C4902, 2.49% due 9/01/2015 7,600
16,000 Green Bay, Wisconsin, Metropolitan Sewer District, Promissory Notes, 3% due
4/15/1994 16,001
16,000 Sheboygan, Wisconsin, PCR, Refunding (Wisconsin Power and Light Company
Project), DDN, Series A, 3% due 9/01/2015 (a) 16,000
15,000 West Allis, Milwaukee, Wisconsin, School District TRAN, 3.25% due 8/24/1994 15,020
5,590 Wisconsin State GO, Series A, 4.70% due 5/01/1994 5,600
2,300 Wisconsin State Health Facilities Authority Revenue Bonds (Saint Mary's
Hospital of Milwaukee), VRDN, 2.30% due 11/01/2016 (a) 2,300
Wyoming-- Lincoln County, Wyoming, PCR (Exxon Project):
1.4% 9,900 CP, AMT, Series A, 2.65% due 7/01/2017 9,900
1,500 DDN, Series B, 2.60% due 11/01/2014 (a) 1,500
1,400 DDN, Series D, 2.60% due 11/01/2014 (a) 1,400
10,000 Sublette County, Wyoming, PCR (Exxon Project), CP, Series A, 3% due
7/01/2017 10,000
Sweetwater County, Wyoming, PCR, VRDN (a):
5,300 (Chevron Chemical Company Project), 2.60% due 6/15/1994 5,300
17,500 Refunding (Pacific Corporation Project), 2.10% due 7/01/2015 17,500
Uinta County, Wyoming, PCR:
10,000 (Amoco Oil Company Project), Series A, 2.90% due 12/01/1994 10,000
5,950 (Chevron USA Inc. Project), 2.60% due 6/15/1994 5,950
6,500 Refunding (Chevron USA Inc. Project), DDN, 2.75% due 12/01/2022 (a) 6,500
39,000 Refunding (Chevron USA Inc. Project), VRDN, 2.75% due 8/15/2020 (a) 39,000
Puerto Rico-- 24,050 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 24,127
0.3%
Total Investments (Cost--$7,991,614)--101.0% 7,991,614
Liabilities in Excess of Other Assets--(1.0%) (79,654)
----------
Net Assets--100.0% $7,911,960
==========
<FN>
(a)The interest rate is subject to change periodically based on
certain indexes. The interest rate shown is the rate in effect
at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO ABBREVIATIONS
ACESSM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
COP Certificates of Participation
CP Commercial Paper
DDN Daily Demand Notes
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
RAW Revenue Anticipation Warrants
S/F Single-Family
TAN Tax Anticipation Notes
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
59
<PAGE>
PORTFOLIO ABBREVIATIONS
CMA TAX-EXEMPT FUND
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$7,991,613,852) (Note 1a) $ 7,991,613,852
Cash 94,268
Receivables:
Interest $ 52,059,528
Securities sold 34,800,000 86,859,528
--------------
Prepaid registration fees and other assets (Note 1d) 195,874
---------------
Total assets 8,078,763,522
---------------
Liabilities:
Payables:
Securities purchased 162,091,004
Investment adviser (Note 2) 2,645,545
Distributor (Note 2) 1,392,833
Beneficial interest redeemed 48,291 166,177,673
--------------
Accrued expenses and other liabilities 626,238
---------------
Total liabilities 166,803,911
---------------
Net Assets $ 7,911,959,611
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 791,629,310
Paid-in capital in excess of par 7,124,663,791
Undistributed investment income--net 239,945
Accumulated realized capital losses--net (Note 4) (4,573,435)
---------------
Net Assets--Equivalent to $1.00 per share based on 7,916,293,100 shares of
beneficial interest outstanding $ 7,911,959,611
===============
</TABLE>
CMA TAX-EXEMPT FUND
<TABLE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 189,787,605
Expenses:
Investment advisory fees (Note 2) $ 29,468,384
Distribution fees (Note 2) 9,483,835
Transfer agent fees (Note 2) 994,413
Registration fees (Note 1d) 666,501
Accounting services (Note 2) 391,102
Custodian fees 236,180
Printing and shareholder reports 143,522
Professional fees 72,109
Pricing fees 44,651
Trustees' fees and expenses 41,097
Other 53,361
--------------
Total expenses 41,595,155
---------------
Investment income--net 148,192,450
Realized Gain on Investments--Net (Note 1c) 51,826
---------------
Net Increase in Net Assets Resulting from Operations $ 148,244,276
===============
See Notes to Financial Statements.
