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 811-21197
811-21300
Name of Fund: WCMA Government Securities Fund
Master Government Securities Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, WCMA Government Securities Fund and Master Government Securities
Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address:
P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/07
Date of reporting period: 04/01/06 - 09/30/06
Item 1 - Report to Stockholders
Semi-Annual Report
September 30, 2006
WCMA Government
Securities Fund
WCMA Government Securities Fund
Proxy Results
During the six-month period ended September 30, 2006, WCMA Government Securities
Funds shareholders voted on the following proposals. On July 31, 2006, the
meeting was adjourned with respect to Proposals 1 and 3 until August 31, 2006,
at which time they passed. A description of the proposals and number of shares
voted were as follows:
- -----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------
1. To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 224,833,492 2,217,866 7,719,863
- -----------------------------------------------------------------------------------------------------
3. To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 224,826,098 2,225,259 7,719,864
- -----------------------------------------------------------------------------------------------------
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
Donald C. Burke, Vice President and Treasurer
John Ng, Vice President
Jeffrey Hiller, Fund 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 WCMA account, call 800-262-4636.
2 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale to
serve you.
The new BlackRock unites some of the finest money managers in the industry. Our
ranks include more than 500 investment professionals globally -- portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well equipped
to research, uncover and capitalize on the opportunities the world's markets
have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, most former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements, as of the October month-end reporting
period, also reflect the BlackRock name. Unless otherwise communicated to you,
your funds maintain the same investment objectives that they did prior to the
combination of MLIM and BlackRock. Importantly, this union does not affect your
brokerage account or your relationship with your financial advisor. Clients of
Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are even
better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an unwavering
commitment to service, enabling us to assist clients, in cooperation with their
financial professionals, in working toward their investment goals. We thank you
for allowing us the opportunity, and we look forward to serving your investment
needs in the months and years ahead as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 3
A Discussion With Your Fund's Portfolio Manager
We maintained a relatively conservative approach and ample liquidity
during the six-month period, and will look to extend the portfolio's maturity as
the market provides opportunities.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended September 30, 2006, WCMA Government Securities
Fund's Class 1, Class 2, Class 3 and Class 4 Shares paid shareholders net
annualized dividends of 3.43%, 4.03%, 4.37% and 4.37%, respectively. The Fund's
seven-day yields as of September 30, 2006 were 3.59% for Class 1, 4.16% for
Class 2, 4.49% for Class 3 and 4.49% for Class 4.
The Fund's weighted average maturity at September 30, 2006 was 23 days, compared
to 27 days at March 31, 2006.
Throughout the period, we endeavored to remain competitive while maintaining the
Fund's average life within a relatively conservative range. We approached
longer-dated securities with caution as the Federal Reserve Board (the Fed)
remained vigilant in its fight against inflation and pledged data dependence in
determining monetary policy.
The Fed met on four occasions during the six-month period and raised interest
rates twice, opting to pause on August 8 and again on September 20. This left
the federal funds rate at 5.25%. The economy grew at an above-trend pace in the
first quarter of 2006. Gross domestic product (GDP) advanced at a rate of 5.6%
before declining substantially to 2.9% in the second quarter as the effects of
the Fed's two-year tightening campaign began to take hold. Estimates for third
quarter GDP are expected to come in slightly lower than second quarter growth.
The slowdown in growth has been attributed largely to a downturn in the U.S.
housing market and its ancillary effects on the economy. Inflation also was a
key variable during the period as it continued to trend above the Fed's target
levels until recent months. Energy costs, which were higher during early spring,
came down recently amid a less frenetic hurricane season. This was evidenced by
a late-summer decline in gas prices. Gasoline peaked at an average cost of $3.04
per gallon on August 7, 2006, and had declined to an average $2.31 per gallon by
October 1. Another telling indicator of economic activity has been lackluster
job growth. Although independent surveys suggested higher employment numbers,
that failed to materialize. Taken together, all of these developments gave the
Fed reason to believe it could pause. After 17 consecutive interest rate hikes
since June 2004, the central bank opted not to increase the federal funds rate
at its August 8 meeting, and remained on hold September 20 as well.
Until the August Fed meeting, there was always the anticipation of another
interest rate hike. As a result, market yields rarely caught up to financing
levels. This gave us little reason to extend the Fund's maturity. In addition,
issuance of U.S. Treasury securities tended to favor longer maturities. The
limited supply on the short end further curtailed our incentive to participate
in the Treasury bill market (those securities with maturities of six months or
less).
Finally, it is worth commenting on the shape of the Treasury yield curve. After
flattening dramatically during the course of the Fed's interest rate-hiking
campaign, the curve inverted for the first time in five years in early 2006 and
then toyed with intermittent bouts of inversion. Over the past six months, the
greatest yield increase was seen in Treasury bills, while rates in the two-year
sector and above declined. At September month-end, the six-month Treasury
offered the highest yield on the curve at 5.02% -- well below the prevailing
federal funds target rate of 5.25%.
How did you manage the portfolio during the period?
We maintained a conservative stance during the six-month period given the tight
relationship between financing levels and the federal funds rate, coupled with
uncertainty regarding the future direction of interest rates. Against this
backdrop, we believed it was prudent to avoid venturing into longer-dated
securities. We brought the Fund's weighted average maturity down to the 20-day
area on the heels of the first quarter GDP report. At this point, given the
strength of the economy, it seemed that a Fed pause was not imminent. We
maintained the Fund's weighted average maturity within a conservative range
throughout the remainder of the period.
By keeping the average life relatively short, we were able to roll more quickly
into current yields as interest rates rose. We took opportunities to extend the
portfolio's maturity only when we believed market yields, particularly in the
six-month to one-year sectors, would exceed financing levels for a
4 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
reasonable period of time. However, the Treasury calendar favored longer-dated
notes (those with maturities of 2 - 30 years) over bills and, therefore, did not
present much opportunity for us to invest in the bill sector. As a result, we
chose to maintain our holdings in repurchase agreements (roughly 80% of
portfolio assets) and used the balance of the portfolio to add incremental yield
as opportunities presented themselves in the six-month to one-year sectors.
How would you characterize the portfolio's position at the close of the period?
We believe the market currently is oversold. While the Fed has not completely
removed the specter of higher rates, the federal funds futures market is now
anticipating an interest rate cut in the first quarter of 2007. However, the Fed
has pledged data dependence in determining future monetary policy and, in our
opinion, we have not seen enough economic data that would support an easing. In
fact, while energy costs recently declined, we have yet to see that transfer to
unit labor costs. Two Fed meetings remain in 2006 (in October and December) and
we expect the central bank to carefully consider monetary policy at each
juncture. At this point, after focusing on inflation fears for some time, Fed
Chairman Bernanke has expressed more concern about economic growth.
Looking ahead, net new issuance of Treasury securities is expected to increase
substantially in the fourth quarter, and we anticipate that the Treasury will
emphasize bills over longer-dated maturities. With the amount of new money
raised, we expect that the additional issuance will keep financing levels closer
to federal funds levels before we see a resteepening of the front end of the
yield curve. Therefore, we will continue to maintain our high liquidity base and
will look to extend the portfolio's maturity as opportunities present themselves
along the curve.
