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 811-03205
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 03/31/06
Date of reporting period: 04/01/05 - 09/30/05
Item 1 - Report to Stockholders
CMA Government
Securities Fund
Semi-Annual Report
September 30, 2005
CMA Government Securities Fund
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Jean Margo Reid, 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.
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 at 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 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
A Letter From the President
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major benchmark indexes managed to post positive results for the current
reporting period:
Total Returns as of September 30, 2005 6-month 12-month
====================================================================================
U.S. equities (Standard & Poor's (S&P) 500 Index) +5.02% +12.25%
- ------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) +9.21% +17.95%
- ------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +9.26% +25.79%
- ------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +2.31% + 2.80%
- ------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.80% + 4.05%
- ------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +2.82% + 6.31%
- ------------------------------------------------------------------------------------
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced its
interest rate hiking program, raising the federal funds rate 11 times to 3.75%
by period-end. The Fed admittedly remains more concerned about inflation than
slowing economic growth, causing some to worry that the central bank may
overreact to inflation and increase interest rates more than is necessary to
maintain a healthy economic balance. Recent disruptions to production and
spending from Hurricanes Katrina and Rita are likely to distort the economic
data in the short term, muddying the underlying trends. However, any
hurricane-induced slowdown is likely to be short lived, and the fiscal stimulus
associated with reconstruction efforts in the Gulf could add to gross domestic
product growth in 2006.
U.S. equities exhibited resilience over the past several months as investors
generally tended to proceed with caution. After a strong finish to 2004, the S&P
500 Index remained largely range-bound in 2005, with the last three months
representing the best quarter of the year. Up to this point, strong corporate
earnings reports and low long-term bond yields have worked in favor of equities.
Looking ahead, high energy prices, continued interest rate hikes, a potential
consumer slowdown and/or disappointing earnings pose the greatest risks to U.S.
stocks. Internationally, many markets have benefited from strong economic
statistics, trade surpluses and solid finances.
In the bond market, the yield curve continued to flatten as short-term interest
rates moved in concert with the Fed rate hikes and longer-term interest rates
remained more constant or declined. The difference between two-year and 10-year
Treasury yields collapsed from 151 basis points (1.51%) on September 30, 2004 to
70 basis points on March 31, 2005, to just 16 basis points at period-end.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, 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/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 3
A Discussion With Your Fund's Portfolio Manager
Short-term interest rates continued to rise, prompting us to maintain our
relatively conservative approach throughout the period.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended September 30, 2005, CMA Government Securities
Fund paid shareholders a net annualized dividend of 2.46%. The Fund's seven-day
yield as of September 30, 2005, was 2.88%.
At September 30, 2005, the average portfolio maturity of CMA Government
Securities Fund was 44 days, compared to 41 days at March 31, 2005.
We continued to employ a barbell strategy, emphasizing the very front end of the
market (overnight and term financing) for liquidity and initially adding
longer-dated securities for yield enhancement and price appreciation. We limited
our use of longer-dated securities as the Federal Reserve Board (the Fed)
advanced its monetary tightening campaign. As a result of managing the
portfolio's average life and longer-dated holdings, the Fund was able to deliver
competitive results relative to its peers.
The Fed continued to target higher interest rates to combat inflation
expectations, bringing the federal funds rate to 3.75% by period-end, the
culmination of 11 consecutive rate hikes since June 2004. The Fed maintained its
commitment to a measured monetary tightening program even in the face of rising
oil prices, which many feared could increase inflationary pressures and threaten
the economic growth forecasts at certain points throughout the period.
Nevertheless, the oil price shocks were largely absorbed by the markets.
Recently, conflicting signals regarding inflation have started to emerge. While
the personal consumption expenditure price index still suggests a benign
inflationary environment, recent gains in wage and unit labor costs are
indicating an increase in the rate of inflation.
As short-term interest rates rose in symphony with the Fed interest rate hikes,
long-term rates remained stubbornly low, perpetuating the yield curve flattening
trend. The yield differential between the two-year and 10-year Treasury note was
just 16 basis points (.16%) at September 30, 2005. At the short end, the yield
differential between the three-month Treasury bill and two-year Treasury note
was 63 basis points.
