UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-3205
811-21300
Name of Fund: CMA 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, CMA 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: 04/01/04 - 09/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
CMA Government
Securities Fund
Semi-Annual Report
September 30, 2004
[LOGO] Merrill Lynch Investment Managers
CMA Government Securities Fund
Officers and Trustees
Terry K. Glenn, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Jean Margo Reid, Trustee
Kevin A. Ryan, Trustee
Roscoe S. Suddarth, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
John Ng, Vice President
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
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 CMA account, call 800-CMA-INFO
(800-262-4636).
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
2 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, the financial markets were facing a
number of uncertainties. At the top of investors' minds were questions about
economic expansion, corporate earnings, interest rates and inflation, politics,
oil prices and terrorism.
After benefiting from aggressive monetary and fiscal policy stimulus, some fear
the U.S. economy has hit a "soft patch." In fact, economic expansion has slowed
somewhat in recent months, but we believe it is easing into a pace of growth
that is sustainable and healthy. The favorable economic environment has served
to benefit American corporations. Although the most impressive earnings results
were seen earlier in the year, solid productivity, improved revenue growth and
cost discipline all point to a vital corporate sector.
In terms of inflation and interest rates, the Federal Reserve Board (the Fed)
has signaled its confidence in the economic recovery by increasing the Federal
Funds target rate three times in the past several months, from 1% to 1.75%.
Inflation, for its part, has remained in check. Investors and economists are
focused on how quickly Fed policy will move from here.
While any market jitters associated with the presidential election should
subside after November, the effect of oil prices is more difficult to predict.
At around $50 per barrel, the price of oil is clearly a concern. However, on an
inflation-adjusted basis and considering modern usage levels, the situation is
far from the crisis proportions we saw in the 1980s. Finally, although terrorism
and geopolitical crises are realities we are forced to live with today, history
has shown us that the financial effects of any single event tend to be
short-lived.
Amid the uncertainty, fixed income markets provided modestly positive results.
For the six-month and 12-month periods ended September 30, 2004, the Lehman
Brothers Aggregate Bond Index returned +.68% and +3.68%, respectively; the
Credit Suisse First Boston High Yield Index returned +4.30% and +13.32%; and the
Citigroup Three-Month Treasury Bill Index returned +.56% and +1.04%. In terms of
yield, the 10-year Treasury note recorded a yield of 4.14% at September 30,
2004, versus 3.96% at September 30, 2003. The three-month Treasury bill's yield
was 1.71% at period-end, compared to .95% a year earlier.
The key during uncertain times is to remain focused on the big picture.
Investment success comes not from reacting to short-term volatility, but from
maintaining a long-term perspective and adhering to the disciplines of asset
allocation, diversification and rebalancing. We encourage you to work with your
financial advisor to ensure these time-tested techniques are incorporated into
your investment plan. 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
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
As the Federal Reserve Board embarked on its "measured" tightening
program, we began to target shorter maturities on the yield curve and gradually
reduce the portfolio's average duration.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended September 30, 2004, CMA Government Securities
Fund paid shareholders a net annualized dividend of .63%. The Fund's seven-day
yield as of September 30, 2004, was 1.02%.
The Fund's average portfolio maturity at September 30, 2004 was 47 days,
compared to 60 days at March 31, 2004.
We employed a barbell strategy throughout the period. That is, we emphasized the
very front end of the market (overnight and term financing) for liquidity and
looked to longer-dated securities for yield enhancement and price appreciation.
Our focus on yield enhancement and net asset appreciation initially encompassed
the one-year sector but was gradually moved to the six-month area of the yield
curve as the period progressed and higher interest rates appeared imminent. With
that being said, the Fund delivered above-average results relative to its peers.
This was a direct result of managing the portfolio's average life and
longer-dated holdings.
For the most part, the interest rate environment took its cue from the economy.