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:
- --------------------------------------------------------------------------------
9/30/06 3/31/06
- --------------------------------------------------------------------------------
Repurchase Agreements .......................... 78.8% 77.0%
U.S. Government Obligations .................... 20.8 22.5
Other Assets Less Liabilities .................. 0.4 0.5
---------------------
Total .......................................... 100.0% 100.0%
=====================
John Ng
Vice President and Portfolio Manager
October 5, 2006
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 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
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on April 1, 2006 and held through
September 30, 2006) 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, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
====================================================================================================================
Actual
====================================================================================================================
Class 1 $ 1,000 $1,017.10 $ 8.05
- --------------------------------------------------------------------------------------------------------------------
Class 2 $ 1,000 $1,020.00 $ 5.14
- --------------------------------------------------------------------------------------------------------------------
Class 3 $ 1,000 $1,021.70 $ 3.53
- --------------------------------------------------------------------------------------------------------------------
Class 4 $ 1,000 $1,021.70 $ 3.53
====================================================================================================================
Hypothetical (5% annual return before expenses)**
====================================================================================================================
Class 1 $ 1,000 $1,016.92 $ 8.05
- --------------------------------------------------------------------------------------------------------------------
Class 2 $ 1,000 $1,019.81 $ 5.14
- --------------------------------------------------------------------------------------------------------------------
Class 3 $ 1,000 $1,021.41 $ 3.53
- --------------------------------------------------------------------------------------------------------------------
Class 4 $ 1,000 $1,021.41 $ 3.53
- --------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.60% for Class 1, 1.02% for Class 2, .70% for Class
3 and .70% for Class 4), multiplied by the average account value over the
period, multiplied by 182/365 (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 trust 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 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Statement of Assets and Liabilities WCMA Government Securities Fund
As of September 30, 2006
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investment in Master Government Securities Trust (the "Trust"),
at value (identified cost--$437,681,846) ........................... $ 437,385,300
Prepaid expenses and other assets ................................... 73,462
-------------
Total assets ........................................................ 437,458,762
-------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Payables:
Administrator .................................................... $ 84,757
Distributor ...................................................... 69,670
Other affiliates ................................................. 3,490 157,917
-------------
Accrued expenses and other liabilities .............................. 24
-------------
Total liabilities ................................................... 157,941
-------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets .......................................................... $ 437,300,821
=============
====================================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------------
Class 1 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .............................. $ 1,367,571
Class 2 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .............................. 9,507,753
Class 3 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .............................. 16,798,820
Class 4 Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .............................. 16,085,777
Paid-in capital in excess of par .................................... 393,839,296
Accumulated realized capital losses on investments
allocated from the Trust--net ...................................... (1,850)
Unrealized depreciation allocated from the Trust--net ............... (296,546)
-------------
Net Assets .......................................................... $ 437,300,821
=============
====================================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Class 1--Based on net assets of $13,662,456 and
13,675,710 shares of beneficial interest outstanding ............... $ 1.00
=============
Class 2--Based on net assets of $94,994,018 and
95,077,534 shares of beneficial interest outstanding ............... $ 1.00
=============
Class 3--Based on net assets of $167,839,018 and
167,988,204 shares of beneficial interest outstanding .............. $ 1.00
=============
Class 4--Based on net assets of $160,805,329 and
160,857,771 shares of beneficial interest outstanding .............. $ 1.00
=============
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 7
Statement of Operations WCMA Government Securities Fund
For the Six Months Ended September 30, 2006
====================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Interest from affiliates ............................................ $ 57,106
Net investment income allocated from the Trust:
Interest and amortization of premium and discount earned ......... 11,006,888
Expenses ......................................................... (569,330)
-------------
Total income ........................................................ 10,494,664
-------------
====================================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Administration fees ................................................. $ 556,047
Account maintenance and distribution fees--Class 2 .................. 338,383
Account maintenance and distribution fees--Class 3 .................. 306,528
Account maintenance and distribution fees--Class 4 .................. 306,074
Registration fees ................................................... 177,010
Account maintenance and distribution fees--Class 1 .................. 71,916
Printing and shareholder reports .................................... 18,125
Professional fees ................................................... 12,883
Transfer agent fees--Class 3 ........................................ 4,035
Transfer agent fees--Class 4 ........................................ 4,022
Transfer agent fees--Class 2 ........................................ 2,464
Transfer agent fees--Class 1 ........................................ 353
Other ............................................................... 5,030
-------------
Total expenses before waiver ........................................ 1,802,870
Waiver of expenses .................................................. (584,739)
-------------
Total expenses after waiver ......................................... 1,218,131
-------------
Investment income--net .............................................. 9,276,533
-------------
====================================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
- ------------------------------------------------------------------------------------------------------------------------------------
Realized loss on investments--net ................................... (901)
Change in unrealized depreciation on investments--net ............... 144,974
-------------
Total realized and unrealized gain--net ............................. 144,073
-------------
Net Increase in Net Assets Resulting from Operations ................ $ 9,420,606
=============
See Notes to Financial Statements.
8 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Statements of Changes in Net Assets WCMA Government Securities Fund
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2006 2006
====================================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 9,276,533 $ 12,127,085
Realized gain (loss)--net ........................................... (901) 2,296
Change in unrealized depreciation--net .............................. 144,974 67,316
---------------------------------
Net increase in net assets resulting from operations ................ 9,420,606 12,196,697
---------------------------------
====================================================================================================================================
Dividends & Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class 1 .......................................................... (243,248) (329,350)
Class 2 .......................................................... (1,990,119) (2,663,391)
Class 3 .......................................................... (3,528,211) (5,571,023)
Class 4 .......................................................... (3,514,955) (3,563,321)
Realized gain--net:
Class 1 .......................................................... (39) (94)
Class 2 .......................................................... (219) (642)
Class 3 .......................................................... (332) (1,150)
Class 4 .......................................................... (359) (410)
---------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ...................................... (9,277,482) (12,129,381)
---------------------------------
====================================================================================================================================
Beneficial Interest Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial
interest transactions .............................................. (63,829,026) 89,944,441
---------------------------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................. (63,685,902) 90,011,757
Beginning of period ................................................. 500,986,723 410,974,966
---------------------------------
End of period ....................................................... $ 437,300,821 $ 500,986,723
=================================
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 9
Financial Highlights WCMA Government Securities Fund
Class 1
-----------------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended March 20,
and ratios have been derived Ended March 31, 2003+
from information provided in Sept. 30, ---------------------------------------- to March 31,
the financial statements. 2006 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Investment income--net ........................... .0168 .0199 .0027 .0004 .0003
Realized and unrealized gain (loss)--net ......... .0003 .0001 (.0012) (.0002) .0002
----------------------------------------------------------------------------
Total from investment operations ................. .0171 .0200 .0015 .0002 .0005
----------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......................... (.0168) (.0199) (.0027) (.0004) (.0003)
Realized gain--net ............................. --*** --*** --*** (.0001) --
----------------------------------------------------------------------------
Total dividends and distributions ................ (.0168) (.0199) (.0027) (.0005) (.0003)
----------------------------------------------------------------------------
Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total investment return .......................... 1.71%++ 2.01% .27% .05% .05%
============================================================================
====================================================================================================================================
Ratios to Average Net Assets**
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver
and/or reimbursement ........................... 1.60%* 1.59% 1.41% 1.09% .02%
============================================================================
Total expenses ................................... 1.60%* 1.59% 1.60% 1.58% .02%
============================================================================
Total investment income and realized
gain--net ...................................... 3.36%* 1.99% .24% .04% .03%
============================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $ 13,662 $ 18,837 $ 16,718 $ 22,260 $ 25
============================================================================
Class 2
-----------------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended March 20,
and ratios have been derived Ended March 31, 2003+
from information provided in Sept. 30, ---------------------------------------- to March 31,
the financial statements. 2006 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Investment income--net ........................... .0197 .0259 .0070 .0015 .0003
Realized and unrealized gain (loss)--net ......... .0003 .0001 (.0011) (.0001) .0002
----------------------------------------------------------------------------
Total from investment operations ................. .0200 .0260 .0059 .0014 .0005
----------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......................... (.0197) (.0259) (.0070) (.0015) (.0003)
Realized gain--net ............................. --*** --*** --*** (.0001) --
----------------------------------------------------------------------------
Total dividends and distributions ................ (.0197) (.0259) (.0070) (.0016) (.0003)
----------------------------------------------------------------------------
Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total investment return .......................... 2.00%++ 2.63% .70% .16% .05%
============================================================================
====================================================================================================================================
Ratios to Average Net Assets**
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver
and/or reimbursement ........................... 1.02%* .99% .98% .97% .02%
============================================================================
Total expenses ................................... 1.28%* 1.27% 1.28% 1.26% .02%
============================================================================
Total investment income and realized
gain--net ...................................... 3.95%* 2.58% .68% .15% .03%
============================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $ 94,994 $115,872 $119,718 $137,566 $ 25
============================================================================
* Annualized.