Following a steady rise in Treasury issuance, we witnessed a decline in supply
during the six-month reporting period, most notably in shorter-term securities.
The government's increased collection of both corporate and individual payroll
taxes -- coincident with improving employment and corporate earnings -- has
helped offset the need for additional supply in the short end. In addition,
shrinking federal budget deficits contributed to the slowdown in Treasury
issuance during this timeframe.
In the final two months of the period, Hurricanes Katrina and Rita devastated
the Gulf Coast. The initial impact around the country came in the form of higher
oil and gasoline prices, which have since retreated modestly. Financially, the
fallout from the hurricanes is likely to hamper growth in the coming months,
although history seems to indicate that natural disasters have a much smaller
lasting effect on the national economy in terms of gross domestic product.
Nevertheless, it seems clear that the longer-term effects of Katrina and Rita
will increase the need for additional Treasury borrowing, both in bills and
notes, to finance the reconstruction of the affected communities.
How did you manage the portfolio during the period?
Within the context of a rising interest rate environment, our approach to
managing the Fund was primarily to maintain a relatively short average portfolio
maturity.
Although we generally maintained a barbelled strategy, we did not participate
heavily in longer-dated securities. Instead, we focused primarily on increasing
our liquidity profile, namely in repurchase agreements and shorter-dated
Treasury issues. As longer-dated issues matured, we reinvested in shorter
securities. By period-end, the portfolio's position in repurchase agreements,
which comprised primarily overnight and one-week maturities, represented
approximately 76% of the Fund's net assets. This sector resets to market rates
quicker than longer-dated securities while also allowing the Fund ample
liquidity.
Ultimately, we targeted one-year maturities as the fulcrum point of the yield
curve and determined that the six-month to one-year sector offered the best
opportunity for yield enhancement and price appreciation. As one-year issues
approached yields of 4%, we selectively added them to the portfolio.
4 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
How would you characterize the portfolio's position at the close of the period?
Our position at period-end could be described as cautiously optimistic (as
compared to cautious six months ago). The effects of Hurricanes Katrina and
Rita, and the resultant higher energy prices, are likely to slow the economy in
the months ahead. Nevertheless, the Fed continues to maintain that, for now,
monetary policy is still accommodative and their focus will remain on inflation.
With the remaining 2005 Federal Open Market Committee (FOMC) meetings slated for
November and December, we expect the Fed to become more data dependent in
determining monetary policy. While we will view carefully the outcome of the
final two FOMC meetings of 2005, we believe the Fed is likely to temper their
stance on monetary policy and lessen the risk of substantially higher interest
rates should the economy exhibit signs of slowing in 2006. Under these
conditions, we will extend the portfolio's average maturity if the economy
exhibits signs of faltering and the front end of the yield curve steepens.