</TABLE>
60
<PAGE>
CMA TAX-EXEMPT FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31
1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 148,192,450 $ 176,344,588
Realized gain on investments--net 51,826 1,833,823
---------------- ----------------
Net increase in net assets resulting from operations 148,244,276 178,178,411
---------------- ----------------
Dividends to Shareholders (Note 1e):
Investment income--net (147,847,067) (176,157,543)
---------------- ----------------
Net decrease in net assets resulting from dividends to shareholders (147,847,067) (176,157,543)
---------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 25,164,582,052 23,538,762,541
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 147,842,729 176,161,162
---------------- ----------------
25,312,424,781 23,714,923,703
Cost of shares redeemed (24,927,916,358) (24,064,327,440)
---------------- ----------------
Net increase (decrease) in net assets derived from beneficial interest
transactions 384,508,423 (349,403,737)
---------------- ----------------
Net Assets:
Total increase (decrease) in net assets 384,905,632 (347,382,869)
Beginning of year 7,527,053,979 7,874,436,848
---------------- ----------------
End of year* $ 7,911,959,611 $ 7,527,053,979
================ ================
<FN>
*Undistributed investment income--net $ 239,945 $ 55,066
================ ================
</TABLE>
CMA TAX-EXEMPT FUND
<TABLE>
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: 1994 1993 1992 1991 1990
<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 .02 .02 .04 .05 .06
Realized and unrealized gain (loss) on
investment--net -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total from investment operations .02 .02 .04 .05 .06
---------- ---------- ---------- ---------- ----------
Less dividends:
Investment income--net (.02) (.02) (.04) (.05) (.06)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 1.96% 2.36% 3.76% 5.39% 5.94%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .42% .42% .42% .41% .42%
========== ========== ========== ========== ==========
Expenses .55% .54% .54% .54% .54%
========== ========== ========== ========== ==========
Investment income--net 1.94% 2.33% 3.70% 5.24% 5.79%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $7,911,960 $7,527,054 $7,874,437 $8,695,795 $8,356,203
========== ========== ========== ========== ==========
See Notes to Financial Statements.
</TABLE>
61
<PAGE>
CMA TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Tax-Exempt Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end
investment management company. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments are valued at amor-
tized cost which approximates market. For the purpose of val-
uation, the maturity of a variable rate demand instrument is
deemed to be the next coupon date on which the interest rate is
to be adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the re-
quirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income
to its shareholders. Therefore, no Federal income tax provision
is required.
(c) Security transactions and investment income--Security trans-
actions 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. Real-
ized 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) Dividends 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
are declared from the total of net investment income, excluding dis-
counts earned other than original issue discounts. Net realized
capital gains, if any, are normally distributed annually after de-
ducting prior years' loss carryforward. The Fund may distribute
capital gains more frequently than annually in order to maintain
the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Certain 1993 amounts have been reclassified
to conform to the 1994 presentation. Undistributed investment income--
net, in the amount of $4,800,504, has been reclassified to accum-
ulated realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of the average daily net assets
in excess of $500 million but not exceeding $1 billion; and
0.375% of the average daily net assets in excess of $1 billion.
The Investment Advisory Agreement obligates FAM to 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 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
62
<PAGE>
which will cause such expenses to exceed
the pro rata expense limitation at the time of such payment.