While economic growth had been favorable for some time, the labor market had
been stubbornly weak. With the consumer accounting for the majority of gross
domestic product (GDP), an improvement in employment would be essential to
sustainable above-trend economic growth. Until such time, the Federal Reserve
Board (the Fed) seemed apt to keep interest rates at their historic lows.
The employment picture began to show its first signs of revival at the start of
the period with the release of a surprisingly robust payroll report for the
month of March. Similarly strong jobs reports followed for the months of April
and May, and investors began to anticipate a Fed tightening. On June 30, the Fed
raised the target for the Federal Funds rate from 1% to 1.25%. The 25 basis
point (.25%) hike was followed by two more in August and September, bringing the
target rate to 1.75% by period-end. Still, interest rates remained near historic
lows, and the Fed telegraphed its intention to maintain a "measured" approach to
interest rate increases.
As the period neared its end, the strength of the economic expansion came into
question. GDP, which grew at an annualized rate of 4.5% in the first quarter,
slowed to 3.3% in the second quarter. Nevertheless, business capital spending
and export activity expanded at a record pace. We expect this strength to
continue, which should lead to improved hiring in the months ahead. GDP is
estimated at approximately 4% for the third quarter.
Issuance of Treasury securities increased during the period, primarily due to
deficit spending and the mounting costs associated with the war in Iraq. 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. Issuance of
Treasury bills had been more reserved, which allowed the front end of the yield
curve to remain relatively flat to financing levels.
How did you manage the portfolio during the period?
In general, we managed the portfolio in line with our view that sustainable
economic growth would eventually require interest rates to rise. Under these
circumstances, we adopted a more defensive posture.
The portfolio's average life was in the mid 60-day range early in the period
when the Fed appeared poised to hold interest rates at their historic lows. As
it became apparent that the Fed would increase interest rates at a measured
pace, we decided to reduce the Fund's average life, ultimately taking it into
the mid 40-day range.
4 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
While we continued to employ our barbelled approach throughout the period, we
believed the two-year sector would give up the most ground in a rising interest
rate environment. As a result, we trimmed our exposure in longer-dated
securities and focused primarily on increasing our liquidity profile, namely in
repurchase agreements and shorter-dated Treasury issues. We determined that the
six-month sector offered the best opportunity for yield enhancement and price
appreciation, and added securities in this area when they became available.
During the period, we noted the establishment of trading ranges -- that is, we
identified certain interest rate levels at which we held or reduced our longer
interest rate exposure. These ranges became dynamic over the course of the
period as we weighed the potential risks and rewards of our transactions.
How would you characterize the portfolio's position at the close of the period?
The portfolio's average maturity was conservative at period-end. While the
Federal Funds forward curve was projecting at least a 2% target rate by
year-end, we expected the Fed to raise interest rates gradually rather than race
to neutrality. Based on this view and the results of our internal analyses, we
ended the period with a focus on the six-month sector as the fulcrum of the
yield curve. This area offered the Fund attractive yields while allowing us the
flexibility to extend at higher levels as opportunities presented themselves.
The Trust's portfolio composition as a percent of net assets at the end of
September and as of our last report to shareholders is detailed below:
- --------------------------------------------------------------------------------
9/30/04 3/31/04
- --------------------------------------------------------------------------------
Repurchase Agreements .......................... 67.8% 73.0%
U.S. Government Obligations .................... 31.8 26.4
Other Assets Less Liabilities .................. 0.4 0.6
---------------------
Total .......................................... 100.0% 100.0%
=====================
Looking ahead, if investors overreact by increasing market rates ahead of the
Fed, we will take the opportunity to reenter the market. Having said that, we
will maintain a high liquidity base given investor needs in a rising interest
rate environment. Finally, although we do not anticipate a dramatic change in
the level of Treasury issuance for the near term, we will take advantage of any
technical aberrations in the yield curve. As always, we continue to monitor the
economy and interest rates, and will remain ready to adjust our strategy as
market dynamics dictate.
