Morgan Stanley Income Securities NCSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number			811-02349

Morgan Stanley Income Securities Inc.
(Exact name of registrant as specified in charter)

522 Fifth Avenue, New York, New York					10036
(Address of principal executive offices)					(Zip code)

John H. Gernon 522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)

Registrant’s telephone number, including area code:				212 - 296-0289

Date of fiscal year end:	September 30,

Date of reporting period:		September 30, 2014

Item 1 - Report to Shareholders

Directors

Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid

Officers

Michael E. Nugent
Chairperson of the Board

John H. Gernon
President and Principal Executive Officer

Stefanie V. Chang Yu
Chief Compliance Officer

Joseph C. Benedetti
Vice President

Francis J. Smith
Treasurer and Principal Financial Officer

Mary E. Mullin
Secretary

Transfer Agent

Computershare Trust Company, N.A.
211 Quality Circle, Suite 210
College Station, Texas 77845

Custodian

State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111

Independent Registered Public Accounting Firm

Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116

Legal Counsel

Dechert LLP
1095 Avenue of the Americas
New York, New York 10036

Counsel to the Independent Directors

Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

Adviser

Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036

ICBANN
1043250 EXP 11.28.15

INVESTMENT MANAGEMENT

Morgan Stanley Income Securities Inc.

NYSE: ICB

Annual Report

September 30, 2014

Morgan Stanley Income Securities Inc.

Table of Contents

Welcome Shareholder					3
Fund Report					4
Investment Advisory Agreement Approval					8
Portfolio of Investments					11
Statement of Assets and Liabilities					22
Statement of Operations					22
Statements of Changes in Net Assets					23
Notes to Financial Statements					24
Financial Highlights					38
Report of Independent Registered Public Accounting Firm					39
Shareholders Voting Results					40
Portfolio Management					41
Investment Policy					42
Dividend Reinvestment Plan					49
U.S. Privacy Policy					52
Director and Officer Information					57

Welcome Shareholder,

We are pleased to provide this annual report, in which you will learn how your investment in Morgan Stanley Income Securities Inc. performed during the latest twelve-month period. It includes an overview of the market conditions and discusses some of the factors that affected performance during the reporting period. In addition, the report contains financial statements and a list of portfolio holdings.

Morgan Stanley Investment Management is a client-centric, investor-led organization. Our global presence, intellectual capital, and breadth of products and services enable us to partner with investors to meet the evolving challenges of today's financial markets. We aim to deliver superior investment service and to empower our clients to make the informed decisions that help them reach their investment goals.

As always, we thank you for selecting Morgan Stanley Investment Management, and look forward to working with you in the months and years ahead.

Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund.

Fund Report (unaudited)

For the year ended September 30, 2014

Market Conditions

After rallying for most of the 12-month period, risky assets paused late in the period as investors took stock of the changing fundamental backdrop and re-evaluated whether market risk premia are sufficient to compensate for these risks. In the U.S., investors increased their focus on when the Federal Reserve (Fed) will raise rates, potentially increasing the volatility in financial markets. In contrast, investors in Europe focused on the weakening fundamental backdrop, as economic growth continued to decelerate and inflation expectations continued their downward path, thereby putting pressure on the European Central Bank (ECB) to take additional unconventional action. On a global basis, expectations for growth continued to fall, and this has been reflected in weaker commodity prices and the strengthening U.S. dollar. These concerns, combined with the growing geopolitical tension in Syria and Iraq, contributed to an uncertain backdrop for investing.

Investors also continued to watch the actions of global central banks. In the U.S., the Fed has maintained a view that rates will remain low for a "considerable time." The ECB eased policy rates and announced outright asset purchases of asset-backed securities and covered bonds. The Bank of Japan continued to contemplate ways to ease financial conditions. Both Australian and New Zealand central banks have also turned slightly more dovish, meaning that they are more favorable toward maintaining low interest rates to foster economic growth. As long as the inflation backdrop remains steady, the risk of a sharp rise in interest rates appears minimal.

Corporate credit performed well during the period. On a sector basis, financials continued to outperform industrials, supported by the financials sector's lower net issuance and continued secular de-risking. Credit spreads also decompressed, with higher-rated issuers outperforming those with lower-quality credit profiles.

The high yield segment weakened in the latter part of the period, reflecting both the spread decompression witnessed in the investment grade market and less favorable supply demand characteristics. High yield supply has been high both in Europe and the U.S., while fund flows were negative, particularly in the U.S., as investors reduced positions ahead of a potential rate-raising cycle.

The Treasury curve flattened during the period with two- and five-year yields rising between 20 and 30 basis points and 10- and 30-year yields falling between 20 and 60 basis points.

Performance Analysis

The net asset value (NAV) of Morgan Stanley Income Securities Inc. (ICB) increased from $18.94 per share on September 30, 2013 to $19.92 per share on September 30, 2014. Based on the NAV change plus reinvestment of dividends totaling approximately $0.70 per share, the Fund's total NAV return for the 12-month period was 9.50 percent. ICB's value on the New York Stock Exchange (NYSE) moved from $16.63 per share on September 30, 2013 to $17.85 per share on September 30, 2014. Based on this change plus reinvestment of dividends, the Fund's total market return for the 12-month period was 11.76 percent. ICB's NYSE

market price was at a 10.4 percent discount to its NAV. Past performance is no guarantee of future results.

The monthly dividend declared in October 2014 was unchanged at $0.0525 per share. The dividend reflects the current level of the Fund's net investment income.

Investment-grade credit performed strongly over the past 12 months. Traditionally higher beta (or more volatile) sectors, such as financials and BBB-rated non-financials, outperformed the broader corporate market. The portfolio's overweight allocation to financial sector credits contributed positively to returns, as spreads in the sector narrowed relative to the broader market.

An opportunistic allocation to below investment-grade (high yield) and convertible bonds also contributed positively to the Fund's performance. Despite some recent underperformance, high yield securities performed well over the year as spreads narrowed and default rates remained low.

During the year, the Fund's duration, a measure of interest-rate sensitivity, was below that of the Index. This defensive positioning detracted from returns as yields fell during the period. However, for most of the year the Fund did maintain a position seeking to take advantage of yield curve flattening, which contributed positively to returns. The duration and yield curve flattening positions were managed in part using futures and swaps.

As fixed income markets have remained in a "carry" environment — that is, investors borrow at a lower interest rate and invest in a higher-yielding asset — one

of our investment themes has been to seek to out-carry the expected pace of a Fed policy rate rise to achieve excess return. We believe this theme remains valid as the policy reaction from global central banks remains supportive and the sluggish recovery in global growth acts to minimize the risk of a sharp rise in interest rates. To be clear, we do expect U.S. policy rates to rise in 2015, but we believe this will be a slow process and there are still opportunities to take advantage of income earned from "carry" while building in a hedge against rising interest rates. In terms of "carry", we still believe economic growth is strong enough to support credit and keep default rates low.

Given this outlook, we continue to position the Fund to be overweight credit risk, particularly in the financial sector, where we believe that the fundamental premise remains one of secular de-risking as banks look to strengthen their balance sheets, increase liquidity and reduce their risky activities.

In the non-financial segment of the investment grade market, we have positioned the Fund with an increasingly defensive stance. While many companies spent the last several years strengthening their balance sheets, more and more have been increasing leverage as the economic recovery matures. We expect this behavior could pressure spreads within the non-financial segment of the market.

The Fund continues to hold small allocations to high yield and convertible bonds, as we believe conditions remain supportive for both sub-sectors of the market. Regarding high yield, in particular, we have become

more positive on the asset class as valuations have recently improved.

The Fund's procedure for reinvesting all dividends and distributions in common shares is through purchases in the open market. This method helps support the market value of the Fund's shares. In addition, we would like to remind you that the Directors have approved a share repurchase program whereby the Fund may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase.

Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. Investment return, net asset value and common share market price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.

There is no guarantee that any sectors or markets mentioned will continue to perform as discussed herein or that securities in such sectors or types of securities will be held by the Fund in the future.

*PORTFOLIO COMPOSITION as of 9/30/14**
Corporate Bonds	96.6	%
Asset-Backed Securities	1.4
Short-Term Investments	1.0
Variable Rate Senior Loan Interests	0.8
Sovereign	0.2

LONG-TERM CREDIT ANALYSIS as of 9/30/14
AAA	4.0	%
AA	2.9
A	20.0
BBB	59.6
BB	8.1
B or Below	3.2
Not Rated	2.2

* Does not include open long/short futures contracts with an underlying face amount of $152,249,132 with net unrealized appreciation of $106,091. Does not include open foreign currency forward exchange contracts with net unrealized appreciation of $37,414 and does not include open swap agreements with net unrealized appreciation of $360,522.

Subject to change daily. Provided for informational purposes only and should not be deemed a recommendation to buy or sell the types of securities mentioned above. All percentages for portfolio composition are as a percentage of total investments and all percentages for long-term credit analysis are as a percentage of total long-term investments.

Security ratings disclosed with the exception for those labeled "not rated" have been rated by at least one Nationally Recognized Statistical Rating Organization ("NRSRO"). These ratings are obtained from Standard & Poor's Ratings Group ("S&P"), Moody's Investors Services, Inc. ("Moody's") or Fitch Ratings ("Fitch"). If two or more NRSROs have assigned a rating to a security, the highest rating is used and if securities are not rated, Morgan Stanley Investment Management Inc. (the "Adviser") has deemed them to be of comparable quality. Ratings from Moody's or Fitch, when used, are converted into their equivalent S&P rating.

Morgan Stanley is a full service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.

For More Information About Portfolio Holdings

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com/im. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's public reference room in Washington, DC. Information on the operation of the SEC's public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-1520.

In addition to filing a complete schedule of portfolio holdings with the SEC each fiscal quarter, the Fund makes portfolio holdings information available by providing the information on its public website, www.morganstanley.com/im. The Fund provides a complete schedule of portfolio holdings on the public

website on a monthly basis at least 15 calendar days after month-end. You may obtain copies of the Fund's monthly website postings, by calling toll free 1(800) 231-2608.

Proxy Voting Policy and Procedures and Proxy Voting Record

You may obtain a copy of the Fund's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 231-2608 or by visiting the Mutual Fund Center on our web site at www.morganstanley.com/im. It is also available on the SEC's web site at http://www.sec.gov.

You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our web site at www.morganstanley.com/im. This information is also available on the SEC's web site at http://www.sec.gov.

Investment Advisory Agreement Approval (unaudited)

Nature, Extent and Quality of Services

The Board reviewed and considered the nature and extent of the investment advisory services provided by the Adviser (as defined herein) under the advisory agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund's Adviser under the administration agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Adviser's expense. (The advisory and administration agreements together are referred to as the "Management Agreement.") The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper, Inc. ("Lipper").

The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and advisory services to the Fund. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund and supported its decision to approve the Management Agreement.

Performance, Fees and Expenses of the Fund

The Board reviewed the performance, fees and expenses of the Fund compared to its peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. When considering a fund's performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance as of December 31, 2013, or since inception, as applicable). When a fund underperforms its benchmark and/or its peer group average, the Board and the Adviser discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel. The Board noted that the Fund's performance was better than its peer group average for the one-, three- and five-year periods. The Board discussed with the Adviser the level of the advisory and administration fees (together, the "management fee") for this Fund relative to comparable funds and/or other accounts advised by the Adviser and/or compared to its peers as determined by Lipper. In addition to the management fee, the Board also reviewed the Fund's total expense ratio. The Board noted that the Fund's management fee and total expense ratio were lower than its peer group average. After discussion, the Board concluded that the Fund's (i) performance was competitive with its peer group average; (ii) management fee was competitive with its peer group average; and (iii) total expense ratio was competitive with its peer group average.

