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 811-21197
811-21300
Name of Fund: WCMA Government Securities Fund
Master Government Securities Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, WCMA
Government Securities Fund and Master Government Securities Trust, 800
Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box
9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/04
Date of reporting period: 04/01/03 - 03/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
WCMA Government
Securities Fund
Annual Report
March 31, 2004
[LOGO] Merrill Lynch Investment Managers
WCMA Government Securities Fund
Important Tax Information (unaudited)
Of the ordinary income distributions paid by WCMA Government Securities Fund
during the taxable year ended March 31, 2004, 34.99% was attributable to Federal
obligations. In calculating the foregoing percentage, Fund expenses have been
allocated on a pro rata basis.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income taxes.
Please retain this information for your records.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions. When you visit this
site, you will obtain a personal identification number (PIN). You will need this
PIN should you wish to update your e-mail address, choose to discontinue this
service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
2 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
A Letter From the President
Dear Shareholder
Index returns during the most recent six-month and 12-month reporting periods
indicate that fixed income markets -- both taxable and tax-exempt -- continued
to reward those investors who were willing to accept greater risk. The high
yield market, as measured by the Credit Suisse First Boston High Yield Index,
provided a six-month return of +8.65% and a 12-month return of +22.86% as of
March 31, 2004. By comparison, the Lehman Brothers Aggregate Bond Index returned
+2.98% and +5.40% and the Lehman Brothers Municipal Bond Index returned +3.12%
and +5.86% for the six-month and 12-month periods ended March 31, 2004,
respectively.
As of March month-end, the Federal Reserve Board maintained its accommodative
policy stance, pledging "patience" in raising rates. As a result, short-term
interest rates remained at historic lows and kept the short end of the yield
curve relatively flat, making it increasingly difficult to find attractive
income opportunities. Market watchers continue to monitor the economic data and
Federal Reserve Board language for indications of interest rate direction.
Having said that, if the economy continues to grow at its recent pace, many
believe it is just a matter of time before rates move upward.
Equity markets, in the meantime, continued to provide attractive returns. For
the six-month and 12-month periods ended March 31, 2004, the Standard & Poor's
500 Index returned +14.08% and +35.12%, respectively. Much of the boost came
from improving economic conditions throughout the past year. Significant fiscal
and monetary stimulus, including the low interest rates and tax cuts, has opened
the door to consumer spending, capital spending, increases in exports and
long-awaited job growth. As expected, these positive developments have led the
way to improvements in corporate earnings -- a positive for stock markets.
The events and efforts of the past year leave us with a much stronger economy
today. With all of this in mind, we believe it is time for investors to consider
what can go right in 2004. We encourage you to revisit your portfolio and your
asset allocation strategy to ensure you are well positioned to take advantage of
the opportunities that lie ahead. Your financial advisor can help you develop a
strategy designed to perform through all types of market and economic cycles.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
With interest rates at historical lows, our strategy was to remain liquid
in the front end of the money market yield curve while reaping the benefits of
higher interest rates on the longer end.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the year ended March 31, 2004, WCMA Government Securities Fund's Class 1,
Class 2, Class 3 and Class 4 Shares paid shareholders net annualized dividends
of .05%, .16%, .48% and .47%, respectively.* The Fund's seven-day yields as of
March 31, 2004 were .04% for Class 1 Shares, .16% for Class 2 Shares, .48% for
Class 3 Shares and .48% for Class 4 Shares.
The Fund's average portfolio maturity at March 31, 2004 was 60 days, compared to
64 days at September 30, 2003.
As the Fund's fiscal year began, the U.S. economy was relatively weak, having
registered a dismal 1.4% rate of gross domestic product growth in the first
quarter of 2003. The Federal Reserve Board, in order to prevent any further
deterioration in economic conditions, was bound to maintain its accommodative
monetary policy -- and investors began to price in further interest rate cuts.
The result was a flattening of the front end of the yield curve.
As the period progressed, economic conditions improved, consumer confidence
strengthened and equity markets rallied. May 2003 brought the passage of a
Federal tax-cut plan. In June, the Federal Reserve Board, focused on preventing
deflation, dropped the Federal Funds rate to 1%, its lowest level in 45 years.
On the heels of the fiscal and monetary stimulus, the economy grew at an
astounding annualized rate of 8.2% in the third quarter of 2003 and 4.1% in the
fourth quarter. A similar rate of growth is expected in the first quarter of
2004. Despite the generally positive economic news, it was clear that an
improvement in employment would be essential to sustain above-trend economic
growth.
Although interest rates experienced significant volatility over the past 12
months, yields at period end were only modestly higher than March 2003 levels.
Specifically, the yield on the two-year Treasury note opened the year at 1.49%
and closed at 1.59%, but traded at extreme levels of 1.09% and 2.10% throughout
the year. Trading ranges, especially in these longer-term securities, became
dynamic over the course of the year, which weighed on the potential risks and
rewards of our transactions.
On the issuance front, Treasury supply continued to favor the longer end, thus
creating a steeper yield curve past the one-year sector. Notably, however,
continued foreign interest in holding U.S. assets meant that investors readily
accepted the increased supply. In the front end, the Treasury was prudent in its
issuance of bills, which held the front end of the yield curve relatively flat
to financing levels.
With that being said, the Fund delivered highly competitive results relative to
its peers. This was a direct result of managing the portfolio's average life and
longer-dated holdings.
How did you manage the portfolio during the period?