** Includes the Fund's share of the Trust's allocated expenses and/or
investment income and realized gain.
*** Amount is less than $(.0001) per share.
+ Effective date of the Fund's registration.
++ Aggregate total investment return.
See Notes to Financial Statements.
10 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Financial Highlights (concluded) WCMA Government Securities Fund
Class 3
-----------------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended March 20,
and ratios have been derived Ended March 31, 2003+
from information provided in Sept. 30, ---------------------------------------- to March 31,
the financial statements. 2006 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Investment income--net ........................... .0213 .0291 .0102 .0047 .0003
Realized and unrealized gain (loss)--net ......... .0003 .0001 (.0010) (.0001) .0002
----------------------------------------------------------------------------
Total from investment operations ................. .0216 .0292 .0092 .0046 .0005
----------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......................... (.0213) (.0291) (.0102) (.0047) (.0003)
Realized gain--net ............................. --*** --*** --*** (.0001) --
----------------------------------------------------------------------------
Total dividends and distributions ................ (.0213) (.0291) (.0102) (.0048) (.0003)
----------------------------------------------------------------------------
Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total investment return .......................... 2.17%++ 2.96% 1.03% .48% .05%
============================================================================
====================================================================================================================================
Ratios to Average Net Assets**
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver
and/or reimbursement ........................... .70%* .67% .66% .65% .02%
============================================================================
Total expenses ................................... .98%* .97% .98% .96% .02%
============================================================================
Total investment income and realized
gain--net ...................................... 4.28%* 2.88% 1.01% .48% .03%
============================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $167,839 $158,500 $193,195 $224,278 $ 25
============================================================================
Class 4
-----------------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended March 20,
and ratios have been derived Ended March 31, 2003+
from information provided in Sept. 30, ---------------------------------------- to March 31,
the financial statements. 2006 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Investment income--net ........................... .0213 .0291 .0102 .0047 .0003
Realized and unrealized gain (loss)--net ......... .0003 .0002 (.0012) --+++ .0002
----------------------------------------------------------------------------
Total from investment operations ................. .0216 .0293 .0090 .0047 .0005
----------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......................... (.0213) (.0291) (.0102) (.0047) (.0003)
Realized gain--net ............................. --*** --*** --*** --*** --
----------------------------------------------------------------------------
Total dividends and distributions ................ (.0213) (.0291) (.0102) (.0047) (.0003)
----------------------------------------------------------------------------
Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total investment return .......................... 2.17%++ 2.96% 1.03% .47% .05%
============================================================================
====================================================================================================================================
Ratios to Average Net Assets**
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver
and/or reimbursement ........................... .70%* .67% .66% .65% .02%
============================================================================
Total expenses ................................... .98%* .98% .97% .96% .02%
============================================================================
Total investment income and realized
gain--net ...................................... 4.26%* 3.10% .91% .48% .03%
============================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $160,805 $207,778 $ 81,344 $157,203 $ 25
============================================================================
* Annualized.
** Includes the Fund's share of the Trust's allocated expenses and/or
investment income and realized gain.
*** Amount is less than $(.0001) per share.
+ Effective date of the Fund's registration.
++ Aggregate total investment return.
+++ Amount is less than $.0001 per share.
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 11
Notes to Financial Statements WCMA Government Securities Fund
1. Significant Accounting Policies:
WCMA Government Securities Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a no load, diversified, open-end management
investment company. The Fund seeks to achieve its investment objective by
investing all of its assets in 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, 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, 2006 was 46.1%. The Fund is divided into four
classes, designated Class 1, Class 2, Class 3 and Class 4. Each Class 1, Class
2, Class 3 and Class 4 share represents interests in the same assets of the Fund
and has identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that each class bears certain expenses related to
account maintenance and the distribution of such shares and the additional
incremental transfer agency costs resulting from the conversion of shares and
has exclusive voting with respect to matters relating to such account
maintenance and distribution expenditures. Income, expenses (other than expenses
attributed to a specific class) and realized and unrealized gains and losses on
investments are allocated daily to each class based on its relative net assets.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments -- The Fund records its investments in the Trust at
fair value. Valuation of securities held by the Trust is discussed in Note 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) Recent accounting pronouncement -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity including mutual funds
before being measured and recognized in the financial statements. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006. The
impact on the Fund's financial statements, if any, is currently being assessed.
(e) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(f) 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 are declared from the total of net investment income. Distributions of
net realized gain, if any, on investments are paid at least annually.
(g) Investment transactions -- Investment transactions in the Trust are
accounted for on a trade date basis.
2. 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"), a wholly owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Fund has adopted a Distribution 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"), an affiliate of FAM, receives account
maintenance and distribution fees from the Fund. The fees are accrued daily and
paid monthly at annual rates
12 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Notes to Financial Statements (continued) WCMA Government Securities Fund
based upon the average daily net assets of the shares of the Fund as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class 1 ...................................... .25% .75%
Class 2 ...................................... .25% .425%
Class 3 ...................................... .25% .125%
Class 4 ...................................... .25% .125%
- --------------------------------------------------------------------------------
The ongoing account maintenance fee compensates MLPF&S for providing account
maintenance services to shareholders. The ongoing distribution fee compensates
MLPF&S for providing shareholder and distribution related services to
shareholders. The Fund has entered into a contractual arrangement with FAM and
MLPF&S to waive a portion of the Fund's fees and expenses to ensure that the net
expenses for the Fund's Class 2 Shares is .32% higher than that of CMA
Government Securities Fund, and Class 3 and Class 4 Shares is equal to that of
CMA Government Securities Fund. The fee/expense waiver includes account
maintenance and distribution fees. This arrangement has a one-year term and is
renewable. For the six months ended September 30, 2006, MLPF&S has earned
$1,022,901, of which $584,739 was waived.
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.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction closed on
September 29, 2006.
On August 31, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement for the Trust, with BlackRock Advisors, Inc., (the "Manager") a wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized
into BlackRock Advisors, LLC. The new advisory agreement became effective on
September 29, 2006 and the investment advisory fee is unchanged. In addition,
the Manager will provide administrative services and the administrative fee is
unchanged.