Investment Advisory Agreement Approval (unaudited) continued

Economies of Scale

The Board considered the size and growth prospects of the Fund and how that relates to the Fund's total expense ratio and particularly the Fund's management fee rate, which includes a breakpoint. In conjunction with its review of the Adviser's profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Fund and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board considered that, with respect to closed-end funds, the assets are not likely to grow with new sales or grow significantly as a result of capital appreciation. The Board concluded that economies of scale for the Fund were not a factor that needed to be considered at the present time.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and its affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. The Board has determined that its review of the analysis of the Adviser's expenses and profitability supports its decision to approve the Management Agreement.

Other Benefits of the Relationship

The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Fund and other funds advised by the Adviser. These benefits may include, among other things, research received by the Adviser generated from commission dollars spent on funds' portfolio trading, and fees for trading, distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of the Adviser's costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.

Resources of the Adviser and Historical Relationship Between the Fund and the Adviser

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund's operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Fund to continue its relationship with the Adviser.

Investment Advisory Agreement Approval (unaudited) continued

Other Factors and Current Trends

The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund's Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund's business.

General Conclusion

After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors over the course of numerous meetings, some of which were in executive session with only the independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors differently in reaching their individual decisions to approve the Management Agreement.

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
		Corporate Bonds (91.6%)
		Basic Materials (3.5%)
$	360	ArcelorMittal (Luxembourg)		10.35	%	06/01/19	$	440,550
	250	Ashland, Inc.		6.875		05/15/43		261,875
	845	Barrick Gold Corp. (Canada)		4.10		05/01/23		813,404
	375	Eldorado Gold Corp. (Canada) (a)		6.125		12/15/20		374,063
	820	Freeport-McMoRan, Inc.		3.875		03/15/23		810,220
	710	Glencore Funding LLC (Switzerland) (a)		4.125		05/30/23		703,959
	640	Goldcorp, Inc. (Canada)		3.70		03/15/23		628,463
	125	Goldcorp, Inc. (Canada)		5.45		06/09/44		130,191
	375	Incitec Pivot Ltd. (Australia) (a)		4.00		12/07/15		386,906
	495	NOVA Chemicals Corp. (a)		5.25		08/01/23		516,656
	585	Rockwood Specialties Group, Inc.		4.625		10/15/20		606,206
	490	Vale Overseas Ltd. (Brazil)		6.875		11/21/36		554,925
								6,227,418
		Communications (15.7%)
	625	21st Century Fox America, Inc. (a)		4.75		09/15/44		630,025
	850	21st Century Fox America, Inc.		6.15		02/15/41		1,012,068
	670	21st Century Fox America, Inc.		6.40		12/15/35		833,283
	400	Baidu, Inc. (China)		2.75		06/09/19		398,054
	245	Cablevision Systems Corp.		7.75		04/15/18		266,437
	350	CBS Corp.		4.90		08/15/44		347,314
	675	CC Holdings GS V LLC/Crown Castle GS III Corp.		3.849		04/15/23		665,152
	200	Columbus International, Inc. (Barbados) (a)		7.375		03/30/21		208,750
	170	CSC Holdings LLC		6.75		11/15/21		181,722
	376	Ctrip.com International Ltd. (a)		1.25		10/15/18		392,215
	295	Deutsche Telekom International Finance BV (Germany)		8.75		06/15/30		429,975
	1,250	DirecTV Holdings LLC/DirecTV Financing Co., Inc.		3.80		03/15/22		1,272,514
	425	DirecTV Holdings LLC/DirecTV Financing Co., Inc.		4.60		02/15/21		462,516
	410	ENTEL Chile SA (Chile) (a)		4.75		08/01/26		410,847
	305	ENTEL Chile SA (Chile) (a)		4.875		10/30/24		313,359
	520	Lamar Media Corp. (a)		5.375		01/15/24		523,900
	528	Liberty Media Corp. (a)		1.375		10/15/23		519,420
	350	MDC Partners, Inc. (Canada) (a)		6.75		04/01/20		362,250
	925	Motorola Solutions, Inc.		4.00		09/01/24		904,735
	555	Omnicom Group, Inc.		3.625		05/01/22		564,095
	900	Ooredoo International Finance Ltd. (Qatar) (a)		3.25		02/21/23		855,000
	900	Orange SA (France)		2.75		02/06/19		911,676
	436	Priceline Group, Inc.		0.35		06/15/20		487,502
	272	SINA Corp. (China) (a)		1.00		12/01/18		251,770

See Notes to Financial Statements
11

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	1,175	Telefonica Europe BV (Spain)		8.25	%	09/15/30	$	1,596,134
	665	Time Warner Cable, Inc.		4.50		09/15/42		658,804
	2,190	Time Warner Cable, Inc.		6.75		07/01/18		2,548,510
	1,565	Time Warner, Inc.		7.70		05/01/32		2,159,590
	2,928	Verizon Communications, Inc. (a)		5.012		08/21/54		2,954,616
	2,920	Verizon Communications, Inc.		6.55		09/15/43		3,653,522
	850	Viacom, Inc.		5.85		09/01/43		947,930
	254	Yahoo!, Inc. (a)		0.00	(b)	12/01/18		265,271
								27,988,956
		Consumer, Cyclical (5.4%)
	403	American Airlines Pass-Through Trust		4.00		07/15/25		407,744
	850	American Airlines Pass-Through Trust		4.95		01/15/23		911,165
	690	British Airways PLC (United Kingdom) (a)		4.625		06/20/24		728,059
	475	Chrysler Group LLC/CG Co-Issuer, Inc.		8.00		06/15/19		506,469
	540	Daimler Finance North America LLC (Germany)		8.50		01/18/31		817,840
	400	Exide Technologies (c)(d)		8.625		02/01/18		108,000
	800	Ford Motor Co.		4.75		01/15/43		803,776
	375	Guitar Center, Inc. (a)		6.50		04/15/19		339,375
	159	Iconix Brand Group, Inc.		2.50		06/01/16		201,135
	85	Johnson Controls, Inc.		3.625		07/02/24		84,458
	150	Johnson Controls, Inc.		4.95		07/02/64		147,017
KRW	200,000	Lotte Shopping Co. Ltd., Series LOTT (Korea, Republic of)		0.00	(b)	01/24/18		190,713
$	600	QVC, Inc.		4.375		03/15/23		599,660
	475	Tesla Motors, Inc.		0.25		03/01/19		453,625
	200	Tiffany & Co. (a)		4.90		10/01/44		200,491
	597	Toll Brothers Finance Corp.		0.50		09/15/32		604,462
	925	United Airlines Pass-Through Trust		4.30		08/15/25		966,625
	275	US Airways Pass-Through Trust		3.95		11/15/25		277,062
	745	Wesfarmers Ltd. (Australia) (a)		1.874		03/20/18		740,987
	600	Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp.		5.375		03/15/22		613,500
								9,702,163
		Consumer, Non-Cyclical (8.8%)
	375	AbbVie, Inc.		4.40		11/06/42		353,682
	300	Actavis Funding SCS (a)		3.85		06/15/24		291,394
	475	ADT Corp. (The)		6.25		10/15/21		492,812
	400	Albea Beauty Holdings SA (a)		8.375		11/01/19		428,500
	415	Altria Group, Inc.		5.375		01/31/44		443,841
	156	Altria Group, Inc.		10.20		02/06/39		263,648

See Notes to Financial Statements
12

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	1,601	Amgen, Inc.		5.15	%	11/15/41	$	1,696,047
	340	Aramark Services, Inc.		5.75		03/15/20		350,200
	475	BioMarin Pharmaceutical, Inc.		1.50		10/15/20		522,500
	270	BRF SA (Brazil) (a)		3.95		05/22/23		254,731
	575	Cardtronics, Inc. (a)		5.125		08/01/22		569,250
	780	Experian Finance PLC (United Kingdom) (a)		2.375		06/15/17		793,645
	430	Gilead Sciences, Inc.		4.50		04/01/21		471,987
	325	Gilead Sciences, Inc.		4.80		04/01/44		342,925
	275	Grifols Worldwide Operations Ltd. (Spain) (a)		5.25		04/01/22		272,250
HKD	2,000	Hengan International Group Co., Ltd. (China)		0.00	(b)	06/27/18		261,757
$	507	Illumina, Inc. (a)		0.00	(b)	06/15/19		522,844
	176	Jarden Corp.		1.875		09/15/18		241,340
	425	Kraft Foods Group, Inc.		6.50		02/09/40		528,147
	585	Kraft Foods Group, Inc.		6.875		01/26/39		750,124
	160	McKesson Corp.		4.883		03/15/44		165,398
	870	Novartis Capital Corp. (Switzerland)		3.40		05/06/24		885,498
	445	RR Donnelley & Sons Co.		7.875		03/15/21		490,612
	475	Salix Pharmaceuticals Ltd. (a)		6.00		01/15/21		515,375
	585	Sigma Alimentos SA de CV (Mexico) (a)		5.625		04/14/18		646,425
	375	Synchrony Financial		4.25		08/15/24		375,497
	300	Tyson Foods, Inc.		2.65		08/15/19		300,897
	720	Tyson Foods, Inc.		3.95		08/15/24		722,694
	410	United Rentals North America, Inc.		5.75		11/15/24		416,150
	990	WM Wrigley Jr Co. (a)		2.90		10/21/19		1,005,068
	270	Zimmer Holdings, Inc.		5.75		11/30/39		317,142
								15,692,380
		Diversified (0.1%)
	200	Alfa SAB de CV (Mexico) (a)		5.25		03/25/24		213,800
		Energy (11.9%)
	600	Access Midstream Partners LP/ACMP Finance Corp.		4.875		05/15/23		618,750
	600	Anadarko Petroleum Corp.		6.20		03/15/40		736,441
	175	Anadarko Petroleum Corp.		6.45		09/15/36		213,935
	675	Buckeye Partners LP		4.15		07/01/23		678,219
	400	Cimarex Energy Co.		5.875		05/01/22		432,000
	200	Continental Resources, Inc.		3.80		06/01/24		196,295
	725	Continental Resources, Inc.		4.90		06/01/44		709,497
	375	DCP Midstream Operating LP		2.70		04/01/19		376,315
	600	DCP Midstream Operating LP		3.875		03/15/23		601,804
	405	Denbury Resources, Inc.		5.50		05/01/22		401,456