In general, we managed the portfolio in line with our view that sustainable
economic growth will eventually require interest rates to rise. With interest
rates so low for such a long period of time, the natural tendency is for
interest rates to increase, thus moderating the pace of economic growth and
inflation. When interest rates do eventually rise, we believe they could climb
faster than most anticipate. Under these circumstances, we adopted a defensive
posture in managing the portfolio, monitoring economic data, employment
statistics and Federal Reserve Board language for cues of interest rate
movement.
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to the investor after all
expenses.
4 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
The portfolio's average life throughout the period was a good indicator of how
we perceived the market. Our lowest average life occurred in late May through
early June when the spread between three-month Treasury bills and two-year
Treasury notes narrowed to 18 basis points (.18%). As interest rates rose in
August and the curve grew steeper, we extended the portfolio's average life to
the 70-day range by adding 13-month - 14-month notes. By the end of September,
the yield curve began to flatten and we reduced the portfolio's average life to
64 days.
Later in 2003, as employment figures continually failed to meet expectations, we
became convinced that any Federal Reserve Board move toward higher interest
rates would be delayed well into 2004. As a result, we once again were content
to increase the average portfolio maturity into the 70-day area, until January.
By period end, we had reduced the portfolio's average life to 60 days given the
strong prospects for an improved economic environment and the potential for
gains in employment and inflation. In addition, with two-year Treasury rates
yielding 1.5%, there had been little incentive to extend our maturity.
How would you characterize the portfolio's position at the close of the period?
We believe the portfolio is well positioned going forward. Our high liquidity
base offers us opportunities to become more involved if interest rates increase,
while currently enjoying yields higher than offered by the front end of the
Treasury curve. The majority of our interest rate exposure is in the 12-month -
15-month sector. This area has been the fulcrum of the yield curve, which has
allowed us to "roll down" the yield curve and extend at higher levels as
opportunities present themselves.
We will continue to look for trading opportunities in the 18-month - 24-month
sector when interest rates rise. Such a scenario occurred shortly after the
close of the period, when the U.S. Department of Labor released
better-than-expected employment data. The news prompted two-year Treasury yields
to rise from 1.63% to 1.92%. In general, we will continue to evaluate the longer
end of the yield curve for opportunities to add additional yield, but intend to
remain selective as we monitor economic conditions and the results of the
Federal Reserve Board's upcoming meetings.
John Ng
Vice President and Portfolio Manager
April 15, 2004
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities WCMA Government Securities Fund
As of March 31, 2004
==============================================================================================================
Assets
- --------------------------------------------------------------------------------------------------------------
Investment in Master Government Securities Trust, at value
(identified cost--$541,378,807) ........................ $ 541,328,627
Prepaid expenses ......................................... 130,633
-------------
Total assets ............................................. 541,459,260
-------------
==============================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------
Payables:
Distributor ........................................... $ 26,285
Administrator ......................................... 17,944
Other affiliates ...................................... 3,690 47,919
--------
Accrued expenses ......................................... 104,134
-------------
Total liabilities ........................................ 152,053
-------------
==============================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------
Net assets ............................................... $ 541,307,207
=============
==============================================================================================================
Net Assets Consist of
- --------------------------------------------------------------------------------------------------------------
Class 1 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. $ 2,226,379
Class 2 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 13,758,349
Class 3 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 22,430,349
Class 4 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 15,720,663
Paid-in capital in excess of par ......................... 487,221,647
Unrealized depreciation on investments--net .............. (50,180)
-------------
Net Assets ............................................... $ 541,307,207
=============
==============================================================================================================
Net Asset Value
- --------------------------------------------------------------------------------------------------------------
Class 1--Based on net assets of $22,260,353 and
22,263,785 shares outstanding .......................... $ 1.00
=============
Class 2--Based on net assets of $137,565,886 and
137,583,491 shares outstanding ......................... $ 1.00
=============
Class 3--Based on net assets of $224,277,728 and
224,303,487 shares outstanding ......................... $ 1.00
=============
Class 4--Based on net assets of $157,203,240 and
157,206,626 shares outstanding ......................... $ 1.00
=============
See Notes to Financial Statements.