Prior to the closing, certain officers and/or trustees of the Fund are officers
and/or directors of FAM, PSI, and/or ML & Co.
Commencing September 29, 2006, certain officers and/or trustees of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(63,829,026) and $89,944,441 for the six months ended
September 30, 2006 and for the year ended March 31, 2006, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class 1 Shares for the Six Months Dollar
Ended September 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 67,108,922 $ 67,108,922
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 243,281 243,281
-------------------------------------
Total issued ....................... 67,352,203 67,352,203
Shares redeemed .................... (72,530,934) (72,530,934)
-------------------------------------
Net decrease ....................... (5,178,731) $ (5,178,731)
=====================================
- -------------------------------------------------------------------------------
Class 1 Shares for the Year Dollar
Ended March 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 182,059,852 $ 182,059,852
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 329,450 329,450
-------------------------------------
Total issued ....................... 182,389,302 182,389,302
Shares redeemed .................... (180,272,683) (180,272,683)
-------------------------------------
Net increase ....................... 2,116,619 $ 2,116,619
=====================================
- -------------------------------------------------------------------------------
Class 2 Shares for the Six Months Dollar
Ended September 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 323,476,369 $ 323,476,369
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 1,990,342 1,990,342
-------------------------------------
Total issued ....................... 325,466,711 325,466,711
Shares redeemed .................... (346,376,459) (346,376,459)
-------------------------------------
Net decrease ....................... (20,909,748) $ (20,909,748)
=====================================
- -------------------------------------------------------------------------------
Class 2 Shares for the Year Dollar
Ended March 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 588,622,879 $ 588,622,879
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 2,664,034 2,664,034
-------------------------------------
Total issued ....................... 591,286,913 591,286,913
Shares redeemed .................... (595,145,880) (595,145,880)
-------------------------------------
Net decrease ....................... (3,858,967) $ (3,858,967)
=====================================
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 13
Notes to Financial Statements (concluded) WCMA Government Securities Fund
- -------------------------------------------------------------------------------
Class 3 Shares for the Six Months Dollar
Ended September 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 653,308,811 $ 653,308,811
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 3,528,543 3,528,543
-------------------------------------
Total issued ....................... 656,837,354 656,837,354
Shares redeemed .................... (647,552,684) (647,552,684)
-------------------------------------
Net increase ....................... 9,284,670 $ 9,284,670
=====================================
- -------------------------------------------------------------------------------
Class 3 Shares for the Year Dollar
Ended March 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 1,389,779,817 $ 1,389,779,817
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 5,572,173 5,572,173
-------------------------------------
Total issued ....................... 1,395,351,990 1,395,351,990
Shares redeemed .................... (1,430,071,226) (1,430,071,226)
-------------------------------------
Net decrease ....................... (34,719,236) $ (34,719,236)
=====================================
- -------------------------------------------------------------------------------
Class 4 Shares for the Six Months Dollar
Ended September 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 403,950,333 $ 403,950,333
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 3,515,315 3,515,315
-------------------------------------
Total issued ....................... 407,465,648 407,465,648
Shares redeemed .................... (454,490,865) (454,490,865)
-------------------------------------
Net decrease ....................... (47,025,217) $ (47,025,217)
=====================================
- -------------------------------------------------------------------------------
Class 4 Shares for the Year Dollar
Ended March 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ........................ 1,016,806,849 $ 1,016,806,849
Shares issued to shareholders
in reinvestment of dividends
and distributions ................ 3,563,731 3,563,731
-------------------------------------
Total issued ....................... 1,020,370,580 1,020,370,580
Shares redeemed .................... (893,964,555) (893,964,555)
-------------------------------------
Net increase ....................... 126,406,025 $ 126,406,025
=====================================
14 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Schedule of Investments Master Government Securities Trust
(in Thousands)
Face Interest Maturity
Issue Amount Rate Date Value
================================================================================
U.S.Government Obligations*--20.8%
================================================================================
U.S. Treasury Bills $ 6,305 4.727% 12/28/2006 $ 6,232
- --------------------------------------------------------------------------------
U.S. Treasury Notes 9,000 2.50 10/31/2006 8,980
17,400 2.625 11/15/2006 17,349
50,000 3.50 11/15/2006 49,903
35,030 2.875 11/30/2006 34,912
26,000 3.125 1/31/2007 25,840
3,000 2.25 2/15/2007 2,969
51,480 3.375 2/28/2007 51,136
- --------------------------------------------------------------------------------
Total U.S. Government Obligations--(Cost--$197,306) .............. 197,321
- --------------------------------------------------------------------------------
Face
Amount Issue
================================================================================
Repurchase Agreements--78.8%
================================================================================
$46,300 Banc of America Securities LLC, purchased on
9/27/2006 to yield 5.23% to 10/04/2006,
repurchase price $46,347, collateralized by
GNMA, 5% to 7% due 1/20/2036
to 9/20/2036 ...................................... 46,300
- --------------------------------------------------------------------------------
47,100 Barclays Capital Inc., purchased on 9/29/2006
to yield 5% to 10/02/2006, repurchase price
$47,120, collateralized by U.S. Treasury Note,
4% due 9/30/2007 .................................. 47,100
- --------------------------------------------------------------------------------
47,000 Bear, Stearns & Co. Inc., purchased on 9/29/2006
to yield 5% to 10/02/2006, repurchase price
$47,020, collateralized by U.S. Treasury Note,
8.75% due 8/15/2020 ............................... 47,000
- --------------------------------------------------------------------------------
46,300 Citigroup Global Markets Inc., purchased on
9/27/2006 to yield 5.23% to 10/04/2006,
repurchase price $46,347, collateralized by
GNMA, 4.50% due 9/01/2020 ......................... 46,300
- --------------------------------------------------------------------------------
47,000 Countrywide Securities Corp., purchased on
9/26/2006 to yield 5.24% to 10/03/2006,
repurchase price $47,048, collateralized by
GNMA, 6% due 11/15/2034 to 12/15/2035 ............. 47,000
- --------------------------------------------------------------------------------
47,000 Credit Suisse Securities (USA)LLC, purchased
on 9/26/2006 to yield 5.24% to 10/03/2006,
repurchase price $47,048, collateralized by
GNMA, 5% due 7/15/2018 to 8/15/2018 ............... 47,000
- --------------------------------------------------------------------------------
46,300 Deutsche Bank Securities Inc., purchased on
9/27/2006 to yield 5.20% to 10/04/2006,
repurchase price $46,347, collateralized by
GNMA, 4.50% to 7% due 1/15/2024
to 9/15/2036 ...................................... 46,300
- --------------------------------------------------------------------------------
46,500 Goldman, Sachs & Company, purchased on
9/28/2006 to yield 5.20% to 10/26/2006,
repurchase price $46,688, collateralized by
U.S. Treasury Note, 4.875% due 8/15/2016 .......... 46,500
- --------------------------------------------------------------------------------
46,300 Greenwich Capital Markets, Inc., purchased on
9/27/2006 to yield 5.25% to 10/04/2006,
repurchase price $46,347, collateralized by
GNMA, 4.50% to 7% due 11/15/2010 to 9/15/2041 ..... 46,300
- --------------------------------------------------------------------------------
47,000 HSBC Securities (USA) Inc., purchased on
9/29/2006 to yield 5.10% to 10/02/2006,
repurchase price $47,020, collateralized by
U.S. Treasury STRIPS+, due 11/15/2017
to 8/15/2030 ...................................... 47,000
- --------------------------------------------------------------------------------
47,000 J.P. Morgan Securities Inc., purchased on
9/26/2006 to yield 5.24% to 10/03/2006,
repurchase price $47,048, collateralized by
GNMA, 4.50% to 9% due 9/15/2007 to 4/15/2047 ...... 47,000
- --------------------------------------------------------------------------------
47,000 Lehman Brothers Inc., purchased on 9/26/2006
to yield 5.26% to 10/03/2006, repurchase price
$47,048 , collateralized by GNMA, 4% to
11.50% due 1/15/2007 to 9/15/2036 ................. 47,000
- --------------------------------------------------------------------------------
47,100 Merrill Lynch Government Securities Inc.,
purchased on 9/29/2006 to yield 5.20% to
10/04/2006, repurchase price $47,134,
collateralized by GNMA, 4% to 13.50%
due 12/15/2008 to 9/20/2036 (a) ................... 47,100