See Notes to Financial Statements
13

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	775	Devon Energy Corp.		3.25	%	05/15/22	$	770,697
	525	Devon Energy Corp.		4.75		05/15/42		524,239
	540	Ecopetrol SA (Colombia)		5.875		09/18/23		597,375
	1,075	Energy Transfer Partners LP		3.60		02/01/23		1,048,269
	775	Energy Transfer Partners LP		4.90		02/01/24		811,546
EUR	300	Eni SpA, Series GALP (Italy)		0.25		11/30/15		383,576
$	750	EnLink Midstream Partners LP		2.70		04/01/19		755,400
	150	EnLink Midstream Partners LP		5.60		04/01/44		164,699
	300	Ensco PLC		5.75		10/01/44		305,218
	1,400	Enterprise Products Operating LLC		5.95		02/01/41		1,672,404
	875	Kinder Morgan Energy Partners LP		5.00		03/01/43		811,947
	1,000	Kinder Morgan, Inc. (a)		5.625		11/15/23		1,067,500
	200	Lukoil International Finance BV (Russia)		2.625		06/16/15		197,000
	525	Marathon Oil Corp.		6.60		10/01/37		663,513
	500	Nexen Energy ULC (Canada)		6.40		05/15/37		611,268
	550	ONEOK Partners LP		6.125		02/01/41		627,719
	1,030	Petro-Canada (Canada)		5.95		05/15/35		1,230,911
	275	Phillips 66		5.875		05/01/42		327,082
	365	Plains All American Pipeline LP/PAA Finance Corp.		6.70		05/15/36		464,610
	475	Rowan Cos., Inc.		5.85		01/15/44		469,104
	309	Sinopec Group Overseas Development 2012 Ltd. (China) (a)		2.75		05/17/17		317,094
	1,025	Spectra Energy Capital LLC		3.30		03/15/23		978,737
	1,025	Transocean, Inc.		6.375		12/15/21		1,091,860
	350	Williams Partners LP		6.30		04/15/40		412,145
								21,268,625
		Finance (31.2%)
EUR	200	Aabar Investments PJSC (Germany)		4.00		05/27/16		283,934
$	315	ABB Treasury Center USA, Inc. (Switzerland) (a)		4.00		06/15/21		336,335
	350	Abbey National Treasury Services PLC (United Kingdom)		4.00		03/13/24		355,427
	430	ABN Amro Bank N.V. (Netherlands) (a)		2.50		10/30/18		434,433
	525	ACE INA Holdings, Inc.		3.35		05/15/24		524,870
	495	AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (a)		3.75		05/15/19		480,769
	500	Alexandria Real Estate Equities, Inc.		3.90		06/15/23		499,144
	325	American Campus Communities Operating Partnership LP		3.75		04/15/23		320,957
	1,290	American Financial Group, Inc.		9.875		06/15/19		1,666,214
	450	American International Group, Inc.		4.50		07/16/44		446,383

See Notes to Financial Statements
14

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	400	American International Group, Inc.		4.875	%	06/01/22	$	440,679
	899	American International Group, Inc.		6.40		12/15/20		1,070,956
	550	American International Group, Inc.		8.25		08/15/18		672,372
	465	American Tower Corp.		3.50		01/31/23		442,853
	151	Ares Capital Corp.		4.375		01/15/19		156,096
	800	Banco de Credito del Peru (Peru) (a)		6.125	(e)	04/24/27		858,000
	150	Bank of America Corp.		4.00		04/01/24		151,742
	650	Bank of America Corp.		5.70		01/24/22		745,863
	325	Bank of America Corp.		7.75		05/14/38		440,539
	400	Bank of America Corp., MTN		3.30		01/11/23		390,548
	700	Bank of America Corp., MTN		4.20		08/26/24		694,782
	775	BBVA Bancomer SA (Mexico) (a)		6.50		03/10/21		848,625
	200	Billion Express Investments Ltd. (China)		0.75		10/18/15		203,800
	450	BioMed Realty LP		2.625		05/01/19		447,535
	185	Boston Properties LP		3.80		02/01/24		185,949
	280	Brookfield Asset Management, Inc. (Canada)		5.80		04/25/17		307,177
	1,750	Capital One Bank, USA NA		3.375		02/15/23		1,717,651
	375	Capital One Financial Corp.		2.45		04/24/19		373,827
	1,050	Citigroup, Inc.		3.875		10/25/23		1,068,248
	1,290	Citigroup, Inc.		4.05		07/30/22		1,308,733
	210	Citigroup, Inc.		5.50		09/13/25		229,168
	220	Citigroup, Inc.		6.675		09/13/43		270,602
	1,385	CNA Financial Corp.		7.35		11/15/19		1,668,165
	900	Compass Bank		1.85		09/29/17		900,552
	750	Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands)		3.95		11/09/22		754,489
	150	Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) (a)		11.00	(e)	06/30/19(f)		198,750
	625	Credit Agricole SA (France) (a)		3.875		04/15/24		629,254
	310	Credit Agricole SA (France) (a)		7.875	(e)	01/23/24(f)		314,069
	850	Credit Suisse AG (Switzerland) (a)		6.50		08/08/23		926,542
	975	DBS Group Holdings Ltd. (Singapore) (a)		2.246		07/16/19		966,075
	320	Discover Bank		7.00		04/15/20		379,023
	420	Discover Financial Services		3.85		11/21/22		422,825
	230	ERP Operating LP		4.625		12/15/21		251,284
	500	Express Scripts Holding Co.		3.50		06/15/24		490,577
	300	First Republic Bank		2.375		06/17/19		299,757
	800	Ford Motor Credit Co., LLC		5.00		05/15/18		874,444
	1,335	Ford Motor Credit Co., LLC		5.875		08/02/21		1,537,210
	355	General Electric Capital Corp.		5.30		02/11/21		400,429

See Notes to Financial Statements
15

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	550	General Motors Financial Co., Inc.		4.375	%	09/25/21	$	563,062
	760	Genworth Financial, Inc.		7.70		06/15/20		913,240
	830	Goldman Sachs Group, Inc. (The)		3.625		01/22/23		825,389
	1,495	Goldman Sachs Group, Inc. (The)		6.75		10/01/37		1,788,083
	1,100	Goodman Funding Pty Ltd. (Australia) (a)		6.375		04/15/21		1,284,807
	295	Harley-Davidson Funding Corp. (a)		6.80		06/15/18		344,744
	1,250	Hartford Financial Services Group, Inc.		5.50		03/30/20		1,413,021
	795	HBOS PLC, Series G (United Kingdom) (a)		6.75		05/21/18		900,735
	400	Healthcare Trust of America Holdings LP		3.70		04/15/23		390,465
	440	HSBC Holdings PLC (United Kingdom)		4.25		03/14/24		446,055
	200	HSBC Holdings PLC (United Kingdom)		6.375	(e)	09/17/24(f)		200,000
	180	HSBC Holdings PLC (United Kingdom)		6.50		05/02/36		221,415
	800	ING Bank N.V. (Netherlands) (a)		5.80		09/25/23		882,771
	480	Intesa Sanpaolo SpA (Italy)		5.25		01/12/24		513,300
	310	Jefferies Finance LLC/JFIN Co-Issuer Corp. (a)		7.375		04/01/20		318,525
	640	JPMorgan Chase & Co.		3.20		01/25/23		625,432
	375	JPMorgan Chase & Co.		3.875		09/10/24		368,079
	325	Liberty Mutual Group, Inc. (a)		4.85		08/01/44		324,508
	425	Lincoln National Corp.		7.00		06/15/40		567,644
	870	Lloyds Bank PLC (United Kingdom) (a)		6.50		09/14/20		1,012,791
	365	Macquarie Bank Ltd. (Australia) (a)		6.625		04/07/21		416,465
	380	Macquarie Group Ltd. (Australia) (a)		6.00		01/14/20		426,861
	500	Metlife Capital Trust IV (a)		7.875		12/15/37		642,500
	750	Nationwide Building Society (United Kingdom) (a)		6.25		02/25/20		876,527
	800	Nationwide Financial Services, Inc. (a)		5.375		03/25/21		901,176
	425	Omega Healthcare Investors, Inc. (a)		4.95		04/01/24		434,562
	225	Platinum Underwriters Finance, Inc., Series B		7.50		06/01/17		254,563
	500	PNC Financial Services Group, Inc. (The)		3.90		04/29/24		498,691
	895	Principal Financial Group, Inc.		1.85		11/15/17		895,971
	850	Protective Life Corp.		7.375		10/15/19		1,040,559
	790	Prudential Financial, Inc.		5.625	(e)	06/15/43		827,288
	285	Prudential Financial, Inc., MTN		6.625		12/01/37		359,823
	575	QBE Capital Funding III Ltd. (Australia) (a)		7.25	(e)	05/24/41		627,581
	550	Realty Income Corp.		3.25		10/15/22		538,445
	250	Realty Income Corp.		4.65		08/01/23		267,076
	600	Santander US Debt SAU (Spain) (a)		3.724		01/20/15		605,175
	495	Standard Chartered PLC (United Kingdom) (a)		3.95		01/11/23		482,611
	600	Turkiye Is Bankasi (Turkey) (a)		7.85		12/10/23		655,512
	400	Voya Financial, Inc.		5.65	(e)	05/15/53		404,000
	525	Weingarten Realty Investors		3.375		10/15/22		521,066
	290	Wells Fargo & Co.		4.125		08/15/23		300,171

See Notes to Financial Statements
16

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	284	Wells Fargo & Co.		5.606	%	01/15/44	$	321,276
								55,589,621
		Industrials (6.2%)
	470	Anixter, Inc.		5.625		05/01/19		496,437
	400	BAE Systems Holdings, Inc. (United Kingdom)		3.80		10/07/24		398,812
	710	Ball Corp.		4.00		11/15/23		663,850
	427	Bombardier, Inc. (Canada) (a)		6.125		01/15/23		429,669
	875	Burlington Northern Santa Fe LLC		3.05		03/15/22		873,094
	485	Burlington Northern Santa Fe LLC		4.55		09/01/44		486,614
	425	Caterpillar, Inc.		3.40		05/15/24		429,331
	370	CEVA Group PLC (United Kingdom) (a)		7.00		03/01/21		371,850
	895	CRH America, Inc. (Ireland)		6.00		09/30/16		979,406
	460	CRH America, Inc.		8.125		07/15/18		555,822
	217	General Cable Corp.		4.50	(g)	11/15/29		151,629
	810	Heathrow Funding Ltd. (United Kingdom) (a)		4.875		07/15/21		894,934
	625	Koninklijke Philips N.V. (Netherlands)		3.75		03/15/22		648,341
	150	L-3 Communications Corp.		1.50		05/28/17		148,997
	650	L-3 Communications Corp.		4.95		02/15/21		707,496
	490	MasTec, Inc.		4.875		03/15/23		460,600
	490	Packaging Corp. of America		4.50		11/01/23		519,193
	500	Silgan Holdings, Inc.		5.50		02/01/22		506,250
	500	Thermo Fisher Scientific, Inc.		4.15		02/01/24		518,680
	850	Trinity Industries, Inc.		4.55		10/01/24		853,185
								11,094,190
		Technology (1.9%)
	1,315	Hewlett-Packard Co.		4.65		12/09/21		1,425,660
	164	Intel Corp.		2.95		12/15/35		209,100
	313	Nuance Communications, Inc.		2.75		11/01/31		310,261
	255	NVIDIA Corp. (a)		1.00		12/01/18		280,660
	295	Salesforce.com, Inc.		0.25		04/01/18		330,400
	350	SanDisk Corp. (a)		0.50		10/15/20		420,656
	348	Take-Two Interactive Software, Inc.		1.75		12/01/16		464,145
								3,440,882
		Utilities (6.9%)
	325	Appalachian Power Co.		7.00		04/01/38		442,137
	290	CEZ AS (Czech Republic) (a)		4.25		04/03/22		307,441
	295	CMS Energy Corp.		5.05		03/15/22		330,149
	170	CMS Energy Corp.		6.25		02/01/20		199,428
	850	DTE Energy Co., Series C		3.50		06/01/24		854,628