6 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Statement of Operations WCMA Government Securities Fund
For the Year Ended March 31, 2004
======================================================================================================================
Investment Income--Net
- ----------------------------------------------------------------------------------------------------------------------
Interest ....................................................... $ 3,487
Net investment income allocated from the Trust:
Interest and amortization of premium and discount
earned (includes $177,708 from affiliates) ................ 3,943,237
Expenses .................................................... (807,294)
-----------
Total income and net investment income allocated from the Trust 3,139,430
-----------
======================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------
Administration fees ............................................ $ 879,472
Account maintenance and distribution fees--Class 2 ............. 592,607
Account maintenance and distribution fees--Class 3 ............. 570,422
Account maintenance and distribution fees--Class 4 ............. 360,770
Registration fees .............................................. 227,472
Account maintenance and distribution fees--Class 1 ............. 125,016
Offering costs ................................................. 71,933
Professional fees .............................................. 30,298
Printing and shareholder reports ............................... 26,792
Transfer agent fees--Class 3 ................................... 6,781
Transfer agent fees--Class 4 ................................... 4,435
Transfer agent fees--Class 2 ................................... 3,880
Transfer agent fees--Class 1 ................................... 557
Other .......................................................... 9,368
-----------
Total expenses before waiver and reimbursement ................. 2,909,803
Waiver and reimbursement of expenses ........................... (1,089,843)
-----------
Total expenses after waiver and reimbursement .................. 1,819,960
-----------
Investment income--net ......................................... 1,319,470
-----------
======================================================================================================================
Realized & Unrealized Gain (Loss) on Investments Allocated from the Trust--Net
- ----------------------------------------------------------------------------------------------------------------------
Realized gain on investments allocated from the Trust--net ..... 17,972
Change in unrealized depreciation on investments allocated
from the Trust--net .......................................... (50,180)
-----------
Total realized and unrealized loss allocated from the Trust--net (32,208)
-----------
Net Increase in Net Assets Resulting from Operations ........... $ 1,287,262
===========
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets WCMA Government Securities Fund
For the For the Period
Year Ended March 3, 2003+
March 31, to March 31,
Increase (Decrease) in Net Assets: 2004 2003
=====================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------
Investment income--net .................................... $ 1,319,470 $ 74
Realized gain on investments allocated from the Trust--net 17,972 --
Change in unrealized depreciation on investments allocated
from the Trust--net ..................................... (50,180) --
-------------------------------
Net increase in net assets resulting from operations ...... 1,287,262 74
-------------------------------
=====================================================================================================================
Dividends & Distributions to Shareholders
- ---------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class 1 ................................................ (4,498) (18)
Class 2 ................................................ (130,640) (18)
Class 3 ................................................ (722,881) (19)
Class 4 ................................................ (461,453) (19)
Realized gain on investments allocated from the Trust--net:
Class 1 ................................................ (658) --
Class 2 ................................................ (4,641) --
Class 3 ................................................ (8,056) --
Class 4 ................................................ (4,617) --
-------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ........................... (1,337,444) (74)
-------------------------------
=====================================================================================================================
Beneficial Interest Transactions
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from beneficial interest
transactions ............................................ 541,257,315 74
-------------------------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Total increase in net assets .............................. 541,207,133 74
Beginning of period ....................................... 100,074 100,000
-------------------------------
End of period ............................................. $ 541,307,207 $ 100,074
===============================
+ Commencement of operations.
See Notes to Financial Statements.
8 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Financial Highlights WCMA Government Securities Fund
Class 1 Class 2
--------------------------------------------------------------
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year March 20, Year March 20,
from information provided in the financial statements. Ended 2003+ to Ended 2003+ to
March 31, March 31, March 31, March 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2004 2003
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------
Investment income--net .................... .0004 .0003 .0015 .0003
Realized and unrealized gain (loss) on
investments allocated from the Trust--net (.0002) .0002 (.0001) .0002
--------------------------------------------------------------
Total from investment operations .......... .0002 .0005 .0014 .0005
--------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.0004) (.0003) (.0015) (.0003)
Realized gain on investments allocated
from the Trust--net .................. (.0001) -- (.0001) --
--------------------------------------------------------------
Total dividends and distributions ......... (.0005) (.0003) (.0016) (.0003)
--------------------------------------------------------------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================
===================================================================================================================================
Total Investment Return
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................... .05% .05% .16% .05%
==============================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and
reimbursement++ ......................... 1.09% .02% .97% .02%
==============================================================
Total expenses++ .......................... 1.58% .02% 1.26% .02%
==============================================================
Total investment income and realized gain
on investments allocated from the
Trust--net .............................. .04% .03% .15% .03%
==============================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .. $ 22,260 $ 25 $ 137,566 $ 25
==============================================================
+ Effective date of the Fund's registration.
++ Includes the Fund's share of the Trust's allocated expenses.
See Notes to Financial Statements
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded) WCMA Government Securities Fund
Class 3 Class 4
------------------------------------------------------------
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year March 20, Year March 20,
from information provided in the financial statements. Ended 2003+ to Ended 2003+ to
March 31, March 31, March 31, March 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2004 2003
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------
Investment income--net .................... .0047 .0003 .0047 .0003
Realized and unrealized gain (loss) on
investments allocated from the Trust--net (.0001) .0002 --* .0002
-------------------------------------------------------------
Total from investment operations .......... .0046 .0005 .0047 .0005
-------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.0047) (.0003) (.0047) (.0003)
Realized gain on investments allocated
from the Trust--net .................. (.0001) -- --** --
-------------------------------------------------------------
Total dividends and distributions ......... (.0048) (.0003) (.0047) (.0003)
-------------------------------------------------------------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============================================================
===================================================================================================================================
Total Investment Return
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................... .48% .05% .47% .05%
=============================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and
reimbursement++ ......................... .65% .02% .65% .02%
=============================================================
Total expenses++ .......................... .96% .02% .96% .02%
=============================================================
Investment income and realized gain on
investments allocated from the Trust--net .48% .03% .48% .03%
=============================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .. $ 224,278 $ 25 $ 157,203 $ 25
=============================================================
* Amount is less than $.0001 per share.
** Amount is less than $(.0001) per share.
+ Effective date of the Fund's registration.
++ Includes the Fund's share of the Trust's allocated expenses.
See Notes to Financial Statements.