CMA TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, 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 the average daily net
assets of the Fund. 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, MLIM, MLPF&S, FDS, and/or ML & Co.
3. 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.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $4,537,000, of which $2,969,000 expires in 1997,
$1,358,000 expires in 1998, and $210,000 expires in 1999, which
will be available to offset like amounts of any future taxable
gains.
63
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Treasury Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of CMA Treasury Fund as of March 31, 1994, 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 the two year period then ended and for the period
April 15, 1991 (commencement of operations) to March 31, 1992. 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, 1994 by correspondence with the custodian. 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 Treasury Fund
as of March 31, 1994, 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
Princeton, New Jersey
April 29, 1994
64
<PAGE>
CMA TREASURY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31 (IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--99.3%
US Treasury Bills $172,664 3.05% 4/07/94 $172,561
2,965 3.38 4/21/94 2,959
20,000 3.435 4/21/94 19,960
200,000 3.47 4/21/94 199,595
11,217 2.96 5/05/94 11,181
30,000 2.97 5/05/94 29,902
3,568 3.025 5/05/94 3,556
5,701 3.035 5/05/94 5,682
10,000 3.095 5/05/94 9,967
35,000 3.13 5/05/94 34,886
40,487 3.15 5/05/94 40,355
15,000 3.155 5/05/94 14,951
50,000 3.16 5/05/94 49,837
30,848 3.165 5/05/94 30,748
20,000 3.17 5/05/94 19,935
2,460 3.26 5/05/94 2,452
1,540 3.265 5/05/94 1,535
2,541 3.275 5/05/94 2,533
4,444 3.31 5/05/94 4,430
50,000 3.215 5/12/94 49,801
7,252 3.09 5/19/94 7,218
25,000 3.10 5/26/94 24,866
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations* (concluded)
US Treasury Bills $ 30,000 3.16% 5/26/94 $ 29,839
(concluded) 574 3.07 6/02/94 571
11,000 3.09 6/02/94 10,933
499 3.10 6/02/94 496
30,000 3.43 6/02/94 29,818
3,516 3.425 6/09/94 3,492
15,000 3.50 6/09/94 14,898
30,000 3.51 6/16/94 29,774
20,000 3.53 7/07/94 19,806
329 3.10 7/21/94 325
16,031 3.125 7/21/94 15,852
US Treasury Notes 90,000 7.00 4/15/94 90,133
89,526 5.375 4/30/94 89,659
95,000 7.00 5/15/94 95,429
42,100 9.50 5/15/94 42,411
Total US Government Obligations
(Cost -- $1,212,488) 1,212,346
Total Investments (Cost--$l,212,488++)--99.3% 1,212,346
Other Assets Less Liabilities--0.7% 8,094
----------
Net Assets--100.0% $1,220,440
==========
[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 through maturity.
++Cost for Federal income tax purposes.
See Notes to Financial Statements.
65
<PAGE>
<TABLE>
CMA TREASURY FUND
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$1,212,488,331++)(Note 1a) $ 1,212,346,154
Cash 24,208
Interest receivable 8,898,527
Deferred organization expenses (Note 1d) 20,126
Prepaid registration fees and other assets (Note 1d) 56,125
---------------
Total assets 1,221,345,140
---------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 471,768
Distributor (Note 2) 222,621
Beneficial interest redeemed 427 694,816
--------------
Accrued expenses and other liabilities 210,298
---------------
Total liabilities 905,114
---------------
Net Assets $ 1,220,440,026
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 122,058,220
Paid-in capital in excess of par 1,098,523,983
Unrealized depreciation on investments--net (142,177)
---------------
Net Assets--Equivalent to $1.00 per share based on 1,220,582,203 shares of
beneficial interest outstanding $ 1,220,440,026
===============
<FN>
++Cost for Federal income tax purposes. As of March 31, 1994, net unrealized depreciation
for Federal income tax purposes amounted to $142,177, of which $10,626 related to
appreciated securities and $152,803 related to depreciated securities.