See Notes to Financial Statements
17

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE	VALUE
$	400	Duke Energy Corp.		2.10	%	06/15/18	$	403,317
	305	EDP Finance BV (Portugal) (a)		4.90		10/01/19		315,721
	370	EDP Finance BV (Portugal) (a)		5.25		01/14/21		385,492
	575	Enel Finance International N.V. (Italy) (a)		5.125		10/07/19		634,753
	210	Enel SpA (Italy) (a)		8.75	(e)	09/24/73		244,398
	300	Entergy Gulf States Louisiana LLC		6.00		05/01/18		340,559
	2,400	Exelon Generation Co., LLC		4.00		10/01/20		2,531,261
	200	Fermaca Enterprises S de RL de CV (Mexico) (a)		6.375		03/30/38		210,500
	250	GNL Quintero SA (Chile) (a)		4.634		07/31/29		249,751
	875	Jersey Central Power & Light Co. (a)		4.70		04/01/24		930,615
	150	Monongahela Power Co. (a)		5.40		12/15/43		172,368
	350	Origin Energy Finance Ltd. (Australia) (a)		3.50		10/09/18		359,098
	1,000	PPL WEM Holdings Ltd. (a)		3.90		05/01/16		1,041,170
	540	Puget Energy, Inc.		6.50		12/15/20		639,943
	900	Sempra Energy		3.55		06/15/24		908,608
	23	Toledo Edison Co. (The)		7.25		05/01/20		27,407
	845	TransAlta Corp. (Canada)		4.50		11/15/22		847,655
								12,376,399
		Total Corporate Bonds (Cost $155,417,043)						163,594,434
		Asset-Backed Securities (1.3%)
		CVS Pass-Through Trust
	1,174			6.036		12/10/28		1,361,422
	740	(a)		8.353		07/10/31		998,370
		Total Asset-Backed Securities (Cost $1,925,558)						2,359,792
		Sovereign (0.2%)
	290	Pertamina Persero PT (Indonesia) (a) (Cost $290,000)		6.45		05/30/44		293,625
		Variable Rate Senior Loan Interests (0.8%)
		Consumer, Cyclical (0.2%)
	349	Diamond Resorts Corp., Term Loan		5.50		12/31/14		349,125
		Energy (0.3%)
	450	Drillships Ocean Ventures, Inc., Term B (Cyprus)		5.50		10/27/14		437,625
		Industrials (0.1%)
	200	OSG Bulk Ships, Inc., Exit Term Loan		5.25		02/05/15		198,836
		Technology (0.2%)
	409	Aspect Software, Inc., Term B		7.25		11/07/14		409,038
		Total Variable Rate Senior Loan Interests (Cost $1,412,020)						1,394,624

See Notes to Financial Statements
18

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

PRINCIPAL AMOUNT (000)			COUPON RATE			MATURITY DATE			VALUE
		Short-Term Investments (0.9%)
		U.S. Treasury Securities (0.9%)
		U.S. Treasury Bills
$	150	(h)(i)		0.026	%	02/12/15			$	149,991
	430	(h)(i)		0.044		02/12/15				429,974
	1,114	(h)(i)		0.046		02/12/15				1,113,933
		Total Short-Term Investments (Cost $1,693,730)								1,693,898
		Total Investments (Cost $160,738,351) (j)					94.8	%		169,336,373
		Other Assets in Excess of Liabilities					5.2			9,213,565
		Net Assets					100.0	%	$	178,549,938

MTN Medium Term Note.

PJSC Public Joint Stock Company.

(a) 144A security – Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

(b) Capital appreciation bond.

(c) Issuer in bankruptcy.

(d) Non-income producing security; bond in default.

(e) Variable/Floating Rate Security - Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on September 30, 2014.

(f) Perpetual – One or more securities do not have a predetermined maturity date. Rates for these securities are fixed for a period of time, after which they revert to a floating rate. Interest rates in effect are as of September 30, 2014.

(g) Multi-step – Coupon rate changes in predetermined increments to maturity. Rate disclosed is as of September 30, 2014. Maturity date disclosed is the ultimate maturity date.

(h) Rate shown is the yield to maturity at September 30, 2014.

(i) All or a portion of the security was pledged to cover margin requirements for futures contracts and swap agreements.

(j) Securities are available for collateral in connection with open foreign currency forward exchange contracts, futures contracts and swap agreements.

Foreign Currency Forward Exchange Contracts Open at September 30, 2014:

COUNTERPARTY	CONTRACTS TO DELIVER		IN EXCHANGE FOR		DELIVERY DATE	UNREALIZED APPRECIATION (DEPRECIATION)
Deutsche Bank AG	$	268,202	HKD	2,082,500	10/03/14	$	(6	)
HSBC Bank PLC	HKD	2,082,500	$	268,715	10/03/14		519
HSBC Bank PLC	$	841,812	EUR	666,708	10/03/14		279
UBS AG	EUR	666,708	$	879,003	10/03/14		36,912
Deutsche Bank AG	HKD	2,082,500	$	268,169	11/05/14		(5	)
HSBC Bank PLC	EUR	666,708	$	841,987	11/05/14		(285	)
Net Unrealized Appreciation						$	37,414

See Notes to Financial Statements
19

Morgan Stanley Income Securities Inc.

Portfolio of Investments n September 30, 2014 continued

Futures Contracts Open at September 30, 2014:

NUMBER OF CONTRACTS		LONG/SHORT	DESCRIPTION, DELIVERY MONTH AND YEAR	UNDERLYING FACE AMOUNT AT VALUE		UNREALIZED APPRECIATION (DEPRECIATION)
	532	Long	U.S. Treasury 2 yr. Note, Dec-14		$116,424,875		$(38,643)
	49	Long	U.S. Treasury Long Bond, Dec-14		6,757,406		99,187
	25	Long	U.S. Treasury Ultra Long Bond, Dec-14		3,812,500		(58,578)
	27	Long	U.S. Treasury 5 yr. Note, Dec-14		3,192,961		(4,008)
	177	Short	U.S. Treasury 10 yr. Note, Dec-14		(22,061,390)		108,133
			Net Unrealized Appreciation			$	106,091

Credit Default Swap Agreements Open at September 30, 2014:

SWAP COUNTERPARTY & REFERENCE OBLIGATION	BUY/SELL PROTECTION	NOTIONAL AMOUNT (000)		INTEREST RATE			TERMINATION DATE	UNREALIZED APPRECIATION (DEPRECIATION)			UPFRONT PAYMENTS PAID (RECEIVED)			VALUE			CREDIT RATING OF REFERENCE OBLIGATION†
																	(Unaudited)
Barclays Bank PLC Yum! Brands, Inc.	Buy	$	875		1.00	%	12/20/18	$	(5,082	)	$	(15,187	)	$	(20,269	)	BBB
Barclays Bank PLC Quest Diagnostics, Inc.	Buy		795		1.00		3/20/19		(14,352	)		15,258			906		BBB+
Morgan Stanley & Co., LLC* CDX.NA.HY.21	Buy		1,262		5.00		12/20/18		17,106			(104,887	)		(87,781	)	NR
Morgan Stanley & Co., LLC* CDX.NA.IG.22	Buy		3,550		1.00		6/20/19		14,369			(72,286	)		(57,917	)	NR
Morgan Stanley & Co., LLC* CDX.NA.IG.22	Sell		1,775		1.00		6/20/19		(327	)		29,253			28,926		NR
Total Credit Default Swaps		$	8,257					$	11,714		$	(147,849	)	$	(136,135	)

See Notes to Financial Statements
20

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Portfolio of Investments n September 30, 2014 continued

Interest Rate Swap Agreements Open at September 30, 2014:

SWAP COUNTERPARTY	NOTIONAL AMOUNT (000)		FLOATING RATE INDEX	PAY/RECEIVE FLOATING RATE	FIXED RATE			TERMINATION DATE	UNREALIZED APPRECIATION (DEPRECIATION)
Goldman Sachs International	$	1,900	3 Month LIBOR	Receive		2.42	%	03/22/22	$	(5,902	)
JPMorgan Chase Bank NA		922	3 Month LIBOR	Receive		2.43		03/22/22		(3,859	)
Morgan Stanley & Co., LLC*		9,179	3 Month LIBOR	Receive		1.14		07/23/17		6,510
Morgan Stanley & Co., LLC*		34,500	3 Month LIBOR	Receive		1.06		08/21/17		159,370
Morgan Stanley & Co., LLC*		17,900	3 Month LIBOR	Receive		1.18		09/04/17		35,933
Morgan Stanley & Co., LLC*		3,100	3 Month LIBOR	Receive		1.17		09/05/17		6,579
Morgan Stanley & Co., LLC*		9,200	3 Month LIBOR	Receive		1.19		09/10/17		18,664
Morgan Stanley & Co., LLC*		11,441	3 Month LIBOR	Receive		1.71		08/21/19		93,637
Morgan Stanley & Co., LLC*		5,500	3 Month LIBOR	Receive		1.81		09/04/19		24,617
Morgan Stanley & Co., LLC*		933	3 Month LIBOR	Receive		1.80		09/05/19		4,479
Morgan Stanley & Co., LLC*		2,668	3 Month LIBOR	Receive		1.85		09/10/19		8,780
Net Unrealized Appreciation									$	348,808

LIBOR London Interbank Offered Rate.

NR Not Rated.

* Cleared swap agreement, the broker for which is Morgan Stanley & Co., LLC.

† Credit rating as issued by Standard & Poor's.

Currency Abbreviations

EUR Euro.

HKD Hong Kong Dollar.

KRW South Korean Won.

USD United States Dollar.

See Notes to Financial Statements
21

Morgan Stanley Income Securities Inc.

Financial Statements

Statement of Assets and Liabilities

September 30, 2014

Assets:
Investments in securities, at value (cost $160,738,351)	$	169,336,373
Unrealized appreciation on open foreign currency forward exchange contracts		37,710
Cash (including foreign currency valued at $201,497 with a cost of $210,298)		8,602,280
Receivable for:
Investments sold		2,060,713
Interest		1,906,714
Premium paid on open swap agreements		15,258
Variation margin on open swap agreements		14,230
Foreign withholding taxes reclaimed		19
Prepaid expenses and other assets		23,769
Total Assets		181,997,066
Liabilities:
Unrealized depreciation on open swap agreements		29,195
Unrealized depreciation on open foreign currency forward exchange contracts		296
Payable for:
Investments purchased		3,189,243
Advisory fee		66,218
Variation margin on open futures contracts		34,967
Premium received on open swap agreements		15,187
Administration fee		12,613
Accrued expenses and other payables		99,409
Total Liabilities		3,447,128
Net Assets	$	178,549,938
Composition of Net Assets:
Paid-in-capital	$	169,841,299
Net unrealized appreciation		9,092,989
Accumulated undistributed net investment income		53,621
Accumulated net realized loss		(437,971	)
Net Assets	$	178,549,938
Net Asset Value Per Share
8,963,335 shares outstanding (15,000,000 shares authorized of $0.01 par value)	$	19.92

Statement of Operations

For the year ended September 30, 2014

Net Investment Income: Income
Interest	$	6,881,799
Dividends		44,363
Total Income		6,926,162
Expenses
Advisory fee (Note 4)		741,059
Administration fee (Note 4)		141,154
Professional fees		101,015
Shareholder reports and notices		49,000
Custodian fees		37,030
Transfer agent fees and expenses		25,906
Directors' fees and expenses		8,911
Other		76,778
Total Expenses		1,180,853
Net Investment Income		5,745,309
Realized and Unrealized Gain (Loss): Realized Gain (Loss) on:
Investments		3,635,547
Futures contracts		1,518,362
Swap agreements		(332,318	)
Foreign currency forward exchange contracts		(3,561	)
Foreign currency translation		(33	)
Net Realized Gain		4,817,997
Change in Unrealized Appreciation (Depreciation) on:
Investments		5,283,435
Futures contracts		174,697
Swap agreements		(992,720	)
Foreign currency forward exchange contracts		58,872
Foreign currency translation		(9,162	)
Net Change in Unrealized Appreciation (Depreciation)		4,515,122
Net Gain		9,333,119
Net Increase	$	15,078,428

See Notes to Financial Statements
22

Morgan Stanley Income Securities Inc.