- --------------------------------------------------------------------------------
46,300 Mizuho Securities USA Inc., purchased on
9/27/2006 to yield 5.08% to 10/04/2006,
repurchase price $46,346, collateralized by
U.S. Treasury Note, 2.50% to 6.875% due
9/30/2006 to 8/15/2025 and U.S. Inflation
Index Bonds, 3.375% due 1/15/2007 ................. 46,300
- --------------------------------------------------------------------------------
46,300 Morgan Stanley & Co. Inc., purchased on
9/27/2006 to yield 5.08% to 10/04/2006,
repurchase price $46,346, collateralized by
U.S. Treasury Note, 6% due 8/15/2009 .............. 46,300
- --------------------------------------------------------------------------------
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 15
Schedule of Investments (concluded) Master Government Securities Trust
(in Thousands)
Face
Amount Issue Value
================================================================================
Repurchase Agreements (concluded)
================================================================================
$46,300 UBS Securities LLC, purchased on 9/27/2006 to
yield 5.18% to 10/04/2006, repurchase price
$46,347, collateralized by GNMA, 4% to 16%
due 11/15/2006 to 9/15/2036 ....................... $ 46,300
- --------------------------------------------------------------------------------
Total Repurchase Agreements (Cost--$746,800) ..................... 746,800
- --------------------------------------------------------------------------------
Total Investments (Cost--$944,106**)--99.6% ...................... 944,121
Other Assets Less Liabilities--0.4% .............................. 3,717
--------
Net Assets--100.0% ............................................... $947,838
========
- --------------------------------------------------------------------------------
* 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, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ................................. $ 944,106
=========
Gross unrealized appreciation .................. $ 35
Gross unrealized depreciation .................. (20)
---------
Net unrealized appreciation .................... $ 15
=========
+ 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. $ (400) $1,142
--------------------------------------------------------------------------
See Notes to Financial Statements.
16 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Statement of Assets and Liabilities Master Government Securities Trust
As of September 30, 2006
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$897,006,060) ........................................ $ 897,021,417
Investments in affiliated securities, at value
(identified cost--$47,100,000) ......................................... 47,100,000
Cash .................................................................... 463
Receivables:
Contributions ........................................................ $ 2,230,863
Interest ............................................................. 1,709,235 3,940,098
-------------
Prepaid expenses ........................................................ 6,013
------------
Total assets ............................................................ 948,067,991
------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Payables:
Investment adviser ................................................... 155,497
Other affiliates ..................................................... 9,528 165,025
Accrued expenses ........................................................ 64,476
------------
Total liabilities ....................................................... 229,501
------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets .............................................................. $ 947,838,490
============
====================================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------------
Investors' capital ...................................................... $ 947,823,133
Unrealized appreciation--net ............................................ 15,357
------------
Net Assets .............................................................. $ 947,838,490
============
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 17
Statement of Operations Master Government Securities Trust
For the Six Months Ended September 30, 2006
====================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Interest (including $1,142,242 from affiliates) and
amortization of premium and discount earned ........................ $ 22,765,780
====================================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................ $ 990,744
Accounting services ................................................. 105,498
Custodian fees ...................................................... 31,198
Trustees' fees and expenses ......................................... 18,320
Professional fees ................................................... 17,997
Pricing fees ........................................................ 1,870
Printing and shareholder reports .................................... 138
Other ............................................................... 10,614
-------------
Total expenses ...................................................... 1,176,379
------------
Investment income--net .............................................. 21,589,401
------------
====================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------------------------
Realized loss on investments--net ................................... (2,084)
Change in unrealized appreciation/depreciation on investments--net .. 306,587
------------
Total realized and unrealized gain--net ............................. 304,503
------------
Net Increase in Net Assets Resulting from Operations ................ $ 21,893,904
============
See Notes to Financial Statements.
18 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
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: 2006 2006
====================================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 21,589,401 $ 29,759,366
Realized gain (loss)--net ........................................... (2,084) 5,304
Change in unrealized appreciation/depreciation--net ................. 306,587 121,542
-----------------------------------
Net increase in net assets resulting from operations ................ 21,893,904 29,886,212
-----------------------------------
====================================================================================================================================
Capital Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ......................................... 2,502,397,897 5,154,701,941
Fair value of withdrawals ........................................... (2,545,262,076) (5,152,345,637)
-----------------------------------
Net increase (decrease) in net assets derived from capital
transactions ....................................................... (42,864,179) 2,356,304
-----------------------------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................. (20,970,275) 32,242,516
Beginning of period ................................................. 968,808,765 936,566,249
-----------------------------------
End of period ....................................................... $ 947,838,490 $ 968,808,765
===================================
See Notes to Financial Statements.
Financial Highlights Master Government Securities Trust
For the Period
For the Six For the Year Ended February 13,
Months Ended March 31, 2003+
The following ratios have been derived from September 30, ------------------------------------ to March 31,
information provided in the financial statements. 2006 2006 2005 2004 2003
====================================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return ....................... 2.39%@ 3.37% 1.44% .94% .75%*
=================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses ...................................... .26%* .26% .25% .22% .26%*
=================================================================
Investment income and realized gain (loss)--net 4.70%* 3.31% 1.39% .94% 1.08%*
=================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ...... $ 947,838 $ 968,809 $ 936,566 $1,194,238 $1,585,194
=================================================================
* Annualized.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 19
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 interests 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) Recent accounting pronouncement -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity including mutual funds
before being measured and recognized in the financial statements. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006. The
impact on the Trust's financial statements, if any, is currently being assessed.
(e) 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, 2006, the Trust reimbursed FAM $9,283 for
certain accounting services.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction closed on
September 29, 2006.
20 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
Notes to Financial Statements (concluded) Master Government Securities Trust
The shareholders of each of the investors approved on August 31, 2006 and
September 15, 2006, respectively, a new Investment Advisory Agreement with
BlackRock Advisors, Inc., (the "Manager") a wholly owned subsidiary of
BlackRock, Inc. BlackRock Advisors, Inc. was reorganized into BlackRock
Advisors, LLC. The new advisory agreement became effective on September 29, 2006
and the investment advisory fee is unchanged. In addition, the Manager has
entered into a sub-advisory agreement with BlackRock Institutional Management
Corporation, an affiliate, under which the Manager pays the Sub-Adviser for
services it provides a fee equal to 59% of the management fee paid to the
Manager.
Prior to the closing, certain officers and/or trustees of the Trust are officers
and/or directors of FAM, PSI, and/or ML & Co.