John Ng
Vice President and Portfolio Manager
October 7, 2004
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses, including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on April 1, 2004 and held through
September 30, 2004) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees, or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
=============================================================================================================
Actual
=============================================================================================================
CMA Government Securities Fund $1,000 $1,003.10 $3.26
=============================================================================================================
Hypothetical (5% annual return before expenses)**
=============================================================================================================
CMA Government Securities Fund $1,000 $1,021.81 $3.29
- -------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of .65%
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period shown). Because the Fund is a
feeder fund, the expense table example reflects the expenses of both the
feeder fund and the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Statement of Assets and Liabilities CMA Government Securities Fund
As of September 30, 2004
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investment in Master Government Securities Trust, at
value (identified cost--$582,231,593) .................. $ 582,348,656
Prepaid expenses ........................................ 44,604
---------------
Total assets ............................................ 582,393,260
---------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Payables:
Distributor .......................................... $ 307,644
Administrator ........................................ 24,311
Other affiliates ..................................... 13,835 345,790
---------------
Accrued expenses ........................................ 1,062
---------------
Total liabilities ....................................... 346,852
---------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets .............................................. $ 582,046,408
===============
=======================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ............................ $ 58,192,935
Paid-in capital in excess of par ........................ 523,736,410
Unrealized appreciation allocated from the Trust--net ... 117,063
---------------
Net Assets--Equivalent to $1.00 per share based on
581,929,347 shares of beneficial interest outstanding .. $ 582,046,408
===============
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Statement of Operations CMA Government Securities Fund
For the Six Months Ended September 30, 2004
=======================================================================================================================
Investment Income--Net
- -----------------------------------------------------------------------------------------------------------------------
Interest ................................................ $ 7,936
Net investment income allocated from the Trust:
Interest (includes $185,685 from affiliates) and
amortization of premium and discount earned ......... 3,973,241
Expenses ............................................. (758,108)
---------------
Total income and net investment income allocated from the
Trust .................................................. 3,223,069
---------------
=======================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Administration fees ..................................... $ 783,926
Distribution fees ....................................... 391,026
Registration fees ....................................... 47,523
Transfer agent fees ..................................... 33,633
Printing and shareholder reports ........................ 17,813
Professional fees ....................................... 13,881
Other ................................................... 7,914
---------------
Total expenses .......................................... 1,295,716
---------------
Investment income--net .................................. 1,927,353
---------------
=======================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain allocated from the Trust--net ............. 609
Change in unrealized appreciation allocated from the
Trust--net ............................................. (557,007)
---------------
Total realized and unrealized loss allocated from the
Trust--net ............................................. (556,398)
---------------
Net Increase in Net Assets Resulting from Operations .... $ 1,370,955
===============
See Notes to Financial Statements.
8 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Statements of Changes in Net Assets CMA Government Securities Fund
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2004 2004
=======================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net .................................. $ 1,927,353 $ 5,649,349
Realized gain allocated from the Trust--net ............. 609 57,907
Change in unrealized appreciation allocated from the
Trust--net ............................................. (557,007) (409,604)
-----------------------------------
Net increase in net assets resulting from operations .... 1,370,955 5,297,652
-----------------------------------
=======================================================================================================================