</TABLE>
<TABLE>
CMA TREASURY FUND
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 39,235,318
Expenses:
Investment advisory fees (Note 2) $ 5,591,419
Distribution fees (Note 2) 1,561,956
Transfer agent fees (Note 2) 156,000
Custodian fees 107,058
Accounting services (Note 2) 65,637
Professional fees 53,047
Printing and shareholder reports 51,003
Trustees' fees and expenses 40,094
Registration fees (Note 1d) 36,746
Amortization of organization expenses (Note 1d) 9,565
Other 13,656
--------------
Total expenses 7,686,181
---------------
Investment income--net 31,549,137
Realized Gain on Investments--Net (Note 1c) 484,458
Change in Unrealized Appreciation/Depreciation on Investments--Net (282,540)
---------------
Net Increase in Net Assets Resulting from Operations $ 31,751,055
===============
See Notes to Financial Statements.
</TABLE>
66
<PAGE>
<TABLE>
CMA TREASURY FUND
<CAPTION>
For the Year Ended March 31,
STATEMENTS OF CHANGES IN NET ASSETS 1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 31,549,137 $ 35,205,315
Realized gain on investments--net 484,458 3,052,056
Change in unrealized appreciation/depreciation on investments--net (282,540) 307,128
-------------- --------------
Net increase in net assets resulting from operations 31,751,055 38,564,499
-------------- --------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (31,549,137) (35,205,315)
Realized gain on investments--net (484,458) (3,052,056)
-------------- --------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (32,033,595) (38,257,371)
-------------- --------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 6,005,046,894 6,134,074,483
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 32,008,483 38,226,039
-------------- --------------
6,037,055,377 6,172,300,522
Cost of shares redeemed (6,103,394,111) (6,107,007,061)
-------------- --------------
Net increase (decrease) in net assets derived from beneficial
interest transactions (66,338,734) 65,293,461
-------------- --------------
Net Assets:
Total increase (decrease) in net assets (66,621,274) 65,600,589
Beginning of year 1,287,061,300 1,221,460,711
-------------- --------------
End of year $1,220,440,026 $1,287,061,300
============== ==============
</TABLE>
<TABLE>
CMA TREASURY FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. April 15, 1991++
For the Year Ended March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
----------- ----------- -----------
Investment income--net .0250 .0278 .0453
Realized and unrealized gain on investments--net .0002 .0026 .0019
----------- ----------- -----------
Total from investment operations .0252 .0304 .0472
----------- ----------- -----------
Less Dividends and distributions:
Investment income--net (.0250) (.0278) (.0453)
Realized gain on investments--net (.0004) (.0024) (.0020)
----------- ----------- -----------
Total dividends and distributions (.0254) (.0302) (.0473)
----------- ----------- -----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
Total Investment Return 2.57% 3.07% 5.02%*
=========== =========== ===========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .49% .48% .36%*
=========== =========== ===========
Expenses, net of reimbursement .61% .60% .49%*
=========== =========== ===========
Expenses .61% .62% .68%*
=========== =========== ===========
Investment income and realized gain on investments--net 2.55% 3.01% 4.67%*
=========== =========== ===========
Supplemental Data:
Net assets, end of period (in thousands) $ 1,220,440 $ 1,287,061 $ 1,221,461
=========== =========== ===========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
67
<PAGE>
CMA TREASURY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Treasury Fund (the "Fund") is registered under the Investment
Company Act of 1940 as a no-load, diversified, open-end
investment management company. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than
sixty days after the valuation date are valued at the most recent
bid price or yield equivalent as obtained from dealers that make
markets in such securities. When securities are valued with sixty
days or less to maturity, the difference between the valuation
existing on the sixty-first day before maturity and maturity
value is amortized on a straight-line basis to maturity.