Financial Statements continued

Statements of Changes in Net Assets

	FOR THE YEAR ENDED SEPTEMBER 30, 2014			FOR THE YEAR ENDED SEPTEMBER 30, 2013
Increase (Decrease) in Net Assets: Operations:
Net investment income	$	5,745,309		$	6,794,168
Net realized gain		4,817,997			3,240,099
Net change in unrealized appreciation (depreciation)		4,515,122			(9,429,158	)
Net Increase		15,078,428			605,109
Dividends to shareholders from net investment income		(6,318,482	)		(6,224,383	)
Net decrease from capital stock transactions		(251,039	)		(840,057	)
Net Increase (Decrease)		8,508,907			(6,459,331	)
Net Assets:
Beginning of period		170,041,031			176,500,362
End of Period (Including accumulated undistributed net investment income of $53,621 and $366,526, respectively)	$	178,549,938		$	170,041,031

See Notes to Financial Statements
23

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014

1. Organization and Accounting Policies

Morgan Stanley Income Securities Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, closed-end management investment company. The Fund applies investment company accounting and reporting guidance. The Fund's primary investment objective is to provide as high a level of current income for distribution to shareholders as is consistent with prudent investment risk and, as a secondary objective, capital appreciation. The Fund was organized as a Maryland corporation on December 21, 1972 and commenced operations on April 6, 1973.

The following is a summary of significant accounting policies:

A. Valuation of Investments — (1) Certain portfolio securities may be valued by an outside pricing service approved by the Fund's Board of Directors (the "Directors"). The pricing service may utilize a matrix system or other model incorporating attributes such as security quality, maturity and coupon as the evaluation model parameters, and/or research evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the portfolio securities valued by such pricing service; (2) portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at its latest reported sales price; (3) certain senior collateralized loans ("Senior Loans") are valued based on quotations received from an independent pricing service; (4) futures are valued at the latest price published by the commodities exchange on which they trade; (5) swaps are marked-to-market daily based upon quotations from market makers; (6) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the "Adviser"), a wholly owned subsidiary of Morgan Stanley, determines that the market quotations are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Directors; (7) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the New York Stock Exchange ("NYSE"); and (8) short-term taxable debt securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, unless the Adviser determines such price does not reflect the securities' market value, in which case these securities will be valued at their fair market value determined by the Adviser. Other taxable short-term debt securities with maturities of more than 60 days will be valued on a mark-to-market basis until such time as they reach a maturity of 60 days, whereupon they will be valued at amortized cost using their value on the 61st day unless the Adviser determines such price does not reflect the securities' fair value, in which case these securities will be valued at their fair market value as determined by the Adviser.

Under procedures approved by the Directors, the Fund's Adviser has formed a Valuation Committee. The Valuation Committee provides administration and oversight of the Fund's valuation policies and

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

procedures, which are reviewed at least annually by the Directors. These procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. When the Fund buys an interest in a Senior Loan, it may receive a commitment fee which is paid to lenders on an ongoing basis based upon the undrawn portion committed by the lenders of the underlying Senior Loan. The Fund accrues the commitment fee over the expected term of the loan. When the Fund sells an interest in a Senior Loan, it may be required to pay fees or commissions to the purchaser of the interest. Fees received in connection with loan amendments are accrued as earned. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income. Interest income is accrued daily as earned.

C. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid monthly. Net realized capital gains, if any, are distributed at least annually.

D. Senior Loans — Senior Loans are typically structured by a syndicate of lenders ("Lenders"), one or more of which administers the Senior Loan on behalf of the Lenders ("Agent"). Lenders may sell interests in Senior Loans to third parties ("Participations") or may assign all or a portion of their interest in a Senior Loan to third parties ("Assignments"). Senior Loans are exempt from registration under the Securities Act of 1933. Presently, Senior Loans are not readily marketable and are often subject to restrictions on resale.

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

E. Foreign Currency Translation and Foreign Investments — The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:

— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;

— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.

Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. Federal income tax purposes.

Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statement of Assets and Liabilities. The change in unrealized currency gains (losses) on foreign currency translations for the period is reflected in the Statement of Operations.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

F. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

G. Indemnifications — The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

2. Fair Valuation Measurements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820, Fair Value Measurement ("ASC 820"), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs); and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's investments. The inputs are summarized in the three broad levels listed below.

• Level 1 — unadjusted quoted prices in active markets for identical investments

• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

• Level 3 — significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

The following is a summary of the inputs used to value the Fund's investments as of September 30, 2014.

INVESTMENT TYPE	LEVEL 1 UNADJUSTED QUOTED PRICES			LEVEL 2 OTHER SIGNIFICANT OBSERVABLE INPUTS			LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS		TOTAL
Assets:
Fixed Income Securities
Corporate Bonds	$	—		$	163,594,434		$	—	$	163,594,434
Asset-Backed Securities		—			2,359,792			—		2,359,792
Sovereign		—			293,625			—		293,625
Variable Rate Senior Loan Interests		—			1,394,624			—		1,394,624
Total Fixed Income Securities		—			167,642,475			—		167,642,475
Short-Term Investments
U.S. Treasury Securities		—			1,693,898			—		1,693,898
Total Short-Term Investments		—			1,693,898			—		1,693,898
Foreign Currency Forward Exchange Contracts		—			37,710			—		37,710
Futures Contracts		207,320			—			—		207,320
Credit Default Swap Agreements		—			31,475			—		31,475
Interest Rate Swap Agreements		—			358,569			—		358,569
Total Assets		207,320			169,764,127			—		169,971,447
Liabilities:
Foreign Currency Forward Exchange Contracts		—			(296	)		—		(296	)
Futures Contracts		(101,229	)		—			—		(101,229	)
Credit Default Swap Agreements		—			(19,761	)		—		(19,761	)
Interest Rate Swap Agreements		—			(9,761	)		—		(9,761	)
Total Liabilities		(101,229	)		(29,818	)		—		(131,047	)
Total	$	106,091		$	169,734,309		$	—	$	169,840,400

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Fund recognizes transfers between the levels as of the end of the period. As of September 30, 2014, the Fund did not have any investments transfer between investment levels.

3. Derivatives

The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.

Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.

Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:

Foreign Currency Forward Exchange Contracts In connection with its investments in foreign securities, the Fund entered into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

taken. There is additional risk to the extent that currency contracts create exposure to currencies in which the Fund's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract. A currency contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.

Futures A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return, and the potential loss from futures contracts can exceed the Fund's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has open positions in the futures contract.

Swaps The Fund may enter into OTC swap contracts or cleared swap transactions. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Fund's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each party. Cleared swap transactions may help reduce counterparty credit risk. In a cleared swap, the Fund's ultimate counterparty is a clearinghouse rather than a bank, dealer or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by the Fund or if the reference index, security or investments do not perform as expected. During the period swap agreements are open, payments are received from or made to the clearinghouse or counterparty based upon changes in the value of the contract (variation margin). The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis.

The Fund's use of swaps during the period included those based on the credit of an underlying security commonly referred to as "credit default swaps." The Fund may be either the buyer or seller in a credit default swap. Where the Fund is the buyer of a credit default swap contract, it would typically be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract only in the event of a default or similar event by the issuer of the debt obligation. If no default occurs, the Fund would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, it typically receives the stream of payments but is obligated to pay an amount equal to the par (or other agreed-upon) value of a referenced debt obligation upon the default or similar event by the issuer of the referenced debt obligation. The use of credit default swaps could result in losses to the Fund if the Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation.

The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.

When the Fund has an unrealized loss on a swap agreement, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. If applicable, cash collateral is included with "Due from (to) broker" in the Statement of Assets and Liabilities.

Upfront payments received or paid by the Fund will be reflected as an asset or liability, respectively, in the Statement of Assets and Liabilities.

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

FASB ASC 815, Derivatives and Hedging ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.

The following table sets forth the fair value of the Fund's derivative contracts by primary risk exposure as of September 30, 2014.

PRIMARY RISK EXPOSURE	ASSET DERIVATIVES STATEMENT OF ASSETS AND LIABILITIES LOCATION	FAIR VALUE			LIABILITY DERIVATIVES STATEMENT OF ASSETS AND LIABILITIES LOCATION	FAIR VALUE
Interest Rate Risk	Variation margin on open futures contracts	$	207,320	(a)	Variation margin on open futures contracts	$	(101,229	)(a)
	Unrealized appreciation on open swap agreements		—		Unrealized depreciation on open swap agreements		(9,761	)
	Variation margin on open swap agreements		358,569	(a)	Variation margin on open swap agreements		—
Credit Risk	Unrealized appreciation on open swap agreements		—		Unrealized depreciation on open swap agreements		(19,434	)
	Variation margin on open swap agreements		31,475	(a)	Variation margin on open swap agreements		(327	)(a)
Foreign Currency Risk	Unrealized appreciation on open foreign currency forward exchange contracts		37,710		Unrealized depreciation on open foreign currency forward exchange contracts		(296	)
		$	635,074			$	(131,047	)

(a) Includes cumulative appreciation (depreciation) as reported in the Portfolio of Investments. Only current day's net variation margin is reported within the Statement of Assets and Liabilities.

The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the year ended September 30, 2014 in accordance with ASC 815.

AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS

PRIMARY RISK EXPOSURE	FUTURES		FOREIGN CURRENCY FORWARD EXCHANGE			SWAP AGREEMENTS
Interest Rate Risk	$	1,518,362	$	—		$	(229,462	)
Credit Risk		—		—			(102,856	)
Foreign Currency Risk		—		(3,561	)		—
Total	$	1,518,362	$	(3,561	)	$	(332,318	)

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVE CONTRACTS

PRIMARY RISK EXPOSURE	FUTURES		FOREIGN CURRENCY FORWARD EXCHANGE		SWAPS
Interest Rate Risk	$	174,697	$	—	$	(1,045,372	)
Credit Risk		—		—		52,652
Foreign Currency Risk		—		58,872		—
Total	$	174,697	$	58,872	$	(992,720	)

At September 30, 2014, the Fund's derivative assets and liabilities are as follows:

GROSS AMOUNTS OF ASSETS AND LIABILITIES PRESENTED IN THE STATEMENT OF ASSETS AND LIABILITIES

DERIVATIVES (b)	ASSETS (c)		LIABILITIES (c)
Foreign Currency Forward Exchange Contracts	$	37,710	$	(296	)
Swap Agreements		—		(29,195	)
Total	$	37,710	$	(29,491	)

(b) Excludes exchange-traded derivatives.