Commencing September 29, 2006, certain officers and/or trustees of the Trust are
officers and/or directors of BlackRock, Inc. or its affiliates.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 21
Disclosure of Investment Advisory Agreement
Disclosure of FAM Management Agreement
The Board of Trustees of Master Government Securities Trust (the "Trust") and
the Board of Trustees of WCMA Government Securities Fund (the "Fund") met in
August 2006 to consider approval of the management agreement between the Trust,
on behalf of the Fund, and Fund Asset Management, L.P., the Trust's manager at
that time ("FAM").
Activities and Composition of the Board of Trustees
All but one member of each Board of Trustees is an independent trustee whose
only association with FAM or other Merrill Lynch affiliates was as a trustee of
the Fund and the Trust and as a trustee or director of certain other funds
advised by FAM or its affiliates. The Chairman of each Board is also an
independent trustee. New trustee nominees are chosen by a Nominating Committee
comprised of independent trustees. All independent trustees also are members of
the respective Board's Audit Committee, and the independent trustees meet in
executive session at each in-person Board meeting. The Boards and the Audit
Committees 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.
FAM Management Agreement -- Matters Considered by the Boards
Every year, each Board reviews and considers approval of the Trust's management
agreement on behalf of the Fund. Each Board assesses the nature, scope and
quality of the services provided to the Fund and the Trust by the personnel of
the manager and its affiliates, including administrative services, shareholder
services, oversight of fund accounting, marketing services and assistance in
meeting legal and regulatory requirements. Each Board also receives and assesses
information regarding the services provided to the Fund and the Trust by certain
unaffiliated service providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
manager and its affiliates. Among the matters considered are: (a) fees (in
addition to management fees) paid to the manager and its affiliates by the Fund
and/or the Trust, 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/Fund's
investment objective, policies and restrictions, and the Trust's/Fund's
compliance with its Code of Ethics and compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services
provided by the manager and its affiliates.
The Boards noted their view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. The Boards also noted their view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest financial
firms. The Boards work closely with the manager in overseeing the manager's
efforts to achieve good performance. As part of this effort, each Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the manager taking steps such as changing
investment personnel.
Annual Consideration of Approval by the Boards
In the period prior to the Board meeting to consider renewal of the management
agreement, each Board requests and receives materials specifically relating to
the management agreement. These materials include (a) information on the fees
and expenses and the investment performance of the Trust/Fund or its predecessor
(which had the same investment objectives and strategies as the Trust/Fund) as
compared to a comparable group of funds; (b) a discussion by the Trust's/Fund's
portfolio management team regarding investment strategies used by the Trust/Fund
during its most recent fiscal year; (c) information on the profitability to the
manager and its affiliates of the management agreement and certain other
relationships with the Trust and/or the Fund; and (d) information provided by
the manager concerning management fees charged to other clients, such as
institutional clients, under similar investment mandates. Each Board also
considers other matters it deems important to the approval process, such as
payments made to the manager 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 manager and its affiliates from their relationship with
the Fund and the Trust. Neither Board identified any particular information as
controlling, and each member of the Board may have attributed different weights
to the various items considered.
Certain Specific Renewal Data
In connection with the most recent renewal of the management agreement between
the Trust, on behalf of the Fund, and FAM (the "FAM Management Agreement") in
August
22 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
2006, the independent trustees' and Boards' review included the following:
Services Provided by the Manager -- Each Board reviewed the nature, extent and
quality of services provided by FAM, including the management services and the
resulting performance of the Trust/Fund. Each Board focused primarily on FAM's
investment advisory services and the Trust's/Fund's investment performance.
While each Board reviews performance data at least quarterly, the Board attaches
more importance to performance over relatively long periods of time, typically
three to five years. The Boards concluded that the comparative data indicated
that the Fund's performance was competitive. Considering all these factors, each
Board concluded that the Trust's/Fund's performance and the nature and quality
of the services provided supported the continuation of the FAM Management
Agreement.
FAM's Personnel and Investment Process -- Each Board reviewed the Trust's/Fund's
investment objectives and strategies. The Boards discussed with FAM's senior
management responsible for investment operations and the senior management of
FAM's taxable fixed income investing group the strategies being used to achieve
the stated objectives. Among other things, the Boards considered the size,
education and experience of FAM's investment staff, its use of technology, and
FAM's approach to training and retaining portfolio managers and other research,
advisory and management personnel. The Boards also reviewed FAM's compensation
policies and practices with respect to the Trust's/Fund's portfolio manager. The
Boards also considered the experience of the Trust's/Fund's portfolio manager
and noted that Mr. Ng has over 20 years' experience investing in money market
securities. Each Board considered the extensive experience of FAM and its
investment staff in analyzing and managing the types of investments used by the
Trust and the Fund and concluded that the Trust and the Fund benefit from that
experience.
Management Fees and Other Expenses -- Each Board reviews 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 comparable funds. It also compares the Trust's/Fund's total expenses
to those of other comparable funds. Each Board determined that the Fund's
contractual and actual management fee rates, as well as total expenses, were
competitive with those of comparable funds. Each Board concluded that the Fund's
management fee rate and overall expense ratio were reasonable.
Profitability -- Each Board considers the cost of the services provided to the
Trust and the Fund by the manager and the manager's and its affiliates' profits
relating to the management and distribution of the Trust and the Fund and the
funds advised by the manager and its affiliates. As part of its analysis, each
Board reviewed FAM's methodology in allocating its costs to the management of
the Trust and the Fund and concluded that there was a reasonable basis for the
allocation. Each Board also considered federal court decisions discussing an
investment adviser's profitability and profitability levels considered to be
reasonable in those decisions. The Boards concluded that the profits of FAM and
its affiliates were acceptable in relation to the nature and quality of services
provided and given the level of fees and expenses overall.
Economies of Scale -- Each Board considered the extent to which economies of
scale might be realized as the assets of the Trust and the Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Trust and the Fund to participate in these economies of scale.
Each Board concluded that the Trust's/Fund's management fee rate schedule, which
includes breakpoints, appropriately allows shareholders to participate in the
benefits of economies of scale. The Boards determined that no changes were
currently necessary.
Conclusion
After the independent trustees of the Fund and the independent trustees of the
Trust deliberated in executive session, each entire Board, including all of the
independent trustees, approved the renewal of the existing FAM Management
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.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 23
Disclosure of New Investment Advisory Agreement
New BlackRock Management Agreement -- Matters Considered by the Boards
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Manager"), with
that of BlackRock, Inc. ("BlackRock") to create a new independent company ("New
BlackRock") (the "Transaction"), the Board of Trustees of the Trust, on behalf
of the Fund, considered and approved a new management agreement (the "BlackRock
Management Agreement") between the Trust and BlackRock Advisors, LLC ("BlackRock
Advisors"). Because the Fund is a feeder fund that invests all of its assets in
the Trust, the Board of Trustees of the Fund also considered the BlackRock
Management Agreement. Shareholders subsequently approved the BlackRock
Management Agreement, and it became effective on September 29, 2006, replacing
the management agreement with the Previous Manager (the "Previous Management
Agreement").
Each Board discussed the BlackRock Management Agreement at telephonic and
in-person meetings held during April and May 2006. Each Board, including the
independent trustees, approved the BlackRock Management Agreement at an
in-person meeting held on May 12, 2006.