Investments maturing within sixty days from their date of
acquisition are valued at amortized cost, which approximates
market. 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 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) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends 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 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"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million, but not exceeding $1 billion; and 0.375%
of the average daily net assets in excess of $1 billion. The most
restrictive annual expense limitation requires that the Adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
$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 the year which will cause such
expenses to exceed the pro rata expense limitation at the time of
such payment.
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 under the
Distribution Agreement 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, MLIM, MLPF&S, FDS, and/or ML & Co.
3. 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.
69
<PAGE>
- --------------------------------------------------------------------------------
CMA MONEY FUND
CMA GOVERNMENT
SECURITIES FUND
CMA TAX-EXEMPT
FUND
CMA TREASURY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
CMA (R) LOGO
July 29, 1994
- --------------------------------------------------------------------------------
Merrill Lynch LOGO
Code #10116
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A)FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for the period April 15, 1991 (commencement of
operations) to March 31, 1992 and for each of the years in the two-year
period ended March 31, 1994.
Contained in Part B:
Schedule of Investments as of March 31, 1994.
Statement of Assets and Liabilities as of March 31, 1994.
Statement of Operations for the year ended March 31, 1994.
Statements of Changes in Net Assets for the years ended March 31,
1993 and 1994.
Financial Highlights for the period April 15, 1991 (commencement of
operations) to March 31, 1992 and for each of the years in the two-
year period ended March 31, 1994.
(B)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 --Declaration of Trust of the Registrant dated October 24,
1990.(a)
2 --By-Laws of the Registrant.(a)
3 --None.
4 --Portions of the Declaration of Trust and By-Laws of the
Registrant defining the rights of holders of shares of the
Registrant.(f)
5(a) --Investment Advisory Agreement between the Registrant and Fund
Asset Management, L.P.(c)
(b) --Supplement to Investment Advisory Agreement with Fund Asset
Management, L.P.
6 --Distribution Agreement between the Registrant and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.(d)
7 --None.
8 --Custody Agreement between the Registrant and State Street Bank
and Trust Company.(c)
9(a) --Amended Transfer Agency Agreement between the Registrant and
Financial Data Services, Inc.(e)
(b) --Form of Cash Management Account Agreement.(b)
10 --Opinion of Brown & Wood, counsel to the Registrant.
11 --Consent of Deloitte & Touche, independent auditors for the
Registrant.
12 --None.
13 --None.
14 --None.
15 --Distribution and Shareholder Servicing Plan of the
Registrant.(d)
16 --Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22.(d)
</TABLE>
- --------
(a) Filed on March 1, 1991, as an exhibit to the Registrant's Registration
Statement under the Securities Act of 1933, on Form N-1A (the "Registration
Statement").
C-1
<PAGE>
(b) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 on Form N-1A of CMA
Government Securities Fund (File No. 2-72724), filed on July 28, 1981.
(c) Filed on April 1, 1991, as an exhibit to Pre-Effective Amendment No. 2 to
the Registration Statement.
(d) Filed on September 23, 1991, as an exhibit to Post-Effective Amendment No.
1 to the Registration Statement.
(e) Filed on April 1, 1991, as an exhibit to Pre-Effective Amendment No. 2 to
the Registration Statement.
(f) Reference is made to Article II, Section 2.3 and Articles III, V, VI, VIII,
IX, X and XI of the Registrant's Declaration of Trust, previously filed as
Exhibit 1 to the Registration Statement; and to Articles I, V, VI and VII
of the Registrant's By-Laws, previously filed as Exhibit 2 to the
Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AT JULY 1, 1994
-------------- ---------------
<S> <C>
Shares of beneficial
interest, par value
$0.10 per share....... 4
</TABLE>
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a trustee, officer, employee or agent, except
with respect to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however, that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence
or reckless disregard of duty, or the matter of good faith and reasonable
belief as to the best interests of the Trust, had been adjudicated, it
would have been adjudicated in favor of such person. The rights accruing to
any person under these provisions shall not exclude any other right to
which he may be lawfully entitled; provided that no person may satisfy any
right of indemnity or reimbursement granted herein or in Section 5.1 or to
which he may be otherwise entitled except out of the property of the Trust,
and no Shareholder shall be personally liable to any person with respect to
any claim for indemnity or reimbursement or otherwise. The Trustees may
make advance payments in connection with indemnification under this Section
5.3, provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently
determined that he is not entitled to such indemnification."