(c) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Fund exercises its right to terminate a Master Agreement after a counterparty experiences a

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

termination event as defined in the Master Agreement, the return of collateral with market value in excess of the Fund's net liability may be delayed or denied.

The following tables present derivative financial instruments that are subject to enforceable netting arrangements as of September 30, 2014.

GROSS AMOUNTS NOT OFFSET IN THE STATEMENT OF ASSETS AND LIABILITIES

COUNTERPARTY	GROSS ASSET DERIVATIVES PRESENTED IN STATEMENT OF ASSETS AND LIABILITIES		FINANCIAL INSTRUMENT			COLLATERAL RECEIVED		NET AMOUNT (NOT LESS THAN $0)
HSBC Bank PLC	$	798	$	(285	)		—	$	513
UBS AG		36,912		—			—		36,912
Total	$	37,710	$	(285	)		—	$	37,425

GROSS AMOUNTS NOT OFFSET IN THE STATEMENT OF ASSETS AND LIABILITIES

COUNTERPARTY	GROSS LIABILITY DERIVATIVES PRESENTED IN STATEMENT OF ASSETS AND LIABILITIES		FINANCIAL INSTRUMENT			COLLATERAL PLEDGED		NET AMOUNT (NOT LESS THAN $0)
Barclays Bank PLC	$	19,434	$	—			—	$	19,434
Deutsche Bank AG		11		—			—		11
Goldman Sachs International		5,902		—			—		5,902
HSBC Bank PLC		285		(285	)		—		0
JPMorgan Chase Bank NA		3,859		—			—		3,859
Total	$	29,491	$	(285	)		—	$	29,206

For the year ended September 30, 2014, the average monthly amount outstanding for each derivative type is as follows:

Foreign Currency Forward Exchange Contracts:

Average monthly principal amount

2,507,211

Futures Contracts:

Average monthly original value

96,946,857

Swap Agreements:

Average monthly notional amount

47,431,317

4. Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement with the Adviser, the Fund pays an advisory fee, accrued daily and paid monthly, by applying the following annual rates to the Fund: 0.42% to the portion of the average weekly net assets not exceeding $500 million and 0.35% to the portion of the average weekly net assets exceeding $500 million. For the year ended September 30, 2014, the advisory fee rate was equivalent to an annual effective rate of 0.42% of the Fund's weekly net assets.

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

Morgan Stanley Services Company Inc. was the Fund's Administrator. Effective January 1, 2014, the Adviser also serves as the Administrator to the Fund and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average weekly net assets.

Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.

5. Security Transactions and Transactions with Affiliates

The cost of purchases and proceeds from sales of investment securities, excluding short-term investments, for the year ended September 30, 2014, aggregated $71,388,448 and $76,025,181, respectively.

The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Directors of the Fund who will have served as independent Directors for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. The Directors voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Aggregate pension costs for the year ended September 30, 2014, included in "Directors' fees and expenses" in the Statement of Operations amounted to $4,104. At September 30, 2014, the Fund had an accrued pension liability of $58,664, which is included in "Accrued expenses and other payables" in the Statement of Assets and Liabilities.

The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Directors. Each eligible Director generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.

6. Capital Stock

On December 12, 1995, the Fund commenced a share repurchase program for the purposes of enhancing stockholder value and reducing the discount at which the Fund's shares trade from their net asset value. During the year ended September 30, 2014, the Fund repurchased 14,636 of its shares at an average discount of 12.03% from net asset value per share. Since the inception of the program, the

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

Fund has repurchased 3,237,183 of its shares at an average discount of 8.86% from net asset value per share. The Directors regularly monitor the Fund's share repurchase program as part of their review and consideration of the Fund's premium/discount history. The Fund expects to continue to repurchase its outstanding shares at such time and in such amounts as it believes will further the accomplishment of the foregoing objectives, subject to review by the Directors.

7. Dividends

The Fund declared the following dividends from net investment income subsequent to September 30, 2014:

DECLARATION
DATE

AMOUNT
PER SHARE

RECORD DATE

PAYABLE DATE

October 14, 2014

0.0525

October 24, 2014

October 31, 2014

November 11, 2014

0.0525

November 21, 2014

November 28, 2014

8. Federal Income Tax Status

It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements.

The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.

FASB ASC 740-10, Income Taxes — Overall, sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Each of the tax years in the four-year period ended September 30, 2014 remains subject to examination by taxing authorities.

The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary

Morgan Stanley Income Securities Inc.

Notes to Financial Statements n September 30, 2014 continued

income for tax purposes. The tax character of distributions paid during fiscal years 2014 and 2013 was as follows:

2014 DISTRIBUTIONS PAID FROM: ORDINARY INCOME				2013 DISTRIBUTIONS PAID FROM: ORDINARY INCOME
$	6,318,482			$	6,224,383

The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.

Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.

Permanent differences, primarily due to differing treatments of gains (losses) related to foreign currency transactions, basis adjustments for swap transactions, paydown adjustments, nondeductible expenses and tax adjustments on debt securities sold by the Fund, resulted in the following reclassifications among the components of net assets at September 30, 2014:

ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME				ACCUMULATED NET REALIZED LOSS				PAID-IN-CAPITAL
$	260,268			$	(252,570	)		$	(7,698	)

At September 30, 2014, the components of distributable earnings for the Fund on a tax basis were as follows:

UNDISTRIBUTED ORDINARY INCOME				UNDISTRIBUTED LONG-TERM CAPITAL GAIN
$	241,346			$	138,970

At September 30, 2014, the aggregate cost for Federal income tax purposes is $161,326,216. The aggregate gross unrealized appreciation is $10,084,190 and the aggregate gross unrealized depreciation is $2,074,033 resulting in net unrealized appreciation of $8,010,157.

To the extent that capital loss carryforwards are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. During the year ended September 30, 2014, the Fund utilized capital loss carryforwards for U.S. Federal income tax purposes of $5,015,510.

Morgan Stanley Income Securities Inc.

Financial Highlights

Select ratios and per share data for a share of capital stock outstanding throughout each period:

	FOR THE YEAR ENDED SEPTEMBER 30,
	2014			2013			2012			2011			2010^
Selected Per Share Data:
Net asset value, beginning of period	$	18.94		$	19.55		$	17.95		$	18.38		$	17.20
Income (loss) from investment operations:
Net investment income⁽¹⁾		0.64			0.75			0.78			0.86			0.95
Net realized and unrealized gain (loss)		1.04			(0.68	)		1.65			(0.38	)		1.28
Total income from investment operations		1.68			0.07			2.43			0.48			2.23
Less dividends from net investment income		(0.70	)		(0.69	)		(0.83	)		(0.91	)		(1.05	)
Anti-dilutive effect of acquiring treasury shares⁽¹⁾		0.00	⁽²⁾		0.01			—			—			—
Net asset value, end of period	$	19.92		$	18.94		$	19.55		$	17.95		$	18.38
Market value, end of period	$	17.85		$	16.63		$	19.14		$	17.20		$	17.79
Total Investment Return⁽³⁾:
Market Value		11.76	%		(9.68	)%		16.53	%		2.00	%		15.60	%
Ratios to Average Net Assets:
Total expenses		0.67	%		0.66	%		0.63	%		0.65	%		0.66	%
Net investment income		3.26	%		3.86	%		4.16	%		4.71	%		5.43	%
Supplemental Data:
Net assets, end of period, in thousands	$	178,550		$	170,041		$	176,500		$	162,030		$	165,952
Portfolio turnover rate		43	%		57	%		61	%		52	%		53	%

^ Beginning with the year ended September 30, 2011, the Fund was audited by Ernst & Young LLP. The previous year was audited by another independent registered public accounting firm.

(1) The per share amounts were computed using an average number of shares outstanding during the period.

(2) Amount is less than $0.005.

(3) Total return is based upon the current market value on the last day of each period reported. Dividends and distributions are assumed to be reinvested at the prices obtained under the Fund's dividend reinvestment plan. Total return does not reflect brokerage commissions.

See Notes to Financial Statements
38

Morgan Stanley Income Securities Inc.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
Morgan Stanley Income Securities Inc.

We have audited the accompanying statement of assets and liabilities of Morgan Stanley Income Securities Inc. (the "Fund"), including the portfolio of investments, as of September 30, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended September 30, 2010 were audited by another independent registered public accounting firm whose report, dated November 24, 2010, expressed an unqualified opinion on those financial highlights.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2014, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Income Securities Inc. as of September 30, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
November 26, 2014

Morgan Stanley Income Securities Inc.

Shareholders Voting Results (unaudited)

On June 17, 2014, an annual meeting of the Fund's shareholders was held for the purpose of voting on the following matter, the results of which were as follows:

Election of Directors by all Shareholders:

	Number of Shares
	For		Against		Abstain
Frank L. Bowman		6,753,370		773,741		0
Michael Bozic		6,730,817		796,294		0
James F. Higgins		6,756,601		770,510		0

Morgan Stanley Income Securities Inc.

Portfolio Management (unaudited)

The Portfolio is managed by members of the Taxable Fixed Income team. The team consists of portfolio managers and analysts. Current members of the team jointly and primarily responsible for the day-to-day management of the Fund's portfolio are Joseph Mehlman, Executive Director of the Adviser and Christian G. Roth, Managing Director of the Adviser.

Mr. Mehlman has been associated with the Adviser in an investment management capacity since 2002 and began managing the Fund in November 2008. Mr. Roth has been associated with the Adviser or its investment management affiliates in an investment management capacity since 1991 and began managing the Fund in February 2009.

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited)

Derivatives

The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.

Following is a description of the derivative instruments and techniques that the Fund may use and their associated risks:

Futures. A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return, and the potential loss from futures contracts can exceed the Fund's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited) continued

contract at any particular time. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has open positions in the futures contract.

Options. In respect of options, the Fund is subject to equity risk, interest rate risk and foreign currency exchange risk in the normal course of pursuing its investment objectives. If the Fund buys an option, it buys a legal contract giving it the right to buy or sell a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed-upon price typically in exchange for a premium paid by the Fund. If the Fund sells an option, it sells to another person the right to buy from or sell to the Fund a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed-upon price typically in exchange for a premium received by the Fund. When options are purchased over-the-counter ("OTC"), the Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. Options may also be illiquid and the Fund may have difficulty closing out its position. A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well-conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.

Swaps. The Fund may enter into OTC swap contracts or cleared swap transactions. An OTC swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Fund's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each party. Cleared swap transactions help reduce counterparty credit risk. In a cleared swap, the Fund's ultimate counterparty is a clearinghouse rather than a bank, dealer or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by the Fund or if the reference index, security or investments do not perform as expected. The Fund enters into credit default, interest rate and other forms of swap agreements to manage exposure to credit and interest rate risks. The Fund's use of swaps may include those based on the credit of an underlying security, commonly referred to as "credit default swaps". The Fund may be either the buyer or the seller in a credit default swap. Where the Fund is the buyer of a credit default swap contract, it would typically be entitled to receive the par (or other agreed-upon) value

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited) continued

of a referenced debt obligation from the counterparty to the contract only in the event of a default or similar event of the issuer by the referenced debt obligation. If no default occurs, the Fund would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, typically it receives the stream of payments but is obligated to pay an amount equal to the par (or other agreed-upon) value of a referenced debt obligation upon the default or similar event by the issuer of the referenced debt obligation. The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis.