The portfolio's composition, as a percent of net assets, at the end of September
and as of our last report to shareholders is detailed below:
- --------------------------------------------------------------------------------
9/30/05 3/31/05
- --------------------------------------------------------------------------------
Repurchase Agreements .......................... 76.0% 75.5%
U.S. Government Obligations .................... 23.6 23.8
Other Assets Less Liabilities .................. 0.4 0.7
-------------------
Total .......................................... 100.0% 100.0%
===================
John Ng
Vice President and Portfolio Manager
October 6, 2005
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 5
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, 2005 and held through
September 30, 2005) 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, 2005 to
April 1, 2005 September 30, 2005 September 30, 2005
============================================================================================================
Actual
============================================================================================================
CMA Government Securities Fund $1,000 $1,012.30 $3.48
============================================================================================================
Hypothetical (5% annual return before expenses)**
============================================================================================================
CMA Government Securities Fund $1,000 $1,021.64 $3.50
- ------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of .69%
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, 2005
Statement of Assets and Liabilities CMA Government Securities Fund
As of September 30, 2005
==================================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Investment in Master Government Securities Trust
(the "Trust"), at value (identified cost--$469,321,138) ........... $ 469,427,584
Prepaid expenses and other assets .................................. 113,177
---------------
Total assets ....................................................... 469,540,761
---------------
==================================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ..................................................... $ 213,952
Administrator ................................................... 90,874
Other affiliates ................................................ 7,852 312,678
---------------
Other liabilities .................................................. 3,319
---------------
Total liabilities .................................................. 315,997
---------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets ......................................................... $ 469,224,764
===============
==================================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ....................................... $ 46,911,832
Paid-in capital in excess of par ................................... 422,206,486
Unrealized appreciation allocated from the Trust--net .............. 106,446
---------------
Net Assets--Equivalent to $1.00 per share based on
469,118,320 shares of beneficial interest outstanding ............. $ 469,224,764
===============
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 7
Statement of Operations CMA Government Securities Fund
For the Six Months Ended September 30, 2005
==================================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------------
Interest ........................................................... $ 30,992
Net investment income allocated from the Trust:
Interest (includes $388,044 from affiliates) and
amortization of premium and discount earned .................... 7,682,215
Expenses ........................................................ (643,263)
---------------
Total income ....................................................... 7,069,944
---------------
==================================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Administration fees ................................................ $ 618,424
Distribution fees .................................................. 307,088
Registration fees .................................................. 81,435
Transfer agent fees ................................................ 24,629
Printing and shareholder reports ................................... 17,076
Professional fees .................................................. 13,819
Other .............................................................. 4,203
---------------
Total expenses ..................................................... 1,066,674
---------------
Investment income--net ............................................. 6,003,270
---------------
==================================================================================================================================
Realized & Unrealized Gain Allocated from the Trust--Net
- ----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net .................................. 2,773
Change in unrealized appreciation on investments--net .............. 10,382
---------------
Total realized and unrealized gain--net ............................ 13,155
---------------
Net Increase in Net Assets Resulting from Operations ............... $ 6,016,425
===============
See Notes to Financial Statements.
8 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
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: 2005 2005
==================================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................. $ 6,003,270 $ 5,705,176
Realized gain--net ................................................. 2,773 647
Change in unrealized appreciation--net ............................. 10,382 (578,006)
-----------------------------------
Net increase in net assets resulting from operations ............... 6,016,425 5,127,817
-----------------------------------
==================================================================================================================================
Dividends & Distributions to Shareholders
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................. (6,003,270) (5,705,176)
Realized gain--net ................................................. (2,773) (647)
-----------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ..................................... (6,006,043) (5,705,823)
-----------------------------------
==================================================================================================================================
Beneficial Interest Transactions
- ----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from sale of shares ................................... 997,223,489 1,861,498,133
Value of shares issued to shareholders in reinvestment of
dividends and distributions ....................................... 6,006,282 5,705,266
-----------------------------------
Total shares issued ................................................ 1,003,229,771 1,867,203,399
Cost of shares redeemed ............................................ (1,059,128,500) (1,994,166,317)
-----------------------------------
Net decrease in net assets derived from beneficial interest
transactions ...................................................... (55,898,729) (126,962,918)
-----------------------------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ....................................... (55,888,347) (127,540,924)
Beginning of period ................................................ 525,113,111 652,654,035
-----------------------------------
End of period ...................................................... $ 469,224,764 $ 525,113,111
===================================
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 9
Financial Highlights CMA Government Securities Fund
For the Six
Months Ended For the Year Ended March 31,
The following per share data and ratios have been derived September 30, ------------------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003++ 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------
Investment income--net ................. .0121 .0102 .0053 .0122 .0264
Realized and unrealized gain (loss)--net --** (.0010) (.0003) (.0004) .0010
----------------------------------------------------------------------
Total from investment operations ....... .0121 .0092 .0050 .0118 .0274
----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.0121) (.0102) (.0053) (.0122) (.0264)
Realized gain--net .................. --+ --+ (.0001) (.0001) (.0004)
----------------------------------------------------------------------
Total dividends and distributions ...... (.0121) (.0102) (.0054) (.0123) (.0268)
----------------------------------------------------------------------
Net asset value, end of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================================================================
Total Investment Return ................ 1.23%@@ 1.03% .52% 1.22% 2.62%
======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .69%*@ .66%* .63%* .60%* .60%
======================================================================
Investment income and realized gain--net 2.43%*@ .98% .56% 1.23% 2.68%
======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 469,225 $ 525,113 $ 652,654 $1,584,439 $1,803,646
======================================================================
* Includes the Fund's share of the Trust's allocated expenses.