C-2
<PAGE>
The Registrant's By-Laws provide that insofar as the conditional advancing of
indemnification moneys pursuant to Section 5.3 of the Declaration of Trust for
actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must
be limited to amounts used, or to be used, for the preparation or presentation
of a defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise
by, or on behalf of, the recipient to repay that amount of the advance which
exceeds the amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification; and (iii) (a) such
promise must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant's disinterested, non-party Trustees, or
an independent legal counsel in a written opinion, shall determine, based upon
a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
In Section 8 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser") acts as investment
adviser for the following registered investment companies: Apex Municipal Fund,
Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York
C-3
<PAGE>
Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc.
and Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Merrill Lynch Institutional Intermediate Fund and Merrill Lynch
Funds for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser and its
affiliate, Merrill Lynch Asset Management, L.P. ("MLAM"), is also Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML &
Co.") is World Financial Center, North Tower, 250 Vesey Street, New York, New
York 10281. The address of Financial Data Services, Inc. ("FDS") is 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since April 1, 1992 for his or her own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Richard is Treasurer of all or substantially
all of the investment companies described in the preceding paragraph. Messrs.
Zeikel, Glenn and Richard also hold the same position with substantially all of
the investment companies advised by MLAM as they do with those advised by the
Manager and Messrs. Durnin, Giordano, Harvey, Hewitt, Kirstein and Monagle are
directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS, PROFESSION,
NAME MANAGER VOCATION OR EMPLOYMENT
---- ---------------- ----------------------
<S> <C> <C>
ML & Co................. Limited Partner Financial Services Holding Company
Fund Asset Management,
Inc. .................. Limited Partner Investment Advisory Services; Limited
Partner of FAM
Princeton Services,
Inc. ("Princeton Serv-
ices")................. General Partner General Partner of FAM
Arthur Zeikel........... President President of MLAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn.......... Executive Vice President Executive Vice President of MLAM;
and Director Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of FDS;
President of Princeton Administrators,
L.P.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS, PROFESSION,
NAME MANAGER VOCATION OR EMPLOYMENT
---- ---------------- ----------------------
<S> <C> <C>
Bernard J. Durnin....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of MLAM; Senior Vice
Secretary President, General Counsel and Director
of Princeton Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller MLAM; Senior Vice President and
Controller of Princeton Services
Joseph T. Monagle....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Vice President of MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Merrill Lynch acts as the principal underwriter for the Registrant.
Merrill Lynch also acts as the principal underwriter for CBA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Money Fund and CMA
Government Securities Fund and as the depositor of the following unit
investment trusts: The Corporate Income Fund, Municipal Investment Trust Fund,
The ML Trust for Government Guaranteed Securities and The Government Securities
Income Fund.
(b) With the exception of Arthur Zeikel, the President and a Trustee of the
Registrant who is an Executive Vice President of Merrill Lynch and ML & Co.,
Inc., none of the Trustees or officers of the Registrant is a director, officer
or employee of Merrill Lynch.
(c) Not applicable.
C-5
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder will be maintained at the offices of the Registrant and FDS.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Funds--
Investment Advisory Arrangements" in the Appendix to the Prospectus
constituting Part A of the Registration Statement and under the caption
"Management of the Funds--Investment Advisory Arrangements" in the Statement of
Additional Information constituting Part B of the Registration Statement,
Registrant is not a party to any management-related services contract.