To assist each Board in its consideration of the BlackRock Management Agreement,
BlackRock provided materials and information about BlackRock, including its
financial condition and asset management capabilities and organization, and
Merrill Lynch provided materials and information about the Transaction. The
independent trustees, through their independent legal counsel, also requested
and received additional information from Merrill Lynch and BlackRock in
connection with their consideration of the BlackRock Management Agreement. The
additional information was provided in advance of the May 12, 2006 meetings. In
addition, the independent trustees consulted with their counsel and counsel for
the Fund and the Trust on numerous occasions, discussing, among other things,
the legal standards and certain other considerations relevant to each Board's
deliberations.
At each Board meeting, the trustees discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Fund and the Trust. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from each Board. Each Board also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Manager, and of its affiliates,
to be transferred to BlackRock in connection with the Transaction. The
independent trustees also conferred separately and with their counsel about the
Transaction and other matters related to the Transaction on a number of
occasions, including in connection with the April and May 2006 meetings. After
the presentations and after reviewing the written materials provided, the
independent trustees met in executive sessions with their counsel to consider
the BlackRock Management Agreement.
In connection with each Board's review of the BlackRock Management Agreement,
Merrill Lynch and/or BlackRock advised the Boards about a variety of matters.
The advice included the following, among other matters:
o that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund and the Trust and their
shareholders by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
o that the Fund and the Trust were expected to benefit from having access to
BlackRock's state of the art technology and risk management analytic
tools, including investment tools, provided under the BlackRock
Solutions(R) brand name;
o that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
each Board before making any changes;
o that BlackRock and Merrill Lynch would enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill
Lynch-affiliated broker-dealers would continue to offer the Fund as an
investment product;
o that BlackRock Advisors would have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as was
currently being provided to the Previous Manager and that other
arrangements between the Previous Manager and Merrill Lynch sales channels
would be preserved;
24 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
o that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Manager (or affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund or Trust
shareholders.
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund and Trust shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the BlackRock Management Agreement, including
the fact that the schedule of the Fund's/Trust's total advisory and
administrative fees would not increase under the BlackRock Management
Agreement, but would remain the same;
o that in August 2005, each Board had performed a full annual review of each
respective Previous Management Agreement, as required by the 1940 Act, and
had determined that the Previous Manager had the capabilities, resources
and personnel necessary to provide the advisory and administrative
services that were then being provided to the Fund/Trust; and that the
advisory and/or management fees paid by the Fund/Trust, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Manager in light of
the services provided, the costs to the Previous Manager of providing
those services, economies of scale, the fees and other expenses paid by
similar funds, and such other matters as the trustees had considered
relevant in the exercise of their reasonable judgment; and
o that Merrill Lynch had agreed to pay all expenses of the Fund and Trust in
connection with the Board's consideration of the BlackRock Management
Agreement and related agreements and all costs of shareholder approval of
the BlackRock Management Agreement and as a result the Fund and the Trust
would bear no costs in obtaining shareholder approval of the BlackRock
Management Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Management Agreement, each Board assessed the
nature, quality and scope of the services to be provided to the Fund and the
Trust by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory requirements.
In its review of the BlackRock Management Agreement, each Board also considered
a range of information in connection with its oversight of the services to be
provided by BlackRock Advisors and its affiliates. Among the matters considered
were: (a) fees (in addition to management fees) to be paid to BlackRock Advisors
and its affiliates by the Fund and the Trust; (b) Fund and Trust operating
expenses paid to third parties; (c) the resources devoted to and compliance
reports relating to the Fund's and the Trust's investment objective, policies
and restrictions, and their compliance with their Code of Ethics and BlackRock
Advisors' compliance policies and procedures; and (d) the nature, cost and
character of non-investment management services to be provided by BlackRock
Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Previous
Management Agreement, each Board had requested and received materials
specifically relating to the Previous Management Agreement. These materials
included (a) information on the fees and expenses and the investment performance
of the Fund as compared to a comparable group of funds; (b) a discussion by the
Trust's portfolio management team on investment strategies used by the Trust
during its most recent fiscal year; (c) information on the profitability to the
Previous Manager of the Previous Management Agreement and other payments
received by the Previous Manager and its affiliates from the Fund and the Trust;
and (d) information provided by the Previous Manager concerning services related
to the valuation and pricing of
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 25
Disclosure of New Investment Advisory Agreement (continued)
the Trust's portfolio holdings, allocation of Trust brokerage fees, the Trust's
portfolio turnover statistics, and direct and indirect benefits to the Previous
Manager and its affiliates from their relationship with the Fund and the Trust.
In its deliberations, each Board considered information received in connection
with its most recent approval of the continuance of the Previous Management
Agreement, in addition to information provided by BlackRock and BlackRock
Advisors in connection with their evaluation of the terms and conditions of the
BlackRock Management Agreement. The trustees did not identify any particular
information that was all-important or controlling, and each trustee attributed
different weights to the various factors. Each Board, including a majority of
the Board's independent trustees, concluded that the terms of the BlackRock
Management Agreement are appropriate, that the fees to be paid are reasonable in
light of the services to be provided to the Fund/Trust, and that the BlackRock
Management Agreement should be approved and recommended to Fund/Trust
shareholders.
Nature, Quality and Extent of Services Provided -- Each Board reviewed the
nature, quality and extent of services provided by the Previous Manager,
including the investment advisory services and the resulting performance of the
Fund and the Trust, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. Each Board focused primarily on
the Previous Manager's investment advisory services and the investment
performance of the Fund and the Trust, but also considered certain areas in
which both the Previous Manager and the Fund/Trust received services as part of
the Merrill Lynch complex. Each Board compared the Fund's performance -- both
including and excluding the effects of 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 each Board reviews performance data at least
quarterly, consistent with the Previous Manager's investment goals, the Board
attaches more importance to performance over relatively long periods of time,
typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Management Agreement, each Board
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund and the Trust; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
investment and other practices of the Fund or the Trust.
Each Board was given information with respect to the potential benefits to the
Fund and the Trust and their shareholders from having access to BlackRock's
state of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and the Trust would continue to be
subject to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. Each Board was advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and was advised of
the possibility of receipt of such revised regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to the
Fund/Trust under the BlackRock Management Agreement were expected to be as good
as or better than that provided under the Previous Management Agreement. The
trustees were advised that BlackRock Advisors did not plan to change the
Fund's/Trust's portfolio management team upon the closing of the Transaction. It
was noted, however, that other changes in personnel were expected to follow the
Transaction and the combination of the operations of the Previous Manager and
its affiliates with those of BlackRock. The trustees noted that if portfolio
managers or other personnel were to cease to be available prior to the closing
of the Transaction, each Board would consider all available options, including
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, each Board concluded that, overall, the Board was satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, quality and extent of the services to be provided to the
Fund/Trust under the BlackRock Management Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the most recent review of the Previous Management Agreement,
each Board had received, among other things, information comparing the Fund's
fees and expenses to those of comparable funds and information as to the fees
charged by the Previous Manager or its affiliates to other registered investment
company clients for investment management services. Each Board reviewed the
Fund's/Trust's contractual management fee rate and actual management fee rate as
a percentage of total assets at common asset levels --
26 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
the actual rate includes advisory and administrative service fees and the
effects of any fee waivers -- compared to comparable funds. Each Board also
compared the Fund's total expenses to those of comparable funds. Each Board
concluded that the Fund's/Trust's management fee and fee rate and overall
expense ratio are reasonable compared to those of comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Management Agreement, each Board considered, among other
things, whether advisory and administrative fees or other expenses would change
as a result of the Transaction.
