UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-03165
Active Assets Government Securities Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: June 30, 2007
Date of reporting period: December 31, 2006
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Active Assets
Government Securities Trust performed during the semiannual period. We will
provide an overview of the market conditions, and discuss some of the factors
that affected performance during the reporting period. In addition, this report
includes the Fund's financial statements and a list of Fund investments.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. AN
INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE
TO LOSE MONEY BY INVESTING IN THE FUND. PLEASE SEE THE PROSPECTUS FOR MORE
COMPLETE INFORMATION ON INVESTMENT RISKS.
FUND REPORT
For the six months ended December 31, 2006
MARKET CONDITIONS
During the six-month period under review, the U.S. economy showed signs of
weakening. For November, the Institute for Supply Management (ISM) Manufacturing
Index fell below 50 for the first time since April 2003, a level traditionally
seen as an indicator of a contracting manufacturing sector. U.S. economic
growth, as measured by gross domestic product (GDP), reflected the softening
economy. GDP growth fell to 2.0 percent in the third quarter, down from the 2.6
percent and 5.6 percent growth rates experienced during the second and first
quarters, respectively.
Given signs of moderating economic growth, a cooling housing market and the
lagged effect of monetary policy action already taken, the Federal Open Market
Committee (the "Fed") left its federal funds target rate unchanged in the second
half of 2006. The Fed continues to state "some inflation risks remain" in the
economy.
PERFORMANCE ANALYSIS
As of December 31, 2006, Active Assets Government Securities Trust had net
assets of approximately $485 million and an average portfolio maturity of 29
days. For the six-month period ended December 31, 2006, the Fund provided a
total return of 2.33 percent. For the seven-day period ended December 31, 2006,
the Fund provided an effective annualized yield of 4.68 percent and a current
yield of 4.58 percent, while its 30-day moving average yield for December was
4.63 percent. Past performance is no guarantee of future results.
Our strategy in managing the portfolio remained consistent with the Fund's
long-term focus on preservation of capital and liquidity. Over the past six
months, as the economic landscape has become more uncertain, we have further
diversified the maturity structure of our portfolios by decreasing the amount of
investments that mature near upcoming Fed meeting dates. In contrast, the main
strategy that was followed during the first half of 2006 primarily consisted of
concentrating our investments in fixed rate securities that matured near the Fed
meeting dates in order to capitalize on higher expected money market interest
rates.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Fund in
the future.
2
<Table>
<Caption>
PORTFOLIO COMPOSITION
U.S. Government Agencies -- Discount Notes 58.6%
U.S. Government Agencies -- Floating Rate
Notes 28.1
Repurchase Agreements 13.3
</Table>
<Table>
<Caption>
MATURITY SCHEDULE
1 - 30 Days 44.9%
31 - 60 Days 13.5
61 - 90 Days 14.2
91 - 120 Days 3.1
121 + Days 24.3
</Table>
Data as of December 31, 2006. Subject to change daily. All percentages for
portfolio composition and maturity schedule are as a percentage of total
investments. These data are provided for informational purposes only and should
not be deemed a recommendation to buy or sell the securities mentioned. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services.
INVESTMENT STRATEGY
THE FUND WILL INVEST IN HIGH QUALITY, SHORT-TERM U.S. GOVERNMENT SECURITIES. THE
FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC., SEEKS TO
MAINTAIN THE FUND'S SHARE PRICE AT $1.00. THE SHARE PRICE REMAINING STABLE AT
$1.00 MEANS THAT THE FUND WOULD PRESERVE THE PRINCIPAL VALUE OF YOUR INVESTMENT.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
FOR MORE INFORMATION
ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE
FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM
N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL
AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS
PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND
THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS
FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS
POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM
N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE
SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE
SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
3
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102.
HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
4
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including advisory fees;
distribution and service (12b-1) fees; and other Fund expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing in
the Fund and to compare these costs with the ongoing costs of investing in other
mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 07/01/06 - 12/31/06.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second line of the table is useful in
comparing ongoing costs, and will not help you determine the relative total cost
of owning different funds that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
07/01/06 -
07/01/06 12/31/06 12/31/06
------------- ------------- ---------------
Actual (2.33% return)....................................... $1,000.00 $1,023.30 $3.28
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,021.69 $3.28
</Table>
- ------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.65%
multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period).
5
Active Assets Government Securities Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED)
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS DESCRIPTION PURCHASE DATES VALUE
- --------------------------------------------------------------------------------------------------------
U.S. Government Agencies - Discount Notes (58.6%)
$205,000 Federal Home Loan Banks.................... 5.15 - 5.24% 01/03/07 - 03/16/07 $204,043,452
59,682 Federal National Mortgage Assoc............ 5.20 - 5.21 02/02/07 - 03/14/07 59,240,418
20,763 Freddie Mac................................ 5.19 02/27/07 20,588,435
------------
Total U.S. Government Agencies - Discount Notes (Cost $283,872,305).......... 283,872,305
------------
U.S. Government Agencies - Floating Rate Notes (28.1%)
101,100 Federal Farm Credit Banks.................. 5.20 - 5.28+ 01/03/07 - 10/03/07 101,100,325
35,000 Federal Home Loan Banks.................... 5.20 - 5.21+ 06/08/07 - 03/14/08 34,986,449
------------
Total U.S. Government Agencies - Floating Rate Notes (Cost $136,086,774)..... 136,086,774
------------
Repurchase Agreements (13.3%)
9,680 Barclays Capital Inc. (dated 12/29/06;
proceeds $9,685,700) (a)................. 5.30 01/02/07 9,680,000
20,000 Goldman Sachs & Co. (dated 12/27/06;
proceeds $20,020,572) (b)................ 5.29 01/03/07 20,000,000
35,000 Goldman Sachs & Co. (dated 12/26/06;
proceeds $35,035,967) (c)................ 5.285 01/02/07 35,000,000
------------
Total Repurchase Agreements (Cost $64,680,000)............................... 64,680,000
------------
Total Investments (Cost $484,639,079) (d)...... 100.0% 484,639,079
Liabilities in Excess of Other Assets.......... 0.0 (32,718)
----- ------------
Net Assets..................................... 100.0% $484,606,361
===== ============
</Table>
- ---------------------
<Table>
+ Rate shown is the rate in effect at December 31, 2006.
(a) Collateralized by Federal National Mortgage Assoc. 5.00% due
05/01/33 valued at $9,873,600.
(b) Collateralized by Federal National Mortgage Assoc. 4.75% due
01/18/11 valued at $20,400,484.
(c) Collateralized by Freddie Mac and Federal National Mortgage
Assoc. 4.50% - 4.63% due 07/15/13 - 10/15/13 valued at
$35,700,432.
(d) Cost is the same for federal income tax purposes.