Dividends & Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net .................................. (1,927,353) (5,649,351)
Realized gain allocated from the Trust--net ............. (609) (57,907)
-----------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders .......................... (1,927,962) (5,707,258)
-----------------------------------
=======================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------
Net proceeds from sale of shares ........................ 853,639,854 2,918,028,034
Value of shares issued to shareholders in reinvestment of
dividends and distributions ............................ 1,927,793 5,707,512
-----------------------------------
Total shares issued ..................................... 855,567,647 2,923,735,546
-----------------------------------
Cost of shares redeemed ................................. (925,618,267) (3,276,107,628)
Shares redeemed in connection with the bulk transfer of
WCMA shareholder assets ................................ -- (579,002,824)
-----------------------------------
Total shares redeemed ................................... (925,618,267) (3,855,110,452)
-----------------------------------
Net decrease in net assets derived from beneficial
interest transactions .................................. (70,050,620) (931,374,906)
-----------------------------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ............................ (70,607,627) (931,784,512)
Beginning of period ..................................... 652,654,035 1,584,438,547
-----------------------------------
End of period ........................................... $ 582,046,408 $ 652,654,035
===================================
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Financial Highlights CMA Government Securities Fund
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended March 31,
September 30, -------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2004 2003++ 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-----------------------------------------------------------------------
Investment income--net ................ .0031 .0053 .0122 .0264 .0511
Realized and unrealized gain (loss) and
allocated from the Trust--net ........ (.0009) (.0003) (.0004) .0010 .0009
-----------------------------------------------------------------------
Total from investment operations ...... .0022 .0050 .0118 .0274 .0520
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............. (.0031) (.0053) (.0122) (.0264) (.0511)
Realized gain and allocated from the
Trust--net ........................ --+ (.0001) (.0001) (.0004) --+
-----------------------------------------------------------------------
Total dividends and distributions ..... (.0031) (.0054) (.0123) (.0268) (.0511)
-----------------------------------------------------------------------
Net asset value, end of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=======================================================================
Total investment return ............... .31%** .52% 1.22% 2.62% 5.67%
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses .............................. .65%+++ .63%+++ .60%+++ .60% .58%
=======================================================================
Investment income and realized gain
allocated from the Trust--net ........ .61%* .56% 1.23% 2.68% 5.56%
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ....................... $ 582,046 $ 652,654 $1,584,439 $1,803,646 $2,022,904
=======================================================================
* Annualized.
** Aggregate total investment return.
+ Amount is less than $(.0001) per share.
++ On February 13, 2003, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, which has the same investment
objective as the Fund. All investments will be made at the Trust level.
This structure is sometimes called a "master/feeder" structure.
+++ Includes the Fund's share of the Trust's allocated expenses.
See Notes to Financial Statements.
10 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Notes to Financial Statements CMA Government Securities Fund
1. Significant Accounting Policies:
CMA 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 U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. The percentage of the Trust
owned by the Fund at September 30, 2004 was 55.9%. 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 are accounted for on a
trade date basis.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Administration 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. 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 a Distribution and Shareholder Servicing Plan in compliance
with Rule 12b-1 under the Investment Company Act of 1940, pursuant to which
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
ML & Co., receives a distribution fee from the Fund. The fee is accrued daily
and paid monthly at the annual rate of .125% of average daily net assets of the
Fund for shareholders who maintain their accounts through MLPF&S. The
distribution fee is to compensate MLPF&S financial advisors and other directly
involved branch office personnel for selling shares of the Fund and for
providing direct personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services rendered to the
Fund by MLPF&S in processing share orders and administering shareholder
accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, and/or ML & Co.