The Fund's Board noted that in addition to the BlackRock Management Agreement,
it was considering a new administration agreement with BlackRock Advisors as
administrator to replace the Fund's administration agreement under which the
Previous Manager was serving as administrator. Based on its review of the
materials provided, and the fact that the BlackRock Management Agreement and the
new administration agreement are substantially similar to the corresponding
previous agreement in all material respects, including the rate of compensation,
each Board determined that the Transaction should not increase the total fees
payable, including any fee waivers and expense reimbursements, for advisory and
administrative services. Each Board noted that it was not possible to predict
how the Transaction would affect BlackRock Advisor's profitability from its
relationship with the Fund and the Trust.
Each Board discussed with BlackRock Advisors its general methodology to be used
in determining New BlackRock's profitability with respect to its relationship
with the Fund and the Trust. The trustees noted that they expect to receive
profitability information from BlackRock Advisors on at least an annual basis
and thus be in a position to evaluate whether any adjustments in fees and/or fee
breakpoints would be appropriate.
Fees and Economies of Scale -- Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and the Trust
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and the Trust to participate in these
economies of scale. Each Board determined that changes were not currently
necessary.
In reviewing the Transaction, each Board considered, among other things, whether
advisory and administrative fees or other expenses would change as a result of
the Transaction. Based on the fact that the BlackRock Management Agreement was
substantially similar to the Previous Management Agreement in all material
respects, including the rate of compensation, and the fact that the proposed new
administration agreement with BlackRock Advisors was also substantially similar
to the administration agreement then in effect, each Board determined that as a
result of the Transaction, the Fund's/Trust's total advisory and administrative
fees would be no higher than the fees under the corresponding Previous
Management Agreement and administration agreement. Each Board noted that in
conjunction with the most recent deliberations concerning the Previous
Management Agreement, the trustees had determined that the total fees for
advisory and administrative services for the Fund and the Trust were reasonable
in light of the services provided. It was noted that in conjunction with the
recent review of the Previous Management Agreement, the Boards had received,
among other things, information comparing the fees, expenses and performance of
the Fund/Trust to those of comparable funds and information as to the fees
charged by the Previous Manager to other registered investment company clients
for investment management services. Each Board concluded that because the rates
for advisory and administrative fees for the Fund/Trust would be no higher than
the fee rates in effect at the time, the proposed management fee structure,
including any fee waivers, was reasonable and that no additional changes were
currently necessary.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Management Agreement, each Board
considered whether BlackRock Advisors would experience such benefits to the same
extent that the Previous Manager was experiencing such benefits under the
Previous Management Agreement. Based on their review of the materials provided,
including materials received in connection with their most recent approval of
the continuance of the Previous Management Agreement, and their discussions with
management of the Previous Manager and BlackRock, the trustees determined that
BlackRock Advisors' fall-out benefits could include increased ability for
BlackRock to distribute shares of its funds and other investment products. Each
Board noted that fall-out benefits were difficult to quantify with certainty at
this time, and indicated that the Board would continue to evaluate them going
forward.
Investment Performance -- Each Board considered investment performance for the
Fund and the Trust. Each Board compared the performance of the Fund and the
Trust -- both including and excluding the effects of fees and expenses -- to the
performance of a comparable group of mutual funds,
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 27
Disclosure of New Investment Advisory Agreement (concluded)
and the performance of a relevant index or combination of indexes. The
comparative information showed Fund performance at various levels within the
range of performance of comparable funds over different time periods. While each
Board reviews performance data at least quarterly, consistent with the Previous
Manager's investment goals, the Board attaches more importance over relatively
long periods of time, typically three to five years. Each Board believed the
Fund's performance was satisfactory. Also, each Board took into account the
investment performance of funds advised by BlackRock Advisors. Each Board
considered comparative information from Lipper Inc. which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. Each Board noted
BlackRock's considerable investment management experience and capabilities, but
was unable to predict what effect, if any, consummation of the Transaction would
have on the future performance of the Fund.
Conclusion -- After the independent trustees of the Fund and the independent
trustees of the Trust deliberated in executive session, each entire Board,
including the independent trustees, approved the BlackRock Management Agreement,
concluding that the advisory fee rate was reasonable in relation to the services
provided and that the BlackRock Management Agreement was in the best interests
of the shareholders. In approving the BlackRock Management Agreement, each Board
noted that it anticipated reviewing the continuance of the agreement in advance
of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Boards
At an in-person meeting held on August 14-16, 2006, each Board, including the
independent trustees, discussed and approved the sub-advisory agreement with
respect to the Trust (the "BlackRock Sub-Advisory Agreement") between BlackRock
Advisors and BlackRock Institutional Management Corporation, an affiliate of
BlackRock Advisors (the "Sub-Adviser"). The BlackRock Sub-Advisory Agreement
became effective on September 29, 2006, at the same time the BlackRock
Management Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received by
BlackRock Advisors from the Trust. BlackRock Advisors pays the Sub-Adviser out
of its own resources, and there is no increase in Fund or Trust expenses as a
result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, each Board reviewed its considerations in connection with its approval
of the BlackRock Management Agreement in May 2006. The Boards relied on the same
information and considered the same factors as those discussed above in
connection with the approval of the BlackRock Management Agreement and came to
the same conclusion. In reviewing the sub-advisory fee rate provided in the
BlackRock Sub-Advisory Agreement, each Board noted the fact that BlackRock
Advisors and the Sub-Adviser each have significant responsibilities under their
respective advisory agreements. BlackRock Advisors remains responsible for
oversight of the Fund's and the Trust's operations and administration, and the
Sub-Adviser provides advisory services to the Fund/Trust and is responsible for
the day-to-day management of the Fund's/Trust's portfolio under the BlackRock
Sub-Advisory Agreement. The Boards also took into account the fact that there is
no increase in total advisory fees paid by the Fund or the Trust as a result of
the BlackRock Sub-Advisory Agreement. Under all of the circumstances, each Board
concluded that it was a reasonable allocation of fees for the Sub-Adviser to
receive 59% of the advisory fee paid by the Trust to BlackRock Advisors.
After the independent trustees of the Fund and the independent trustees of the
Trust deliberated in executive session, each entire Board, including the
independent trustees, approved each BlackRock Sub-Advisory Agreement, concluding
that the sub-advisory fee was reasonable in relation to the services provided
and that the BlackRock Sub-Advisory Agreement was in the best interests of
Fund/Trust shareholders.
28 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
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.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 29
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
30 WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
WCMA GOVERNMENT SECURITIES FUND SEPTEMBER 30, 2006 31
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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
WCMA Government Securities Fund
Box 9011
Princeton, NJ 08543-9011
#WCMAGS -- 9/06
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 - The registrant's
Nominating Committee will consider nominees to the Board recommended
by shareholders when a vacancy becomes available. Shareholders who
wish to recommend a nominee should send nominations which include
biographical information and sets forth the qualifications of the
proposed nominee to the registrant's Secretary. There have been no
material changes to these procedures.
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.
WCMA Government Securities Fund and Master Government Securities Trust
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
WCMA Government Securities Fund and Master Government Securities Trust
Date: November 17, 2006
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
WCMA Government Securities Fund and Master Government Securities Trust
Date: November 17, 2006
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer of
WCMA Government Securities Fund and Master Government Securities Trust
Date: November 17, 2006