</Table>
6
See Notes to Financial Statements
Active Assets Government Securities Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2006 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $484,639,079) (including repurchase agreements of
$64,680,000).............................................. $484,639,079
Cash........................................................ 2,554
Interest receivable......................................... 325,141
Prepaid expenses and other assets........................... 34,173
------------
Total Assets............................................ 485,000,947
------------
Liabilities:
Payable for:
Investment advisory fee................................. 200,077
Distribution fee........................................ 45,409
Administration fee...................................... 22,705
Shares of beneficial interest........................... 14,556
Transfer agent fee...................................... 991
Accrued expenses and other payables......................... 110,848
------------
Total Liabilities....................................... 394,586
------------
Net Assets.............................................. $484,606,361
============
Composition of Net Assets:
Paid-in-capital............................................. $484,561,836
Accumulated undistributed net investment income............. 44,525
------------
Net Assets.............................................. $484,606,361
============
Net Asset Value Per Share
484,606,141 shares outstanding (unlimited shares authorized
of $.01 par value).......................................... $1.00
============
</Table>
See Notes to Financial Statements
7
Active Assets Government Securities Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended December 31, 2006 (unaudited)
<Table>
Net Investment Income:
Interest Income............................................. $14,318,075
-----------
Expenses
Investment advisory fee..................................... 1,205,088
Distribution fee............................................ 271,494
Administration fee.......................................... 135,747
Transfer agent fees and expenses............................ 33,979
Professional fees........................................... 33,164
Shareholder reports and notices............................. 32,932
Registration fees........................................... 18,910
Custodian fees.............................................. 17,082
Trustees' fees and expenses................................. 5,340
Other....................................................... 19,090
-----------
Total Expenses.......................................... 1,772,826
Less: expense offset........................................ (213)
-----------
Net Expenses............................................ 1,772,613
-----------
Net Investment Income....................................... $12,545,462
===========
</Table>
See Notes to Financial Statements
8
Active Assets Government Securities Trust
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 2006 JUNE 30, 2006
----------------- --------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 12,545,462 $ 28,353,598
Net realized gain........................................... -- 1,964
------------ --------------
Net Increase............................................ 12,545,462 28,355,562
------------ --------------
Dividends and Distributions to Shareholders from:
Net investment income....................................... (12,545,294) (28,353,877)
Net realized gain........................................... -- (1,964)
------------ --------------
Total Dividends and Distributions....................... (12,545,294) (28,355,841)
------------ --------------
Net decrease from transactions of beneficial interest....... (42,461,964) (523,115,513)
------------ --------------
Net Decrease............................................ (42,461,796) (523,115,792)
Net Assets:
Beginning of period......................................... 527,068,157 1,050,183,949
------------ --------------
End of Period
(Including accumulated undistributed net investment income
of $44,525 and $44,357, respectively)....................... $484,606,361 $ 527,068,157
============ ==============
</Table>
See Notes to Financial Statements
9
Active Assets Government Securities Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED)
1. Organization and Accounting Policies
Active Assets Government Securities Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objectives are
high current income, preservation of capital and liquidity. The Fund was
organized as a Massachusetts business trust on March 30, 1981 and commenced
operations on July 7, 1981.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued at amortized
cost, which approximates market value, in accordance with Rule 2a-7 under the
Act.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Repurchase Agreements -- The Fund may invest directly with institutions in
repurchase agreements. The Fund's custodian receives the collateral, which is
marked-to-market daily to determine that the value of the collateral does not
decrease below the repurchase price plus accrued interest.
D. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
E. Dividends and Distributions to Shareholders -- The Fund records dividends and
distributions to shareholders as the close of each business day.
F. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser"), the Fund pays the Investment Adviser
an advisory fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.45% to the portion of the daily net assets not exceeding $500
million; 0.375% to the portion of the daily net assets exceeding $500 million
but not
10
Active Assets Government Securities Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
exceeding $750 million; 0.325% to the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.30% to the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; 0.275% to the
portion of the daily net assets exceeding $1.5 billion but not exceeding $2
billion; 0.25% to the portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.225% to the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3 billion; and 0.20% to the portion of
the daily net assets exceeding $3 billion.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund
pays an administration fee, accrued daily and payable monthly, by applying the
annual rate of 0.05% to the Fund's daily net assets.
3. Plan of Distribution
Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the
Investment Adviser and Administrator, is the distributor of the Fund's shares
and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act, finances certain expenses in connection with the promotion
of sales of Fund shares.