10 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Notes to Financial Statements WCMA Government Securities Fund
1. Significant Accounting Policies:
WCMA Government Securities Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a no load, diversified, open-end management
investment company. The Fund seeks to achieve its investment objective by
investing all of its assets in the Master Government Securities Trust (the
"Trust"), which has the same investment objective as the Fund. The value of the
Fund's investment in the Trust reflects the Fund's proportionate interest in the
net assets of the Trust. The performance of the Fund is directly affected by the
performance of the Trust. The financial statements of the Trust, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. The percentage of the Trust owned by the Fund
at March 31, 2004 was 45.3%. The Fund is divided into four classes, designated
Class 1, Class 2, Class 3 and Class 4. Each Class 1, Class 2, Class 3 and Class
4 share represents interests in the same assets of the Fund and have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that each class bears certain expenses related to account
maintenance and the distribution of such shares and the additional incremental
transfer agency costs resulting from the conversion of shares and have exclusive
voting rights with respect to matters relating to such account maintenance and
distribution expenditures. Income, expenses (other than expenses attributed to a
specific class) and realized and unrealized gains and losses on investments are
allocated daily to each class based on its relative net assets. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investments in the Trust at
fair value. Valuation of securities held by the Trust is discussed in Note 1a of
the Trust's Notes to Financial Statements, which are included elsewhere in this
report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Trust's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions to shareholders -- The Fund declares dividends
daily and reinvests daily such dividends (net of non-resident alien tax and
backup withholding tax withheld) in additional fund shares at net asset value.
Dividends and distributions are declared from the total of net investment income
and net realized gain or loss on investments.
(f) Investment transactions -- Investment transactions in the Trust are
accounted for on a trade date basis.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. These
reclassifications have no effect on net assets or net asset value per share.
There were no significant reclassifications in the current year.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
pays a monthly fee at an annual rate of .25% of the Fund's average daily net
assets for the performance of administrative services (other than investment
advice and related portfolio activities) necessary for the operation of the
Fund.
The Fund has adopted Distribution Plans in compliance with Rule 12b-1 under the
Investment Company Act of 1940, pursuant to which Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., receives account
maintenance and distribution fees from the Fund. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net assets of the
shares of the Fund as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class 1 ............................... .25% .75%
Class 2 ............................... .25% .425%
Class 3 ............................... .25% .125%
Class 4 ............................... .25% .125%
- --------------------------------------------------------------------------------
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) WCMA Government Securities Fund
The ongoing account maintenance fee compensates MLPF&S for providing account
maintenance services to shareholders. The ongoing distribution fee compensates
MLPF&S for providing shareholder and distribution related services to
shareholders. The Fund has entered into a contractual arrangement with FAM and
MLPF&S to waive and/or reimburse a portion of the Fund's fees and expenses to
ensure that the net expenses for the Fund's Class 2 Shares is 32 basis points
(.32%) higher than that of CMA Government Securities Fund, and Class 3 and Class
4 Shares is equal to that of CMA Government Securities Fund. The fee/expense
waiver or reimbursement includes account maintenance and distribution fees. This
arrangement has a one-year term, which began on the commencement date of
operations and is renewable. The Distributor has voluntarily agreed to waive a
portion of its distribution fees in order to ensure that each class of
shareholders receive a positive yield on each daily dividend. For the year
ended, March 31, 2004, FAM and MLPF&S have earned $879,472 and $1,648,815,
respectively, of which $1,089,843 was waived and/or reimbursed.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, and/or ML & Co.
3. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest transactions was
$541,257,315 and $74 for the year ended March 31, 2004 and for the period March
3, 2003 to March 31, 2003, respectively. In addition, on August 18, 2003,
$579,002,824 was transferred from CMA Government Fund as planned, following the
formation of WCMA Government Fund.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class 1 Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 129,156,599 $ 129,156,599
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 5,155 5,155
Shares issued in connection
with the bulk transfer of
WCMA shareholder assets .............. 24,197,893 24,197,893
----------------------------------
Total issued ........................... 153,359,647 153,359,647
Shares redeemed ........................ (131,120,880) (131,120,880)
----------------------------------
Net increase ........................... 22,238,767 $ 22,238,767
==================================
- -------------------------------------------------------------------------------
Class 1 Shares for the
Period March 3, 2003+ Dollar
to March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 18 $ 18
----------------------------------
Net increase ........................... 18 $ 18
==================================
+ Prior to March 3, 2003 (commencement of operations), the Fund issued
25,000 shares to FAM for $25,000.
- -------------------------------------------------------------------------------
Class 2 Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 451,353,350 $ 451,353,350
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 135,249 135,249
Shares issued in connection
with the bulk transfer of
WCMA shareholder assets .............. 153,348,889 153,348,889
----------------------------------
Total issued ........................... 604,837,488 604,837,488
Shares redeemed ........................ (467,279,015) (467,279,015)
----------------------------------
Net increase ........................... 137,558,473 $ 137,558,473
==================================
- -------------------------------------------------------------------------------
Class 2 Shares for the
Period March 3, 2003+ Dollar
to March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 18 $ 18
----------------------------------
Net increase ........................... 18 $ 18
==================================
+ Prior to March 3, 2003 (commencement of operations), the Fund issued
25,000 shares to FAM for $25,000.
- -------------------------------------------------------------------------------
Class 3 Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,097,426,217 $ 1,097,426,217
Shares issued to shareholders in
reinvestment of dividends
and distributions .................... 730,937 730,937
Shares issued in connection
with the bulk transfer of
WCMA shareholder assets .............. 232,545,615 232,545,615
----------------------------------
Total issued ........................... 1,330,702,769 1,330,702,769
Shares redeemed ........................ (1,106,424,301) (1,106,424,301)
----------------------------------
Net increase ........................... 224,278,468 $ 224,278,468
==================================
- -------------------------------------------------------------------------------
Class 3 Shares for the
Period March 3, 2003+ Dollar
to March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 19 $ 19
----------------------------------
Net increase ........................... 19 $ 19
==================================
+ Prior to March 3, 2003 (commencement of operations), the Fund issued
25,000 shares to FAM for $25,000.