** Amount is less than $.0001 per share.
+ 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.
@ Annualized.
@@ Aggregate total investment return.
See Notes to Financial Statements.
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 and strategies 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,
10 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
Notes to Financial Statements (concluded) CMA Government Securities Fund
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, 2005 was
54.0%. 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 1(a)
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 income and 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.
Pursuant to the Distribution and Shareholder Servicing Plan in compliance with
Rule 12(b)-1 under the Investment Company Act of 1940, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, 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
whose Fund accounts are serviced by MLPF&S financial advisors, whether
maintained through MLPF&S or directly with each Fund's transfer agent. The
distribution fee is to compensate MLPF&S for providing, or arranging for the
provision of, account maintenance and sales and promotional activities and
services with respect to shares of the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent. Interest is earned by the Fund from FDS based on the
difference, if any, between estimated and actual daily beneficial share
activity, which results in uninvested net proceeds from sales of Fund shares.
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 and cost of shares
redeemed, since shares are recorded at $1.00 per share.
4. Capital Loss Carryforward:
On March 31, 2005, the Fund has a net capital loss carryforward of $2,539, all
of which expires in 2013. This amount will be available to offset like amounts
of any future taxable gains.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 11
Schedule of Investments Master Government Securities Trust (in Thousands)
Face Interest Maturity
Issue Amount Rate Date Value
================================================================================
U.S. Government Obligations*--23.6%
================================================================================
U.S. Treasury Bills $ 1,970 3.097% 11/25/2005 $ 1,961
24,500 3.725-
3.735 3/30/2006 24,047
- --------------------------------------------------------------------------------
U.S. Treasury Notes 34,855 5.75 11/15/2005 34,946
8,900 1.875 11/30/2005 8,889
26,650 1.875 1/31/2006 26,485
22,000 1.625 2/28/2006 21,802
45,391 1.50 3/31/2006 44,857
8,830 4.625 5/15/2006 8,861
4,400 2.50 5/31/2006 4,356
2,220 2.375 8/15/2006 2,188
27,000 2.375 8/31/2006 26,585
- --------------------------------------------------------------------------------
Total U.S. Government Obligations
(Cost--$205,366) .................................................. 204,977
- --------------------------------------------------------------------------------
Face
Amount Issue
================================================================================
Repurchase Agreements--76.0%
================================================================================
$43,500 ABN AMRO Bank N.V., New York Branch,
purchased on 9/28/2005 to yield 3.60%
to 10/05/2005, repurchase price $43,530,
collateralized by U.S. Treasury Bond,
8.125% due 8/15/2019 .............................. 43,500
- --------------------------------------------------------------------------------
43,500 Banc of America Securities LLC, purchased
on 9/28/2005 to yield 3.77% to 10/05/2005,
repurchase price $43,532, collateralized by
GNMA, 5.50% to 6% due 6/20/2035 to
9/20/2035 and U.S. Treasury Bonds, 8.75%
due 8/15/2020 ..................................... 43,500
- --------------------------------------------------------------------------------
42,916 Barclays Capital Inc., purchased on 9/30/2005
to yield 3.25% to 10/03/2005, repurchase
price $42,928, collateralized by U.S. Treasury
Inflation Index Bond, 3.375%
due 4/15/2032 ..................................... 42,916
- --------------------------------------------------------------------------------
42,000 Bear Stearns & Co. Inc., purchased on
9/30/2005 to yield 3.20% to 10/03/2005,
repurchase price $42,011, collateralized by
U.S. Treasury Notes, 6.25% to 7.50% due
11/15/2016 to 8/15/2023 ........................... 42,000
- --------------------------------------------------------------------------------
12,000 Citigroup Global Markets Inc., purchased on
9/30/2005 to yield 3.20% to 10/03/2005,
repurchase price $12,003, collateralized by
U.S. Treasury STRIPS+, due 11/15/2016 ............. 12,000
- --------------------------------------------------------------------------------
43,000 Countrywide Securities Corp., purchased on
9/27/2005 to yield 3.76% to 10/04/2005,
repurchase price $43,031, collateralized by
GNMA, 4.50% to 6% due 9/15/2020
to 9/15/2035 ...................................... 43,000
- --------------------------------------------------------------------------------
43,000 Credit Suisse LLC, purchased on 9/27/2005 to
yield 3.76% to 10/04/2005, repurchase price
$43,031, collateralized by GNMA, 5% to 6.50%
due 5/15/2032 to 5/15/2034 ........................ 43,000
- --------------------------------------------------------------------------------
43,000 Deutsche Bank Securities, Inc., purchased on
9/27/2005 to yield 3.76% to 10/04/2005,
repurchase price $43,031, collateralized by U.S.