Foreign Currency Forward Exchange Contracts. In connection with its investments in foreign securities, the Fund also may enter into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. In addition, the Fund may use cross currency hedging or proxy hedging with respect to currencies in which the Fund has or expects to have portfolio or currency exposure. Cross currency hedges involve the sale of one currency against the positive exposure to a different currency and may be used for hedging purposes or to establish an active exposure to the exchange rate between any two currencies. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which the Fund's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract.

Mortgage Securities. Mortgage securities derive their value from the value of underlying mortgages. Mortgage securities are subject to the risks of price movements in response to changing interest rates and the level of prepayments made by borrowers of the underlying mortgages. An unexpectedly high

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited) continued

rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage-backed security and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payment on their mortgages.

Collateralized Mortgage Obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities (collectively "Mortgage Assets"). Payments of principal and interest on the Mortgage Assets and any reinvestment income are used to make payments on the CMOs. CMOs are issued in multiple classes. Each class has a fixed or floating coupon rate and a stated maturity or final distribution date. The principal and interest on the Mortgage Assets may be allocated among the classes in a number of different ways including "inverse only ("IO")" classes and "inverse IO" classes. Certain classes will, as a result of the allocation, have more predictable cash flows than others. As a general matter, the more predictable the cash flow, the lower the yield relative to other Mortgage Assets. The less predictable the cash flow, the higher the yield and the greater the risk. The Fund may invest in any class of CMO. The general goal in allocating cash flows on Mortgage Assets to the various classes of a CMO is to create certain tranches on which the expected cash flows have a higher degree of predictability than do the underlying Mortgage Assets. As a general matter, the more predictable the cash flow is on a particular CMO tranche, the lower the anticipated yield on that tranche at the time of issue will be relative to the prevailing market yields on the Mortgage Assets. As part of the process of creating more predictable cash flows on certain tranches of a CMO, one or more tranches generally must be created that absorb most of the changes in the cash flows on the underlying Mortgage Assets. The yields on these tranches are generally higher than prevailing market yields on other mortgage-related securities with similar average lives. Principal prepayments on the underlying Mortgage Assets may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates.

Because of the uncertainty of the cash flows on these tranches, the market prices and yields of these tranches are more volatile and may increase or decrease in value substantially with changes in interest rates and/or the rates of prepayment. Due to the possibility that prepayments (on home mortgages and other collateral) will alter the cash flow on CMOs, it is not possible to determine in advance the final maturity date or average life. Faster prepayment will shorten the average life and slower prepayments will lengthen it. In addition, if the collateral securing CMOs or any third-party guarantees are insufficient to make payments, the Fund could sustain a loss.

Commercial Mortgage-Backed Securities ("CMBS") are generally multi-class or pass-through securities backed by a mortgage loan or a pool of mortgage loans secured by commercial property, such as industrial and warehouse properties, office buildings, retail space and shopping malls, multi-family

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited) continued

properties and cooperative apartments. The commercial mortgage loans that underlie CMBS are generally not amortizing or not fully amortizing. That is, at their maturity date, repayment of their remaining principal balance or "balloon" is due and is repaid through the attainment of an additional loan or sale of the property. An extension of a final payment on commercial mortgages will increase the average life of the CMBS, generally resulting in a lower yield for discount bonds and a higher yield for premium bonds. CMBS are subject to credit risk and prepayment risk. Although prepayment risk is present, it is of a lesser degree in the CMBS than in the residential mortgage market; commercial real estate property loans often contain provisions which substantially reduce the likelihood that such securities will be prepaid (e.g., significant prepayment penalties on loans and, in some cases, prohibition on principal payments for several years following origination).

Stripped Mortgage-Backed Securities ("SMBSs") are derivative multi-class mortgage securities. SMBSs may be issued by agencies or instrumentalities of the U.S. government, or by private originators. A common type of SMBS will have one class receiving some of the interest and most of the principal from the Mortgage Assets, while the other class receives most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). Investments in each class of SMBS are extremely sensitive to changes in interest rates. IOs tend to decrease in value substantially if interest rates decline and prepayment rates become more rapid. POs tend to decrease in value substantially if interest rates increase and the rate of prepayment decreases. If the Fund invests in SMBSs and interest rates move in a manner not anticipated by Fund management, it is possible that the Fund could lose all or substantially all of its investment.

Defensive Investing

The Fund may take temporary "defensive" positions in attempting to respond to adverse market, economic, political or other conditions. The Fund may invest any amount of its assets in cash, cash equivalents or other fixed-income securities in a defensive posture that may be inconsistent with the Fund's principal investment strategies when the Adviser believes it is advisable to do so.

Although taking a defensive posture is designed to protect the Fund from an anticipated market downturn, it could have the effect of reducing the benefit from any upswing in the market. When the Fund takes a defensive position, it may not achieve its investment objective.

Special Risks Related to Cyber Security

The Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited) continued

and highly restricted data; denial of service attacks; unauthorized access to relevant systems, compromises to networks or devices that the Fund and its service providers use to service the Fund's operations; or operational disruption or failures in the physical infrastructure or operating systems that support the Fund and its service providers. Cyber attacks against or security breakdowns of the Fund or its service providers may adversely impact the Fund and its shareholders, potentially resulting in, among other things, financial losses; the inability of Fund shareholders to transact business and the Fund to process transactions; inability to calculate the Fund's NAV; violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation costs; and/or additional compliance costs. The Fund may incur additional costs for cyber security risk management and remediation purposes. In addition, cyber security risks may also impact issuers of securities in which the Fund invests, which may cause the Fund's investment in such issuers to lose value. There can be no assurance that the Fund or its service providers will not suffer losses relating to cyber attacks or other information security breaches in the future.

Foreign and Emerging Market Securities

Investing in the securities of foreign issuers, particularly those located in emerging market or developing countries, entails the risk that news and events unique to a country or region will affect those markets and their issuers. The value of the Fund's shares may vary widely in response to political and economic factors affecting companies in foreign countries. These same events will not necessarily have an effect on the U.S. economy or similar issuers located in the United States. In addition, investments in certain foreign markets, which have historically been considered stable, may become more volatile and subject to increased risk due to ongoing developments and changing conditions in such markets. Moreover, the growing interconnectivity of global economies and financial markets has increased the probability that adverse developments and conditions in one country or region will affect the stability of economies and financial markets in other countries or regions.

Certain foreign markets may rely heavily on particular industries or foreign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, organizations, entities and/or individuals, changes in international trading patterns, trade barriers, and other protectionist or retaliatory measures. Economic sanctions could, among other things, effectively restrict or eliminate the Fund's ability to purchase or sell securities or groups of securities for a substantial period of time, and may make the Fund's investments in such securities harder to value. International trade barriers or economic sanctions against foreign countries, organizations, entities and/or individuals, may adversely affect the Fund's foreign holdings or exposures. Investments in foreign markets may also be adversely affected by governmental actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets, or the

Morgan Stanley Income Securities Inc.

Investment Policy (unaudited) continued

imposition of punitive taxes. Governmental actions can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity of the Fund's investments. For example, the governments of certain countries may prohibit or impose substantial restrictions on foreign investing in their capital markets or in certain sectors or industries. In addition, a foreign government may limit or cause delay in the convertibility or repatriation of its currency which would adversely affect the U.S. dollar value and/or liquidity of investments denominated in that currency. Any of these actions could severely affect security prices, impair the Fund's ability to purchase or sell foreign securities or transfer the Fund's assets back into the United States, or otherwise adversely affect the Fund's operations. Certain foreign investments may become less liquid in response to market developments or adverse investor perceptions, or become illiquid after purchase by the Fund, particularly during periods of market turmoil. Certain foreign investments may become illiquid when, for instance, there are few, if any, interested buyers and sellers or when dealers are unwilling to make a market for certain securities. When the Fund holds illiquid investments, its portfolio may be harder to value.

Morgan Stanley Income Securities Inc.

Dividend Reinvestment Plan (unaudited)

The dividend reinvestment plan (the Plan) offers you a prompt and simple way to reinvest your dividends and capital gains distributions (Distributions) into additional shares of the Fund. Under the Plan, the money you earn from Distributions will be reinvested automatically in more shares of the Fund, allowing you to potentially increase your investment over time.

Plan benefits

• Add to your account
You may increase your shares in the Fund easily and automatically with the Plan.

• Low transaction costs
Transaction costs are low because the new shares are bought in blocks and the brokerage commission is shared among all participants.

• Convenience
You will receive a detailed account statement from Computershare Trust Company, N.A., (the Agent) which administers the Plan. The statement shows your total Distributions, dates of investment, shares acquired, and price per share, as well as the total number of shares in your reinvestment account. You can also access your account at morganstanley.com/im/cef.

• Safekeeping
The Agent will hold the shares it has acquired for you in safekeeping.

How to participate in the Plan

If you own shares in your own name, you can participate directly in the Plan. If your shares are held in "street name" — in the name of your brokerage firm, bank, or other financial institution — you must instruct that entity to participate on your behalf. If they are unable to participate on your behalf, you may request that they reregister your shares in your own name so that you may enroll in the Plan.

If you choose to participate in the Plan, whenever the Fund declares a distribution, it will be invested in additional shares of the Fund that are purchased in the open market.

How to enroll

To enroll in the Plan, please read the Terms and Conditions in the Plan brochure. You can obtain a copy of the Plan Brochure and enroll in the Plan by visiting morganstanley.com/im/cef, calling toll-free (800) 231-2608 or notifying us in writing at Morgan Stanley Closed-End Funds, Computershare Trust Company, N.A., P.O. Box 30170, College Station, Texas 77842. Please include the Fund name and account number and ensure that all shareholders listed on the account sign the written instructions. Your participation in the Plan will begin with the next Distribution payable after the Agent receives your authorization, as long as they receive it before the "record date," which is generally one week before the dividend is paid. If your authorization arrives after such record date, your participation in the Plan will begin with the following Distribution.

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Dividend Reinvestment Plan (unaudited) continued

Costs of the Plan

There is no direct charge to you for reinvesting dividends and capital gains distributions because the Plan's fees are paid by the Fund. However, when applicable, you will pay your portion of any brokerage commissions incurred when the new shares are purchased on the open market. These brokerage commissions are typically less than the standard brokerage charges for individual transactions, because shares are purchased for all participants in blocks, resulting in lower commissions for each individual participant. Any brokerage commissions or service fees are averaged into the purchase price.

Tax implications

The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax that may be due on dividends or capital gains distributions. You will receive tax information annually to help you prepare your federal and state income tax returns.

Morgan Stanley does not offer tax advice. The tax information contained herein is general and is not exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer, for avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws, Federal and state tax laws are complex and constantly changing. Shareholders should always consult a legal or tax advisor for Information concerning their individual situation.

How to withdraw from the Plan

To withdraw from the Plan, please visit morganstanley.com/im/cef or call (800) 231-2608 or notify us in writing at the address below.

Morgan Stanley Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, Texas 77842

All shareholders listed on the account must sign any written withdrawal instructions. If you withdraw, you have three options with regard to the shares held in your account:

1. If you opt to continue to hold your non-certificated shares, whole shares will be held by the Agent and fractional shares will be sold.

2. If you opt to sell your shares through the Agent, we will sell all full and fractional shares and send the proceeds via check to your address of record after deducting brokerage commissions.