12 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Notes to Financial Statements (concluded) WCMA Government Securities Fund
- -------------------------------------------------------------------------------
Class 4 Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 842,090,508 $ 842,090,508
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 466,070 466,070
Shares issued in connection
with the bulk transfer of
WCMA shareholder assets .............. 168,910,427 168,910,427
----------------------------------
Total issued ........................... 1,011,467,005 1,011,467,005
Shares redeemed ........................ (854,285,398) (854,285,398)
----------------------------------
Net increase ........................... 157,181,607 $ 157,181,607
==================================
- -------------------------------------------------------------------------------
Class 4 Shares for the
Period March 3, 2003+ Dollar
to March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 19 $ 19
----------------------------------
Net increase ........................... 19 $ 19
==================================
+ Prior to March 3, 2003 (commencement of operations), the Fund issued
25,000 shares to FAM for $25,000.
4. Distributions to Shareholders:
The tax character of distributions paid during the year ended March 31, 2004 and
during the period March 3, 2003 to March 31, 2003 were as follows:
- -------------------------------------------------------------------------------
For the For the
Year Ended Period March 3,
March 31, 2003+ to
2004 March 31, 2003
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ...................... $ 1,329,878 $ 74
Net long-term capital gains .......... 7,566 --
----------------------------------
Total taxable distributions ............ $ 1,337,444 $ 74
==================================
+ Commencement of operations.
As of March 31, 2004, there were no significant differences between the book and
tax components of net assets.
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Independent Auditors' Report WCMA Government Securities Fund
To the Shareholders and Board of Trustees of
WCMA Government Securities Fund:
We have audited the accompanying statement of assets and liabilities of WCMA
Government Securities Fund as of March 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
the year then ended and for the period March 3, 2003 (commencement of
operations) through March 31, 2003, and the financial highlights for the year
then ended and for the period March 20, 2003 through March 31, 2003. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and 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. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of WCMA
Government Securities Fund as of March 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for the year then ended
and for the period March 3, 2003 through March 31, 2003, and its financial
highlights for the year then ended and for the period March 20, 2003 through
March 31, 2003, in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
May 14, 2004
14 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Schedule of Investments Master Government Securities Trust (in Thousands)
Face Interest Maturity
Issue Amount Rate Date Value
============================================================================================
U.S. Government Obligations*--26.4%
============================================================================================
U.S. Treasury Bills $10,500 1.04-
1.045% 5/06/2004 $ 10,491
- --------------------------------------------------------------------------------------------
U.S. Treasury Notes 30,000 3.375 4/30/2004 30,057
24,200 2.875 6/30/2004 24,313
10,875 2.25 7/31/2004 10,920
25,800 2.125 8/31/2004 25,920
81,400 1.875 9/30/2004 81,746
5,200 2.125 10/31/2004 5,233
34,300 2.00 11/30/2004 34,513
22,600 1.75 12/31/2004 22,712
25,500 1.50 2/28/2005 25,588
13,800 1.625 3/31/2005 13,865
15,700 1.25 5/31/2005 15,710
2,500 1.625 9/30/2005 2,511
8,800 1.625 10/31/2005 8,835
2,250 1.50 3/31/2006 2,246
- --------------------------------------------------------------------------------------------
Total U.S. Government Obligations
(Cost--$314,037) ............................................................... 314,660
- --------------------------------------------------------------------------------------------
Face
Amount Issue
============================================================================================
Repurchase Agreements--73.0%
============================================================================================
$58,000 ABN AMRO Inc., purchased on 3/31/2004
to yield 1.02% to 4/07/2004, repurchase
price $58,002, collateralized by U.S. Treasury
Note, 1.625% to 2% due 3/31/2005
to 5/15/2006 ................................................. 58,000
- --------------------------------------------------------------------------------------------
58,000 Bank of America Securities LLC, purchased on
3/25/2004 to yield 1% to 4/01/2004,
repurchase price $58,011, collateralized by
GNMA, 4.5% to 7% due 7/15/2018 to
3/15/2034 .................................................... 58,000
- --------------------------------------------------------------------------------------------
58,500 Barclays Capital Inc., purchased on 3/31/2004
to yield 1.02% to 4/01/2004, repurchase price
$58,502, collateralized by U.S. Treasury Bills,
1.875% due 7/15/2013 ......................................... 58,500
- --------------------------------------------------------------------------------------------
58,500 Bear Stearns & Co. Inc., purchased on
3/31/2004 to yield 1.02% to 4/01/2004,
repurchase price $58,502, collateralized by
U.S. Treasury Note, 6.25% due 8/15/2023 ...................... 58,500
- --------------------------------------------------------------------------------------------
58,000 Citigroup Global Markets Inc., purchased on
3/31/2004 to yield 0.98% to 4/07/2004,
repurchase price $58,002, collateralized by
GNMA, 6.5% due 8/20/2032 ..................................... 58,000
- --------------------------------------------------------------------------------------------
58,000 Credit Suisse First Boston Corp., purchased
on 3/30/2004 to yield 1.03% to 4/06/2004,
repurchase price $58,003, collateralized
by GNMA, 6% to 9.75% due 7/15/2004
to 3/15/2042 ................................................. 58,000
- --------------------------------------------------------------------------------------------
58,000 Deutsche Bank Securities Inc., purchased
on 3/31/2004 to yield 1.04% to 4/01/2004,
repurchase price $58,002, collateralized
by GNMA, 5.5% to 8.5% due 12/15/2019
to 1/15/2034 ................................................. 58,000
- --------------------------------------------------------------------------------------------
60,000 Goldman Sachs & Company, purchased
on 3/05/2004 to yield 1% to 4/02/2004,
repurchase price $60,002, collateralized
by GNMA, 5.5% to 6% due 1/20/2034
to 3/15/2034 ................................................. 60,000
- --------------------------------------------------------------------------------------------
58,000 Greenwich Capital Markets, Inc., purchased
on 3/31/2004 to yield 1.02% to 4/07/2004,