3. Transactions in Shares of Beneficial Interest:
The number of shares sold, reinvested and redeemed during the years corresponds
to the amounts included in the Statements of Changes in Net Assets for net
proceeds from sale of shares, value of shares reinvested, cost of shares
redeemed and shares redeemed in connection with the bulk transfer of WCMA
shareholder assets, respectively, since shares are recorded at $1.00 per share.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments Master Government Securities Trust (in Thousands)
Face Interest Maturity
Issue Amount Rate Date Value
======================================================================================================
U.S. Government Obligations* -- 31.8%
======================================================================================================
U.S. Treasury Bills $27,770 1.36 % 11/26/2004 $ 27,703
22,000 1.73 2/03/2005 21,862
22,000 1.732 2/17/2005 21,842
26,000 1.765 2/24/2005 25,800
23,750 1.852 3/10/2005 23,543
21,200 1.945- 3/31/2005 20,988
1.951
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 5,200 2.125 10/31/2004 5,203
34,300 2.00 11/30/2004 34,319
49,400 1.75 12/31/2004 49,396
27,630 1.625 1/31/2005 27,611
18,400 1.50 2/28/2005 18,370
30,550 1.625 3/31/2005 30,496
15,700 1.25 5/31/2005 15,619
5,350 1.125 6/30/2005 5,312
2,500 1.625 9/30/2005 2,486
1,045 1.50 3/31/2006 1,031
- ------------------------------------------------------------------------------------------------------
Total U.S. Government Obligations
(Cost--$331,953) ........................................................................... 331,581
- ------------------------------------------------------------------------------------------------------
Face
Amount Issue
======================================================================================================
Repurchase Agreements -- 67.8%
======================================================================================================
$51,000 ABN AMRO Inc., purchased on 9/28/2004 to
yield 1.70% to 10/05/2004, repurchase price
$51,002, collateralized by U.S. Treasury Bills,
0% due 10/14/2004 to 2/17/2005 ........................................ $ 51,000
- ------------------------------------------------------------------------------------------------------
51,000 Banc of America Securities LLC, purchased
on 9/30/2004 to yield 1.76% to 10/07/2004,
repurchase price $51,002, collateralized
by GNMA, 5% to 7% due 4/15/2018
to 9/15/2034 .......................................................... 51,000
- ------------------------------------------------------------------------------------------------------
21,000 Barclays Capital Inc., purchased on 9/30/2004
to yield 1.77% to 10/01/2004, repurchase price
$21,001, collateralized by U.S. Treasury Bill, 0%
due 12/30/2004 ........................................................ 21,000
- ------------------------------------------------------------------------------------------------------
52,000 Citigroup Global Markets Inc., purchased
on 9/29/2004 to yield 1.74% to 10/06/2004,
repurchase price $52,003, collateralized by
GNMA, 5.50% due 2/15/2034 ............................................. 52,000
- ------------------------------------------------------------------------------------------------------
51,000 Countrywide Securities Corp., purchased
on 9/28/2004 to yield 1.75% to
10/05/2004, repurchase price $51,002,
collateralized by GNMA, 5.50%
due 7/15/2033 ......................................................... 51,000
- ------------------------------------------------------------------------------------------------------
51,000 Credit Suisse First Boston LLC, purchased on
9/28/2004 to yield 1.75% to 10/05/2004,
repurchase price $51,002, collateralized
by U.S. Treasury Notes, 6.50% to 8.125%
due 5/15/2005 to 2/15/2023 ............................................ 51,000
- ------------------------------------------------------------------------------------------------------
51,000 Deutsche Bank Securities Inc., purchased
on 9/28/2004 to yield 1.71% to 10/05/2004,
repurchase price $51,002, collateralized by
GNMA, 6% due 8/20/2034 ................................................ 51,000
- ------------------------------------------------------------------------------------------------------
50,000 Goldman Sachs & Company, purchased on
9/24/2004 to yield 1.74% to 10/22/2004,
repurchase price $50,002, collateralized
by GNMA, 4.50% to 5.50% due 4/15/2033
to 7/20/2034 .......................................................... 50,000
- ------------------------------------------------------------------------------------------------------
52,000 Greenwich Capital Markets, Inc., purchased
on 9/29/2004 to yield 1.74% to 10/06/2004,
repurchase price $52,003, collateralized
by GNMA, 4.50% to 7.50% due 9/15/2005
to 9/20/2034 .......................................................... 52,000
- ------------------------------------------------------------------------------------------------------
19,188 HSBC Securities (USA) Inc., purchased on
9/30/2004 to yield 1.77% to 10/01/2004,
repurchase price $19,189, collateralized by
U.S. Treasury Strips, 0% due 5/15/2006 to
8/15/2030 and U.S. Treasury Strips Principal
Only, 6.125% to 6.50% due 10/15/2006
to 8/15/2007 .......................................................... 19,188