Treasury STRIPS+ Principal Only,
due 11/15/2015 .................................... 43,000
- --------------------------------------------------------------------------------
44,000 Goldman Sachs & Company, purchased on
9/22/2005 to yield 3.72% to 10/20/2005,
repurchase price $44,127, collateralized by
U.S. Treasury Notes, 3.375%
due 9/15/2009 ..................................... 44,000
- --------------------------------------------------------------------------------
43,500 Greenwich Capital Markets, Inc., purchased on
9/28/2005 to yield 3.74% to 10/05/2005,
repurchase price $43,532, collateralized by
GNMA, 3.50% to 9% due 5/15/2023
to 12/15/2046 ..................................... 43,500
- --------------------------------------------------------------------------------
43,000 HSBC Securities (USA), Inc., purchased on
9/30/2005 to yield 3.34% to 10/03/2005,
repurchase price $43,012, collateralized by
U.S. Treasury STRIPS+, due 5/15/2018
to 5/15/2030 ...................................... 43,000
- --------------------------------------------------------------------------------
43,500 J.P. Morgan Securities Inc., purchased on
9/28/2005 to yield 3.75% to 10/05/2005,
repurchase price $43,532, collateralized by
GNMA, 4.45% to 8.49% due 9/15/2007
to 12/15/2046 ..................................... 43,500
- --------------------------------------------------------------------------------
43,500 Merrill Lynch Government Securities Inc.,
purchased on 9/29/2005 to yield 3.70% to
10/06/2005, repurchase price $43,531,
collateralized by GNMA, 4.125% to 16%
due 1/15/2006 to 9/15/2035 (a) .................... 43,500
- --------------------------------------------------------------------------------
12 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
Schedule of Investments (concluded)
Master Government Securities Trust (in Thousands)
Face
Amount Issue Value
================================================================================
Repurchase Agreements (continued)
================================================================================
$43,500 Mizuho Securities USA, Inc., purchased on
9/29/2005 to yield 3.58% to 10/06/2005,
repurchase price $43,530, collateralized by U.S.
Treasury Bills, due 10/06/2005 to 3/16/2006,
U.S. Treasury Bonds, 9% to 11.75% due
2/15/2006 to 11/15/2018 and U.S. Treasury
Notes, 1.625% to 7% due 10/31/2005
to 5/15/2015 ...................................... $ 43,500
- --------------------------------------------------------------------------------
43,500 Morgan Stanley & Co., Inc., purchased on
9/29/2005 to yield 3.58% to 10/06/2005,
repurchase price $43,530, collateralized by U.S.