repurchase price $58,004, collateralized
by GNMA, 4.75% to 6% due 2/15/2008
to 1/15/2044 ................................................. 58,000
- --------------------------------------------------------------------------------------------
57,180 HSBC Securities (USA) Inc., purchased on
3/31/2004 to yield 1.02% to 4/01/2004,
repurchase price $57,181, collateralized
by U.S. Treasury Strips, 0% to 11.75% due
8/15/2004 to 2/15/2031 ....................................... 57,180
- --------------------------------------------------------------------------------------------
58,000 J.P. Morgan Securities Inc., purchased on
3/31/2004 to yield 1.02% to 4/07/2004,
repurchase price $58,003, collateralized
by GNMA, 5% to 8% due 1/15/2008
to 11/15/2044 ................................................ 58,000
- --------------------------------------------------------------------------------------------
58,000 Lehman Brothers Inc., purchased on 3/30/2004
to yield 1% to 4/06/2004, repurchase price
$58,002, collateralized by GNMA ,4.375% to
7% due 4/20/2026 to 5/15/2043 ................................ 58,000
- --------------------------------------------------------------------------------------------
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Master Government Securities Trust (in Thousands)
Face
Amount Issue Value
============================================================================================
Repurchase Agreements (continued)
============================================================================================
$58,000 Merrill Lynch Government Securities,
purchased on 3/25/2004 to yield 1%
to 4/1/2004, repurchase price $58,002,
collateralized by GNMA, 3.5% to 7.5% due
9/15/2006 to 8/15/2043 (a) ................................... $ 58,000
- --------------------------------------------------------------------------------------------
58,000 Morgan Stanley & Co., Inc., purchased on
3/31/2004 to yield 0.98% to 4/06/2004,
repurchase price $58,002, collateralized by
GNMA, 6% to 8.3% due 4/15/2020 to
10/15/2033 ................................................... 58,000
- --------------------------------------------------------------------------------------------
58,000 UBS Warburg LLC, purchased on 3/25/2004
to yield 1% to 4/01/2004, repurchase price
$58,001, collateralized by GNMA, 3.5% to
7% due 12/15/2023 to 8/15/2043 ............................... 58,000
- --------------------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost--$872,180) ............................................................... 872,180
- --------------------------------------------------------------------------------------------
Total Investments
(Cost--$1,186,217)--99.4% ...................................................... 1,186,840
Other Assets Less Liabilities--0.6% ............................................ 7,398
----------
Net Assets--100.0% ............................................................. $1,194,238
==========
============================================================================================
* U.S. Treasury Bills are traded on a discount basis; the interest rate
shown are the range of the discount rates paid at the time of purchase by
the Trust. U.S. Treasury Notes bear interest at the rates shown, payable
at fixed dates until maturity.
(a) Investments in companies considered to be an affiliate of the Trust (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Government Securities, Inc. $(19,000) $721
--------------------------------------------------------------------------
See Notes to Financial Statements.
16 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Statement of Assets and Liabilities Master Government Securities Trust
As of March 31, 2004
========================================================================================================
Assets
- --------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$1,128,216,565*) ........... $1,128,840,455
Investments in affiliated securities, at value
(identified cost--$58,000,000*) .............. 58,000,000
Cash ........................................... 11,696
Receivables:
Contributions ............................... $ 6,190,914
Interest (including $9,667 from affiliates) . 1,288,368 7,479,282
-----------
Prepaid expenses ............................... 8,117
--------------
Total assets ................................... 1,194,339,550
--------------
========================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------
Payable to investment adviser .................. 32,152
Other affiliates ............................... 6,597 38,749
-----------
Accrued expenses ............................... 62,583
--------------
Total liabilities .............................. 101,332
--------------
========================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------
Net assets ..................................... $1,194,238,218
==============
========================================================================================================
Net Assets Consist of
- --------------------------------------------------------------------------------------------------------
Investors' capital ............................. $1,193,614,328
Unrealized appreciation on investments--net .... 623,890
--------------
Net Assets ..................................... $1,194,238,218
==============
* Cost for Federal income tax purposes was $1,186,216,565. As of March 31,
2004, net unrealized appreciation for Federal income tax purposes amounted
to $623,890, of which $624,770 related to appreciated securities and $880
is related to depreciated securities.
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Master Government Securities Trust
For the Year Ended March 31, 2004
=============================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------
Interest and amortization of premium and discount earned
(includes $721,263 from affiliates) .................. $ 16,004,432
=============================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................... $2,597,681
Accounting services .................................... 271,746
Custodian fees ......................................... 74,368
Professional fees ...................................... 47,635
Trustees' fees and expenses ............................ 42,489
Pricing fees ........................................... 4,986
Printing and shareholder reports ....................... 2,216
Other .................................................. 25,583
----------
Total expenses ......................................... 3,066,704
------------
Investment income--net ................................. 12,937,728
------------
=============================================================================================================
Realized & Unrealized Gain (Loss) on Investments--Net
- -------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ...................... 75,879
Change in unrealized appreciation on investments--net .. (459,784)
------------
Total realized and unrealized loss on investments--net . (383,905)
------------
Net Increase in Net Assets Resulting from Operations ... $ 12,553,823
============
See Notes to Financial Statements.