- ------------------------------------------------------------------------------------------------------
52,000 J.P. Morgan Securities Inc., purchased on
9/29/2004 to yield 1.74% to 10/06/2004,
repurchase price $52,003, collateralized
by GNMA, 5% to 7.50% due 9/15/2029
to 9/20/2034 .......................................................... 52,000
- ------------------------------------------------------------------------------------------------------
51,000 Lehman Brothers Inc., purchased on 9/30/2004
to yield 1.76% to 10/07/2004, repurchase price
$51,002, collateralized by GNMA, 2.875% to
14% due 2/15/2006 to 9/20/2034 ........................................ 51,000
- ------------------------------------------------------------------------------------------------------
12 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Schedule of Investments (concluded)
Master Government Securities Trust (in Thousands)
Face
Amount Issue Value
======================================================================================================
Repurchase Agreements (continued)
======================================================================================================
$51,000 Merrill Lynch Government Securities, Inc.,
purchased on 9/30/2004 to yield
1.76% to 10/07/2004, repurchase price
$51,002, collateralized by GNMA,
3.375% to 6.50% due 9/15/2008
to 12/15/2046 (a) ..................................................... $ 51,000
- ------------------------------------------------------------------------------------------------------
52,000 Morgan Stanley & Co., Inc., purchased
on 9/29/2004 to yield 1.73% to
10/06/2004, repurchase price $52,002,
collateralized by GNMA, 5.50% to 6.50%
due 9/15/2031 to 3/15/2034 ............................................ 52,000
- ------------------------------------------------------------------------------------------------------
51,000 UBS Warburg LLC, purchased on 9/30/2004
to yield 1.76% to 10/07/2004, repurchase
price $51,002, collateralized by GNMA,
3.50% to 11.50% due 4/15/2009
to 7/15/2033 .......................................................... 51,000
- ------------------------------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost--$706,188) ........................................................................ 706,188
- ------------------------------------------------------------------------------------------------------
Total Investments
(Cost--$1,038,141**)--99.6% ............................................................. 1,037,769
Other Assets Less Liabilities--0.4% ..................................................... 4,518
-----------
Net Assets--100.0% ...................................................................... $ 1,042,287
===========
* U.S. Treasury Bills are traded on a discount basis; the interest rates
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.
** The cost and unrealized appreciation/depreciation of investments as of
September 30, 2004, as computed for federal income tax purposes, were as
follows:
(in Thousands)
-------------------------------------------------------------------------
Aggregate cost ........................................ $ 1,038,141
===============
Gross unrealized appreciation ......................... $ 2
Gross unrealized depreciation ......................... (374)
---------------
Net unrealized depreciation ........................... $ (372)
===============
(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) were as follows:
(in Thousands)
-------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
-------------------------------------------------------------------------
Merrill Lynch Government Securities, Inc. $(7,000) $332
-------------------------------------------------------------------------
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Master Government Securities Trust
As of September 30, 2004
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$987,140,747) ........................ $ 986,768,665
Investments in affiliated securities, at value
(identified cost--$51,000,000) ......................... 51,000,000
Cash .................................................... 6,961
Receivables:
Contributions ........................................ $ 3,856,951
Interest ............................................. 711,708 4,568,659
---------------
Prepaid expenses ........................................ 8,117
---------------
Total assets ............................................ 1,042,352,402
---------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Payable to investment adviser ........................... 36,129
Other affiliates ........................................ 11,933 48,062
---------------
Accrued expenses ........................................ 17,630
---------------
Total liabilities ....................................... 65,692
---------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets .............................................. $ 1,042,286,710
===============
=======================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------
Investors' capital ...................................... $ 1,042,658,792
Unrealized depreciation--net ............................ (372,082)
---------------
Net Assets .............................................. $ 1,042,286,710
===============
See Notes to Financial Statements.