Treasury STRIPS+ Principal Only,
due 8/15/2025 ..................................... 43,500
- --------------------------------------------------------------------------------
43,500 UBS Securities LLC, purchased on 9/29/2005
to yield 3.73% to 10/06/2005, repurchase
price $43,532, collateralized by cash ............. 43,500
- --------------------------------------------------------------------------------
Total Repurchase Agreements (Cost--$660,916) ...................... 660,916
- --------------------------------------------------------------------------------
Total Investments (Cost--$866,282**)--99.6% ....................... 865,893
Other Assets Less Liabilities--0.4% ............................... 3,203
--------
Net Assets--100.0% ................................................ $869,096
========
- --------------------------------------------------------------------------------
* U.S. Treasury Bills are traded on a discount basis; the interest rates
shown are the range of discount rates paid at the time of purchase. 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, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $866,282
========
Gross unrealized appreciation .............................. $ 6
Gross unrealized depreciation .............................. (395)
--------
Net unrealized depreciation ................................ $ (389)
========
+ Separately Traded Registered Interest and Principal of Securities.
(a) Investments in companies considered to be an affiliate of the Trust, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Government Securities Inc. $(2,500) $ 709
--------------------------------------------------------------------------
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 13
Statement of Assets and Liabilities Master Government Securities Trust
As of September 30, 2005
==================================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$822,781,775) ................................... $ 822,392,698
Investments in affiliated securities, at value
(identified cost--$43,500,000) .................................... 43,500,000
Cash ............................................................... 814
Receivables:
Contributions ................................................... $ 2,082,268
Interest (including $4,471 from affiliates) ..................... 1,300,320 3,382,588
---------------
Prepaid expenses ................................................... 6,191
---------------
Total assets ....................................................... 869,282,291
---------------
==================================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Payables:
Investment adviser .............................................. 150,812
Other affiliates ................................................ 9,622 160,434
---------------
Accrued expenses ................................................... 26,275
---------------
Total liabilities .................................................. 186,709
---------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets ......................................................... $ 869,095,582
===============
==================================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------------
Investors' capital ................................................. $ 869,484,659
Unrealized depreciation--net ....................................... (389,077)
---------------
Net Assets ......................................................... $ 869,095,582
===============
See Notes to Financial Statements.
14 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
Statement of Operations Master Government Securities Trust
For the Six Months Ended September 30, 2005
==================================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------------
Interest (including $709,456 from affiliates) and amortization
of premium and discount earned $ 14,045,287
==================================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................... $ 978,177
Accounting services ................................................ 109,075
Custodian fees ..................................................... 33,173
Professional fees .................................................. 23,009
Trustees' fees and expenses ........................................ 18,936
Pricing fees ....................................................... 1,796
Printing and shareholder reports ................................... 111
Other .............................................................. 8,971
---------------
Total expenses ..................................................... 1,173,248
---------------
Investment income--net ............................................. 12,872,039
---------------
==================================================================================================================================
Realized & Unrealized Gain--Net
- ----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net .................................. 4,848
Change in unrealized depreciation on investments--net .............. 23,695
---------------
Total realized and unrealized gain--net ............................ 28,543
---------------
Net Increase in Net Assets Resulting from Operations ............... $ 12,900,582
===============
See Notes to Financial Statements.
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: 2005 2005
==================================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................. $ 12,872,039 $ 14,493,634
Realized gain--net ................................................. 4,848 1,170
Change in unrealized appreciation/depreciation--net ................ 23,695 (1,036,662)
-----------------------------------
Net increase in net assets resulting from operations ............... 12,900,582 13,458,142
-----------------------------------
==================================================================================================================================
Capital Transactions
- ----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ........................................ 2,603,193,234 4,985,746,126
Fair value of withdrawals .......................................... (2,683,564,483) (5,256,876,237)
-----------------------------------
Net decrease in net assets derived from capital transactions ....... (80,371,249) (271,130,111)
-----------------------------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ....................................... (67,470,667) (257,671,969)
Beginning of period ................................................ 936,566,249 1,194,238,218
-----------------------------------
End of period ...................................................... $ 869,095,582 $ 936,566,249
===================================
See Notes to Financial Statements.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 15
Financial Highlights Master Government Securities Trust
For the Six For the Year Ended For the Period
Months Ended March 31, February 13, 2003+
The following ratios have been derived from September 30, ---------------------------- to March 31,
information provided in the financial statements. 2005 2005 2004 2003
=================================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 1.45%@ 1.44% .94% .75%*
=====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .26%* .25% .22% .26%*
=====================================================================
Investment income and realized gain--net 2.85%* 1.39% .94% 1.08%*
=====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 869,096 $ 936,566 $ 1,194,238 $ 1,585,194
=====================================================================
* Annualized.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
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.