Reimbursements for these expenses are made in monthly payments by the Fund to
the Distributor, which will in no event exceed an amount equal to a payment at
the annual rate of 0.15% of the Fund's average daily net assets during the
month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal
year will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the six months ended December 31, 2006, the
distribution fee was accrued at the annual rate of 0.10%.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales/maturities of portfolio securities
for the six months ended December 31, 2006, aggregated $14,547,772,323 and
$14,597,776,053, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Trustees voted to close the plan to new participants and eliminate the future
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the six months ended December 31, 2006, included in Trustees'
fees and expenses in the Statement of Operations amounted to $1,443. At December
31, 2006, the Fund had an accrued
11
Active Assets Government Securities Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
pension liability of $62,566 which is included in accrued expenses in the
Statement of Assets and Liabilities.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he or she receives for serving on the Board of Trustees. Each eligible
Trustee generally may elect to have the deferred amounts credited with a return
equal to the total return on one or more of the Morgan Stanley funds that are
offered as investment options under the Compensation Plan.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund.
5. Shares of Beneficial Interest
Transactions in shares of beneficial interest, at $1.00 per share, were as
follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 2006 JUNE 30, 2006
----------------- --------------
(unaudited)
Shares sold................................................. 2,221,902,344 4,679,369,252
Shares issued in reinvestment of dividends and
distributions............................................. 12,531,682 28,293,053
-------------- --------------
2,234,434,026 4,707,662,305
Shares redeemed............................................. (2,276,895,990) (5,230,777,818)
-------------- --------------
Net decrease in shares outstanding.......................... (42,461,964) (523,115,513)
============== ==============
</Table>
6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Fund with the transfer agent.
7. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. Recent SEC guidance
allows implementing FIN 48 in the fund NAV calculations on the fund's last NAV
calculation in the first required financial statement period. As a result, the
Fund will
12
Active Assets Government Securities Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
incorporate FIN 48 in its semi annual report on June 30, 2007. The impact to the
Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
13
Active Assets Government Securities Trust
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JUNE 30,
MONTHS ENDED -----------------------------------------------
DECEMBER 31, 2006 2006 2005 2004 2003 2002
----------------- ------- ------- ------- ------- -------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net income from investment operations........... 0.023 0.035 0.016 0.005 0.009 0.020
Less dividends from net investment income....... (0.023) (0.035)+ (0.016)+ (0.005) (0.009)+ (0.020)+
------- ------- ------- ------- ------- -------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Return.................................... 2.33 %(1) 3.60% 1.61% 0.50% 0.95% 2.01%
Ratios to Average Net Assets:
Total expenses (before expense offset).......... 0.65 %(2) 0.61% 0.58% 0.56% 0.55% 0.53%
Net investment income........................... 4.62 %(2) 3.42% 1.60% 0.49% 0.96% 1.96%
Supplemental Data:
Net assets, end of period, in millions.......... $485 $527 $1,050 $1,083 $1,229 $1,427
</Table>
- ---------------------
<Table>
+ Includes capital gain distribution of less than $0.001.
(1) Not annualized.
(2) Annualized.
</Table>
See Notes to Financial Statements
14
Active Assets Government Securities Trust
RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
On August 1, 2006, a Special Meeting of Shareholders of the Fund was scheduled
in order to vote on the following proposals: (i) to elect Trustees; (ii) to
eliminate certain fundamental investment restrictions; (iii) to modify certain
fundamental investment restrictions; and (iv) to reclassify certain fundamental
policies as non-fundamental policies. The proposals failed to achieve the quorum
necessary in order to hold the meeting, and, therefore, the meeting was
adjourned several times, most recently to February 16, 2007, to permit further
solicitation of proxies.
15
TRUSTEES
Michael Bozic
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Michael E. Nugent
Chairman of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Morgan Stanley Distributors Inc., member NASD
(c) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Active Assets
Government
Securities Trust
Semiannual Report
December 31, 2006
[MORGAN STANLEY LOGO]
AAGSAR-RA07-00155P-Y12/06
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Active Assets Government Securities Trust
/s/ Ronald E. Robison
- ------------------------------------
Ronald E. Robison
Principal Executive Officer
February 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
- ------------------------------------
Ronald E. Robison
Principal Executive Officer
February 9, 2007
/s/ Francis Smith
- ------------------------------------
Francis Smith
Principal Financial Officer
February 9, 2007
3