14 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Statement of Operations Master Government Securities Trust
For the Six Months Ended September 30, 2004
=======================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------
Interest (includes $332,174 from affiliates) and
amortization of premium and discount earned ............ $ 7,139,485
=======================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................ $ 1,142,843
Accounting services ..................................... 129,500
Custodian fees .......................................... 31,939
Professional fees ....................................... 23,083
Trustees' fees and expenses ............................. 19,631
Pricing fees ............................................ 2,223
Printing and shareholder reports ........................ 1,521
Other ................................................... 10,730
---------------
Total expenses .......................................... 1,361,470
---------------
Investment income--net .................................. 5,778,015
---------------
=======================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ....................... 1,099
Change in unrealized appreciation/depreciation on
investments--net ....................................... (995,972)
---------------
Total realized and unrealized loss--net ................. (994,873)
---------------
Net Increase in Net Assets Resulting from Operations .... $ 4,783,142
===============
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Master Government Securities Trust
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2004 2004
=======================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net .................................. $ 5,778,015 $ 12,937,728
Realized gain--net ...................................... 1,099 75,879
Change in unrealized appreciation/depreciation--net ..... (995,972) (459,784)
-----------------------------------
Net increase in net assets resulting from operations .... 4,783,142 12,553,823
-----------------------------------
=======================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ............................. 2,341,336,101 5,445,099,631
Fair value of withdrawals ............................... (2,498,070,751) (5,848,609,190)
-----------------------------------
Net decrease in net assets derived from capital
transactions ........................................... (156,734,650) (403,509,559)
-----------------------------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ............................ (151,951,508) (390,955,736)
Beginning of period ..................................... 1,194,238,218 1,585,193,954
-----------------------------------
End of period ........................................... $ 1,042,286,710 $ 1,194,238,218
===================================
See Notes to Financial Statements.
16 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Financial Highlights Master Government Securities Trust
For the Six For the For the Period
Months Ended Year Ended February 13, 2003+
The following ratios have been derived from September 30, March 31, to March 31,
information provided in the financial statements. 2004 2004 2003
=====================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------
Total investment return ................ .52%++ .94% .75%*
===================================================
=====================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Expenses ............................... .24%* .22% .26%*
===================================================
Investment income and realized gain--net 1.03%* .94% 1.08%*
===================================================
=====================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,042,287 $ 1,194,238 $ 1,585,194
===================================================
* Annualized.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 17
[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 U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. 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 and assets for which market quotations are not
available are valued at fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
(b) Repurchase agreements -- The Trust may invest 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.
(e) Security lending -- The Trust may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Trust and
any additional required collateral is delivered to the Trust on the next
business day. Where the Trust receives securities as collateral for the loaned
securities, it collects a fee from the borrower. The Trust typically receives
the income on the loaned securities but does not receive the income on the
collateral. Where the Trust receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Trust may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Trust could experience delays
and costs in gaining access to the collateral. The Trust also could suffer a
loss where the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the event of losses
on investments made with cash collateral.
18 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004
Notes to Financial Statements (concluded) Master Government Securities Trust
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.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), or its affiliates. Pursuant to that
order, the Trust also has retained Merrill Lynch Investment Managers, LLC
("MLIM, LLC"), an affiliate of FAM, as the securities lending agent for a fee
based on a share of the returns on investment of cash collateral. MLIM, LLC may,
on behalf of the Trust, invest cash collateral received by the Trust for such
loans, among other things, in a private investment company managed by MLIM, LLC
or in registered money market funds advised by FAM or its affiliates.
For the six months ended September 30, 2004, the Trust reimbursed FAM $12,379
for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
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 Web
site 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.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2004 19
[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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
CMA Government Securities Fund
Box 9011
Princeton, NJ
08543-9011
#11212 -- 9/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
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 last 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 - Not Applicable to this semi-annual report
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.
CMA Government Securities Fund and Master Government Securities Trust
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
CMA Government Securities Fund and Master Government Securities
Trust
Date: November 19, 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
CMA Government Securities Fund and Master Government Securities
Trust
Date: November 19, 2004
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
CMA Government Securities Fund and Master Government Securities
Trust
Date: November 19, 2004