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 six months ended September 30, 2005, the Trust reimbursed FAM $10,054
for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 17
Disclosure of Investment Advisory Agreement
Activities and Composition of the Board of Trustees
All but one member of the Board of Trustees is an independent trustee whose only
affiliation with Fund Asset Management, L.P. (the "Investment Adviser") or other
Merrill Lynch affiliates is as a trustee of the Master Government Securities
Trust (the "Trust") and the Fund and certain other funds advised by the
Investment Adviser or its affiliates. The Chairman of the Board is also an
independent trustee. New trustee nominees are chosen as nominees by a Nominating
Committee of independent Trustees. All independent Trustees also are members of
the Board's Audit Committee and the independent Trustees meet in executive
session at each in-person Board meeting. The Board and Audit Committee meet in
person for at least two days each quarter and conduct other in-person and
telephone meetings throughout the year, some of which are formal board meetings,
and some of which are informational meetings. The independent counsel to the
independent Trustees attends all in-person Board and Audit Committee meetings
and other meetings at the independent Trustees' request.
Investment Advisory Agreement -- Matters Considered by the Board
Every year, the Board considers approval of the investment advisory agreement
between the Investment Adviser and the Trust (the "Investment Advisory
Agreement"). The Board also reviews and evaluates the performance of and
services provided by the Investment Adviser throughout each year. The Board
assesses the nature, scope and quality of the services provided to the Trust and
the Fund by the personnel of the Investment Adviser and its affiliates,
including administrative services, shareholder services, oversight of fund
accounting, marketing services and assistance in meeting legal and regulatory
requirements. The Board also receives and assesses information regarding the
services provided to the Trust and the Fund by certain unaffiliated service
providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a) any
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by the Trust or by the Fund, such as transfer agency fees and fees
for marketing and distribution; (b) Trust/Fund operating expenses paid to third
parties; (c) the resources devoted to and compliance reports relating to the
Trust's and the Fund's investment objective, policies and restrictions, and its
compliance with its Code of Ethics and the Investment Adviser's compliance
policies and procedures; and (d) the nature, cost and character of
non-investment management services provided by the Investment Adviser and its
affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be generally of high quality. The Board also believes that
the Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio Investment Adviser effectiveness and, when performance is
not satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approval by the Board of Trustees
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement, the Board requests and receives materials specifically
relating to the Trust's Investment Advisory Agreement. These materials include
(a) information compiled by Lipper Inc. ("Lipper") on the fees and expenses and
the investment performance of the Trust/Fund or its predecessor (which had the
same investment objective and strategies as the Trust) as compared to a
comparable group of funds as classified by Lipper; (b) a discussion by the
Trust's/Fund's portfolio management team on investment strategies used by the
Trust/Fund during its most recent fiscal year; (c) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement and other relationships with the Trust and/or Fund; (d)
information on the profitability to the Investment Adviser and its affiliates of
the Investment Advisory Agreements and other relationships with the Trust/Fund;
and (e) information provided by the Investment Adviser concerning investment
advisory fees charged to other clients, such as institutional clients. The Board
also considers other matters it deems important to the approval process such as
payments made to the Investment Adviser or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Trust/Fund portfolio holdings, allocation of Trust/Fund brokerage fees, and
direct and indirect benefits to the Investment Adviser and its affiliates from
their relationship with the Trust/Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Trust's Investment Advisory
Agreement in August 2005, the independent Trustees' and Board's review included
the following:
18 CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005
Investment Adviser's Services and Fund Performance -- The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Fund. The Board focused primarily on the Investment Adviser's investment
advisory services and the Fund's investment performance, having concluded that
the other services provided to the Trust/Fund by the Investment Adviser were
satisfactory. The Board compared Fund performance -- both including and
excluding the effects of the Trust's/Fund's fees and expenses -- to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. While the Board reviews performance
data quarterly, consistent with the Investment Adviser's investment goals, the
Board attaches primary importance to performance over relatively long periods of