18 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Statements of Changes in Net Assets Master Government Securities Trust
For the For the Period
Year Ended February 13, 2003+
March 31, to March 31,
Increase (Decrease) in Net Assets: 2004 2003
======================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net .............................. $ 12,937,728 $ 2,258,188
Realized gain on investments--net ................... 75,879 8,057
Change in unrealized appreciation on investments--net (459,784) (2,060)
--------------------------------------
Net increase in net assets resulting from operations 12,553,823 2,264,185
--------------------------------------
======================================================================================================================
Capital Transactions
- ----------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ......................... 5,445,099,631 712,600,848
Fair value of net assets contributions .............. -- 1,599,940,901
Fair value of withdrawals ........................... (5,848,609,190) (729,711,980)
--------------------------------------
Net increase (decrease) in net assets derived from
capital transactions .............................. (403,509,559) 1,582,829,769
--------------------------------------
======================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............. (390,955,736) 1,585,093,954
Beginning of period ................................. 1,585,193,954 100,000
--------------------------------------
End of period ....................................... $ 1,194,238,218 $ 1,585,193,954
======================================
+ Commencement of operations.
See Notes to Financial Statements.
Financial Highlights Master Government Securities Trust
For the For the Period
Year Ended February 13, 2003+
The following ratios have been derived from March 31, to March 31,
information provided in the financial statements. 2004 2003
========================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------
Total investment return ............................... .94% .75%*
======================================
========================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Expenses .............................................. .22% .26%*
======================================
Investment income and realized gain on investments--net .94% 1.08%*
======================================
========================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .............. $ 1,194,238 $ 1,585,194
======================================
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Master Government Securities Trust
1. Significant Accounting Policies:
Master Government Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, and is organized as a Delaware
statutory trust. The Declaration of Trust permits the Trustees to issue
nontransferable interest in the Trust, subject to certain limitations. The
Trust's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. The following is a summary of
significant accounting policies followed by the Trust.
(a) Valuation of investments -- Portfolio securities with remaining maturities
of greater than sixty days, for which market quotations are readily available,
are valued at market value. As securities transition from sixty-one to sixty
days to maturity, the difference between the valuation existing on the
sixty-first day before maturity and maturity value is amortized on a
straight-line basis to maturity. Securities maturing sixty days or less from
their date of acquisition are valued at amortized cost, which approximates
market value. For the purpose of valuation, the maturity of a variable rate
security is deemed to be the next coupon date on which the interest rate is to
be adjusted. Other investments for which market value quotations are not
available are valued at their fair value as determined in good faith by or under
the direction of the Trust's Board of Trustees.
(b) Repurchase agreements -- The Trust invests in U.S. government securities
pursuant to repurchase agreements. Under such agreements, the counterparty
agrees to repurchase the security at a mutually agreed upon time and price. The
Trust takes possession of the underlying securities, marks to market such
securities and, if necessary, receives additional securities daily to ensure
that the contract is fully collateralized. If the counterparty defaults and the
fair value of the collateral declines, liquidation of the collateral by the
Trust may be delayed or limited.
(c) Income taxes -- The Trust is classified as a partnership for Federal income
tax purposes. As such, each investor in the Trust is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Trust. Therefore, no Federal income tax
provision is required. It is intended that the Trust's assets will be managed so
an investor in the Trust can satisfy the requirements of subchapter M of the
Internal Revenue Code.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income (including amortization of premium and
discount) is recognized on the accrual basis.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Trust's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Trust. For such services, the Trust pays a monthly fee
based upon the average daily value of the Trust's net assets, at the following
annual rates: .25% of the Trust's average daily net assets not exceeding $500
million; .175% of the average daily net assets in excess of $500 million but not
exceeding $1 billion; and .125% of the average daily net assets in excess of $1
billion.
For the year ended March 31, 2004, the Trust reimbursed FAM $27,919 for certain
accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
20 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Independent Auditors' Report Master Government Securities Trust
To the Investors and Board of Trustees of
Master Government Securities Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Government Securities Trust as of March
31, 2004, and the related statement of operations for the year then ended and
the statements of changes in net assets and the financial highlights for the
year then ended and for the period February 13, 2003 (commencement of
operations) through March 31, 2003. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and 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 as of March 31, 2004, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Government Securities Trust as of March 31, 2004, the results of its operations
for the year then ended, and the changes in its net assets and its financial
highlights for the year then ended and for the period February 13, 2003 through
March 31, 2003, in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
May 14, 2004
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of Merrill Lynch Investment Managers, L.P. 124 Funds None
Glenn* Princeton, NJ and present ("MLIM")/Fund Asset Management, L.P. ("FAM")-- 160 Portfolios
08543-9011 Trustee and Advised Funds since 1999; Chairman (Americas Region)
Age: 63 1997 to of MLIM from 2000 to 2002; Executive Vice President
present of MLIM and FAM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991 to
2002; Executive Vice President and Director of
Princeton Services, Inc. ("Princeton Services") from
1993 to 2002; President of Princeton Administrators,
L.P. from 1989 to 2002; Director of Financial Data
Services, Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald W. P.O. Box 9095 Trustee 2003 to Professor Emeritus of Finance, School of Business, 51 Funds None
Forbes Princeton, NJ present State University of New York at Albany since 2000 50 Portfolios
08543-9095 and Professor thereof from 1989 to 2000;
Age: 63 International Consultant at the Urban Institute
from 1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Trustee 1994 to Professor, Harvard Business School since 1989. 51 Funds Newell
Montgomery Princeton, NJ present 50 Portfolios Rubbermaid,
08543-9095 Inc.