ITEM 32. UNDERTAKINGS.
None.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485(B) AND HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY ON THE 26TH DAY OF JULY, 1994.
CMA Treasury Fund (Registrant)
*By
/s/ Terry K. Glenn
----------------------------------
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Arthur Zeikel* President and
- ------------------------------------- Trustee (Principal
ARTHUR ZEIKEL Executive Officer)
Gerald M. Richard* Treasurer (Principal
- ------------------------------------- Financial and
(GERALD M. RICHARD) Accounting Officer)
Ronald W. Forbes* Trustee
- -------------------------------------
(RONALD W. FORBES)
Cynthia A. Montgomery* Trustee
- -------------------------------------
(CYNTHIA A. MONTGOMERY)
Charles C. Reilly* Trustee
- -------------------------------------
(CHARLES C. REILLY)
Kevin A. Ryan* Trustee
- -------------------------------------
(KEVIN A. RYAN)
Richard R. West* Trustee
- -------------------------------------
(RICHARD R. WEST)
*By
/s/ Terry K. Glenn July 26, 1994
---------------------------------
(TERRY K. GLENN, ATTORNEY-IN-FACT)
C-7
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of CMA Treasury Fund (the "Fund") hereby authorizes
Arthur Zeikel, Terry K. Glenn, Gerald M. Richard and Robert Harris, or any of
them, as attorney-in-fact, to sign on her behalf, in the capacity stated below,
any amendments to the Registration Statement (including post-effective
amendments) of the Fund on Form N-1A and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
SIGNATURE TITLE DATE
/s/ Cynthia A. Montgomery Trustee July 27, 1994
---------------------------------
CYNTHIA A. MONTGOMERY
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
--Supplement to Investment Advisory Agreement with Fund Asset
5 Management, L.P.
10 --Opinion of Brown & Wood, counsel to the Registrant
--Consent of Deloitte & Touche, independent auditors for the
11 Registrant
</TABLE>
<PAGE>
EXHIBIT 99.5(b)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
FUND ASSET MANAGEMENT
As of January 1, 1994 Fund Asset Management was reorganized as a limited
partnership, formally known as Fund Asset Management, L.P. ("FAM"). The general
partner of FAM is Princeton Services, Inc. and the limited partners are Fund
Asset Management, Inc. and Merrill Lynch & Co, Inc. Pursuant to Rule 202(a)(1)-
1 under the Investment Advisors Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940, such reorganization did not constitute an assignment of
this investment advisory agreement since it did not involve a change of control
or management of the investment adviser. Pursuant to the requirements of
Section 205 of the Investment Advisers Act of 1940, however, Fund Asset
Management hereby supplements this investment advisory agreement by undertaking
to advise you of any change in the membership of the partnership within a
reasonable time after any such change occurs.
By: /s/ Arthur Zeikel
-----------------
Dated: January 3, 1994
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
July 27, 1994
CMA Treasury Fund
Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by CMA
Treasury Fund, a Massachusetts business trust (the "Fund"), of 98,637,217 shares
of beneficial interest, par value $0.10 per share (the "Shares"), under the
Securities Act of 1933 pursuant to a registration statement on Form N-1A (File
No. 33-37439), as amended (the "Registration Statement").
As counsel for the Fund, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust of the
Fund, as amended, the By-Laws of the Fund and such other documents as we have
deemed relevant to the matters referred to in this opinion.
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Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of beneficial interest.
In rendering this opinion, we have relied as to matters of Massachusetts
law upon an opinion of Bingham, Dana & Gould rendered to the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD
2
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INDEPENDENT AUDITORS' CONSENT
CMA Treasury Fund
We consent to the use in Post-Effective Amendment No. 4 to Registration
Statement No. 33-37439 of our report dated April 29, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE
Princeton, New Jersey
July 27, 1994