time, typically three to five years. The Board noted that the performance of the
Trust/Fund or its predecessor (which had the same objective and strategies of
the corresponding Trust) was in the third quintile of its Lipper performance
group for the one, three and five year periods ended June 30, 2005. The Board
concluded that the Trust's/Fund's performance was consistent with the
continuation of the management fee rate at its current level and the renewal of
the applicable Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process -- The Board reviewed
the Trust's/Fund's investment objectives and strategies. The Board discussed
with senior management of the Investment Adviser responsible for investment
operations and the senior management of the Investment Adviser's taxable
fixed-income investing group the strategies being used to achieve the stated
objectives. Among other things, the Board considered the size, education and
experience of the Investment Adviser's investment staff, its use of technology,
and the Investment Adviser's approach to training and retaining portfolio
Investment Advisers and other research, advisory and management personnel. The
Board also reviewed the Investment Adviser's compensation policies and practices
with respect to the Trust's/Fund's portfolio manager. The Board also considered
the experience of the Trust's/Fund's portfolio manager and noted that Mr. Ng has
over twenty years' experience investing in money market securities. The Board
concluded that the Investment Adviser and its investment staff and the
Trust's/Fund's portfolio manager have extensive experience in analyzing and
managing the types of investments used by the Trust and the Fund and that the
Trust and the Fund benefit from that expertise.
Management Fees and Other Expenses -- The Board reviewed the Trust's/Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compares the Trust's/Fund's
total expenses to those of other, comparable funds. The Board considered the
services provided to and the fees charged by the Investment Adviser to other
types of clients such as institutional clients. The Board noted that, as a
general matter, fees charged to institutional clients were lower than the fees
charged to the Trust/Fund, but determined that the Investment Adviser provided
less extensive services to such clients, which tended to hold much larger
accounts. The Board noted that the contractual and actual management fees and
total expenses were slightly higher than the median of the comparable funds in
the Lipper group. The Board concluded that the management fee and fee rate and
overall expense ratio were reasonable when compared to those of other comparable
funds.
Profitability -- The Board considered the cost of the services provided to the
Trust and Fund by the Investment Adviser and the Investment Adviser's and its
affiliates' profits in relating to the management and distribution of the Trust
and Fund and the MLIM/FAM-advised funds. As part of its analysis, the Board
reviews the Investment Adviser's and its affiliates' methodology in allocating
costs to the management of the Trust/Fund and concluded that there was a
reasonable basis for the allocation. The Board believes the profits of the
Investment Adviser and its affiliates are acceptable in relation to the nature
and quality of services provided and given the level of fees and expenses
overall. The Board also considered the federal court decisions discussing an
investment adviser's profitability, and the profitability levels considered to
be reasonable in those decisions.
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of the Trust/Fund increase and whether
there should be changes in the management fee rate or structure in order to
enable a Trust and a Fund to participate in these economies of scale. The Board
noted that the Trust's/Fund's current management fee rate schedule includes
breakpoints that reduce the Trust's/Fund's management fee rate as its assets
increase above certain levels and that the Trust's/Fund's assets have reached a
level where such breakpoints have become effective and have reduced the
management fee rate paid by the Trust/Fund. The Board determined that no changes
were currently necessary.
Conclusion
After the independent Trustees deliberated in executive session, the Board,
including all of the independent Trustees, approved the renewal of the existing
Investment Advisory Agreement, concluding that the advisory fee was reasonable
in relation to the services provided and that a contract renewal was in the best
interests of the shareholders.
CMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2005 19
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.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. Refer to www.mlim.ml.com to obtain
performance data current to the most recent month-end. 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 -- 9/05
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 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
CMA Government Securities Fund and Master Government Securities Trust
Date: November 17, 2005
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/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
CMA Government Securities Fund and Master Government Securities Trust
Date: November 17, 2005
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
CMA Government Securities Fund and Master Government Securities Trust
Date: November 17, 2005