Age: 51
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin A. P.O. Box 9095 Trustee 2003 to Director Emeritus of The Boston University Center 51 Funds None
Ryan Princeton, NJ present for the Advancement of Ethics and Character from 50 Portfolios
08543-9095 1989 to 1999; Professor of Education at Boston
Age: 71 University from 1982 to 1999 and Professor Emeritus
thereof since 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Trustee 2003 to President of Middle East Institute from 1995 to 51 Funds None
Suddarth Princeton, NJ present 2001; Foreign Service Officer of United States 50 Portfolios
08543-9095 Foreign Service from 1961 to 1995 and Career
Age: 68 Minister thereof from 1989 to 1995; Deputy
Inspector General of U.S. Department of State
from 1991 to 1994; U.S. Ambassador to the
Hashemite Kingdom of Jordan from 1987 to 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Trustee 2003 to Professor of Finance, New York University, Leonard 51 Funds Bowne & Co.,
West Princeton, NJ present N. Stern School of Business Administration from 50 Portfolios Inc.; Vornado
08543-9095 1982 to 1994 and Dean Emeritus thereof since 1994. Operating
Age: 66 Company;
Vornado
Realty
Trust;
Alexander's,
Inc.
22 WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004
Officers and Trustees (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Trustee 2003 to Self-employed financial consultant since 1994; 51 Funds None
Zinbarg Princeton, NJ present Executive Vice President of The Prudential 50 Portfolios
08543-9095 Insurance Company of America from 1988 to
Age: 69 1994; Former Director of Prudential Reinsurance
Company and former Trustee of The Prudential
Foundation.
------------------------------------------------------------------------------------------------------------------------
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2003 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
John Ng P.O. Box 9011 Vice 2003 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM
Princeton, NJ President present from 1994 to 2000.
08543-9011
Age: 50
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2003 to First Vice President of MLIM since 2001; Director (Legal Advisory) from 2000 to
Gillespie Princeton, NJ present 2001; Vice President from 1999 to 2000; Attorney associated with MLIM since 1998.
08543-9011
Age: 40
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust
Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-221-7210**
** For inquiries regarding your WCMA account, call 800-262-4636.
- --------------------------------------------------------------------------------
Charles C. Reilly, Trustee of WCMA Government Securities Fund, has recently
retired. The Fund's Board of Trustees wishes Mr. Reilly well in his retirement.
- --------------------------------------------------------------------------------
WCMA GOVERNMENT SECURITIES FUND MARCH 31, 2004 23
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. Past performance
results shown in this report should not be considered a representation of future
performance, which will fluctuate. Statements and other information herein are
as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
WCMA Government Securities Fund
Box 9011
Princeton, NJ
08543-9011
#WCMAGS -- 3/04
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Ronald W.
Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees
WCMA Government Securities Fund
Fiscal Year Ending March 31, 2004 - $11,400
Fiscal Year Ending March 31, 2003 - $15,863
Master Government Securities Trust
Fiscal Year Ending March 31, 2004 - $35,000
Fiscal Year Ending March 31, 2003 - $40,513
(b) Audit-Related Fees
WCMA Government Securities Fund
Fiscal Year Ending March 31, 2004 - $0
Fiscal Year Ending March 31, 2003 - $0
Master Government Securities Trust
Fiscal Year Ending March 31, 2004 - $0
Fiscal Year Ending March 31, 2003 - $0
(c) Tax Fees
WCMA Government Securities Fund
Fiscal Year Ending March 31, 2004 - $5,800
Fiscal Year Ending March 31, 2003 - $3,600
The nature of the services include tax compliance, tax advice and tax
planning.
Master Government Securities Trust
Fiscal Year Ending March 31, 2004 - $8,000
Fiscal Year Ending March 31, 2003 - $5,000
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees
WCMA Government Securities Fund
Fiscal Year Ending March 31, 2004 - $0
Fiscal Year Ending March 31, 2003 - $0
Master Government Securities Trust
Fiscal Year Ending March 31, 2004 - $0
Fiscal Year Ending March 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for the project as a whole. Any proposed services exceeding the
pre-approved cost levels will require specific pre-approval by the
Committee, as will any other services not subject to general
pre-approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g)
WCMA Government Securities Fund
Fiscal Year Ending March 31, 2004 - $16,708,160
Fiscal Year Ending March 31, 2003 - $17,378,427
Master Government Securities Trust
Fiscal Year Ending March 31, 2004 - $16,708,160
Fiscal Year Ending March 31, 2003 - $17,378,427
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year 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 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
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.
WCMA Government Securities Fund and Master Government Securities Trust
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
WCMA Government Securities Fund and Master Government Securities Trust
Date: May 21, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
WCMA Government Securities Fund and Master Government Securities Trust
Date: May 21, 2004
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
WCMA Government Securities Fund and Master Government Securities Trust
Date: May 21, 2004