3. You may sell your shares through your financial advisor through the Direct Registration System ("DRS"). DRS is a service within the securities industry that allows Fund shares to be held in your name in electronic format. You retain full ownership of your shares, without having to hold a stock certificate.

Morgan Stanley Income Securities Inc.

Dividend Reinvestment Plan (unaudited) continued

The Fund and Computershare Trust Company, N.A. at any time may amend or terminate the Plan. Participants will receive written notice at least 30 days before the effective date of any amendment. In the case of termination, Participants will receive written notice at least 30 days before the record date for the payment of any dividend or capital gains distribution by the Fund. In the case of amendment or termination necessary or appropriate to comply with applicable law or the rules and policies of the Securities and Exchange Commission or any other regulatory authority, such written notice will not be required.

To obtain a complete copy of the Dividend Reinvestment Plan, please call our Client Relations department at 800-231-2608 or visit morganstanley.com/im/cef.

Morgan Stanley Income Securities Inc.

U.S. Privacy Policy (unaudited)

An Important Notice Concerning Our U.S. Privacy Policy

This privacy notice describes the U.S. privacy policy of Morgan Stanley Distribution, Inc., and the Morgan Stanley family of mutual funds ("us", "our", "we").

We are required by federal law to provide you with notice of our U.S. privacy policy ("Policy"). This Policy applies to both our current and former clients unless we state otherwise and is intended for individual clients who purchase products or receive services from us for personal, family or household purposes. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, or accounts subject to the Uniform Gifts to Minors Act.

This notice sets out our business practices to protect your privacy; how we collect and share personal information about you; and how you can limit our sharing or certain uses by others of this information. We may amend this Policy at any time, and will inform you of any changes to our Policy as required by law.

We Respect Your Privacy

We appreciate that you have provided us with your personal financial information and understand your concerns about your information. We strive to safeguard the information our clients entrust to us. Protecting the confidentiality and security of client information is an important part of how we conduct our business.

This notice describes what personal information we collect about you, how we collect it, when we may share it with others, and how certain others may use it. It discusses the steps you may take to limit our sharing of certain information about you with our affiliated companies, including, but not limited to our affiliated banking businesses, brokerage firms and credit service affiliates. It also discloses how you may limit our affiliates' use of shared information for marketing purposes.

Throughout this Policy, we refer to the nonpublic information that personally identifies you as "personal information." We also use the term "affiliated company" in this notice. An affiliated company is a company in our family of companies and includes companies with the Morgan Stanley name. These affiliated companies are financial institutions such as broker-dealers, banks, investment advisers and credit card issuers. We refer to any company that is not an affiliated company as a nonaffiliated third party. For purposes of Section 5 of this notice, and your ability to limit certain uses of personal information by our affiliates, this notice applies to the use of personal information by our affiliated companies.

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U.S. Privacy Policy (unaudited) continued

1. What Personal Information Do We Collect From You?

We may collect the following types of information about you: (i) information provided by you, including information from applications and other forms we receive from you, (ii) information about your transactions with us or our affiliates, (iii) information about your transactions with nonaffiliated third parties, (iv) information from consumer reporting agencies, (v) information obtained from our websites, and (vi) information obtained from other sources. For example:

• We collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us.

• We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources.

• We may obtain information about your creditworthiness and credit history from consumer reporting agencies.

• We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements.

2. When Do We Disclose Personal Information We Collect About You?

We may disclose personal information we collect about you in each of the categories listed above to affiliated and nonaffiliated third parties.

a. Information We Disclose to Affiliated Companies. We may disclose personal information that we collect about you to our affiliated companies to manage your account(s) effectively, to service and process your transactions, and to let you know about products and services offered by us and affiliated companies, to manage our business, and as otherwise required or permitted by law. Offers for products and services from affiliated companies are developed under conditions designed to safeguard your personal information.

b. Information We Disclose to Third Parties. We may disclose personal information that we collect about you to nonaffiliated third parties to provide marketing services on our behalf or to other financial institutions with whom we have joint marketing agreements. We may also disclose all of the information we collect to other nonaffiliated third parties for our everyday business purposes, such as to process transactions, maintain account(s), respond to court orders and legal investigations, report to credit bureaus, offer our own products and services, protect against fraud, for institutional risk control, to perform services on our behalf, and as otherwise required or permitted by law.

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U.S. Privacy Policy (unaudited) continued

When we share personal information about you with a nonaffiliated third party, they are required to limit their use of personal information about you to the particular purpose for which it was shared and they are not allowed to share personal information about you with others except to fulfill that limited purpose or as may be permitted or required by law.

3. How Do We Protect The Security and Confidentiality Of Personal Information We Collect About You?

We maintain physical, electronic and procedural security measures that comply with applicable law and regulations to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information by employees. Third parties that provide support or marketing services on our behalf may also receive personal information about you, and we require them to adhere to appropriate security standards with respect to such information.

4. How Can You Limit Our Sharing Certain Personal Information About You With Our Affiliated Companies For Eligibility Determination?

By following the opt-out procedures in Section 6 below, you may limit the extent to which we share with our affiliated companies, personal information that was collected to determine your eligibility for products and services such as your credit reports and other information that you have provided to us or that we may obtain from third parties ("eligibility information"). Eligibility information does not include your identification information or personal information pertaining to our transactions or experiences with you. Please note that, even if you direct us not to share eligibility information with our affiliated companies, we may still share your personal information, including eligibility information, with our affiliated companies under circumstances that are permitted under applicable law, such as to process transactions or to service your account.

5. How Can You Limit the Use of Certain Personal Information About You by Our Affiliated Companies for Marketing?

By following the opt-out instructions in Section 6 below, you may limit our affiliated companies from marketing their products or services to you based on personal information we disclose to them. This information may include, for example, your income and account history with us. Please note that, even if you choose to limit our affiliated companies from using personal information about you that we may share with them for marketing their products and services to you, our affiliated companies may use your personal information that they obtain from us to market to you in circumstances permitted by law, such as if the affiliated party has its own relationship with you.

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U.S. Privacy Policy (unaudited) continued

6. How Can You Send Us an Opt-Out Instruction?

If you wish to limit our sharing of eligibility information about you with our affiliated companies, or our affiliated companies' use of personal information for marketing purposes, as described in this notice, you may do so by:

• Calling us at (800) 231-2608
Monday–Friday between 8:30a.m. and 6p.m. (EST)

• Writing to us at the following address:
Computershare Trust Company, N.A.
c/o Privacy Coordinator
P.O. Box 30170
College Station, Texas 77842

If you choose to write to us, your request should include: your name, address, telephone number and account number(s) to which the opt-out applies and whether you are opting out with respect to sharing of eligibility information (Section 4 above), or information used for marketing (Section 5 above), or both. Written opt-out requests should not be sent with any other correspondence. In order to process your request, we require that the request be provided by you directly and not through a third party. Once you have informed us about your privacy preferences, your opt-out preference will remain in effect with respect to this Policy (as it may be amended) until you notify us otherwise. If you are a joint account owner, we will accept instructions from any one of you and apply those instructions to the entire account.

Please understand that if you limit our sharing or our affiliated companies' use of personal information, you and any joint account holder(s) may not receive information about our affiliated companies' products and services, including products or services that could help you manage your financial resources and achieve your investment objectives.

If you have more than one account or relationship with us, please specify the accounts to which you would like us to apply your privacy choices. If you have accounts or relationships with our affiliates, you may receive multiple privacy policies from them, and will need to separately notify those companies of your privacy choices for those accounts or relationships.

7. What if an affiliated company becomes a nonaffiliated third party?

If, at any time in the future, an affiliated company becomes a nonaffiliated third party, further disclosures of personal information made to the former affiliated company will be limited to those described in Section 2(b) above relating to nonaffiliated third parties. If you elected under Section 6 to limit disclosures we make to affiliated companies, or use of personal information by affiliated companies, your

Morgan Stanley Income Securities Inc.

U.S. Privacy Policy (unaudited) continued

election will not apply to use by any former affiliated company of your personal information in their possession once it becomes a nonaffiliated third party.

Special Notice to Residents of Vermont
The following section supplements our Policy with respect to our individual clients who have a Vermont address and supersedes anything to the contrary in the above Policy with respect to those clients only.
The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with nonaffiliated third parties, or eligibility information with affiliated companies, other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with nonaffiliated third parties or eligibility information with affiliated companies, unless you provide us with your written consent to share such information.

Special Notice to Residents of California
The following section supplements our Policy with respect to our individual clients who have a California address and supersedes anything to the contrary in the above Policy with respect to those clients only.
In response to a California law, if your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such personal information with our affiliates to comply with California privacy laws that apply to us.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited)

Independent Directors:

Name, Age and Address of
Independent Director

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

Number of
Portfolios
in Fund
Complex
Overseen by
Independent
Director**

Other Directorships
Held by Independent Director***

Frank L. Bowman (69)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036

Director

Since
August 2006

President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (since February 2007); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005- November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996); and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009).

Director of BP p.l.c.; Director of Naval and Nuclear Technologies LLP; Director of the Armed Services YMCA of the USA and the U.S. Naval Submarine League; Director of the American Shipbuilding Suppliers Association; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Chairman of the Charity, J Street Cup Golf Charity, Director Fairhaven United Methodist Church.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited) continued

Name, Age and Address of
Independent Director

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

Number of
Portfolios
in Fund
Complex
Overseen by
Independent
Director**

Other Directorships
Held by Independent Director***

Michael Bozic (73)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036

Director

Since
April 1994

Private investor and a member of the advisory board of American Road Group LLC (retail) (since June 2000); Chairperson of the Compliance and Insurance Committee (since October 2006); Director or Trustee of various Morgan Stanley Funds (since April 1994); formerly, Chairperson of the Insurance Committee (July 2006-September 2006); Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co.

100

Trustee and member of the Hillsdale College Board of Trustees

Kathleen A. Dennis (61)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036

Director

Since
August 2006

President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006).

Director of various non-profit organizations.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited) continued

Name, Age and Address of
Independent Director

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

Number of
Portfolios
in Fund
Complex
Overseen by
Independent
Director**

Other Directorships
Held by Independent Director***

Dr. Manuel H. Johnson (65)
c/o Johnson Smick International, Inc.
220 I Street, N.E.
Suite 200
Washington, D.C. 20002

Director

Since
July 1991

Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since July 1991);
Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury.

100

Director of NVR, Inc. (home construction).

Joseph J. Kearns (72)
c/o Kearns & Associates LLC
23823 Malibu Road
S-50-440
Malibu, CA 90265

Director

Since
August 1994

President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust.

101

Director of Electro Rent Corporation (equipment leasing). Prior to December 31, 2013, Director of The Ford Family Foundation.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited) continued

Name, Age and Address of
Independent Director

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

Number of
Portfolios
in Fund
Complex
Overseen by
Independent
Director**

Other Directorships
Held by Independent Director***

Michael F. Klein (55)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036

Director

Since
August 2006

Managing Director, Aetos Capital, LLC (since March 2000) and Co-President, Aetos Alternatives Management, LLC (since January 2004); and Co-Chief Executive Officer of Aetos Capital LLC (since August 2013); Chairperson of the Fixed Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, various Morgan Stanley Funds (June 1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999).

Director of certain investment funds managed or sponsored by Aetos Capital, LLC. Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals).

Michael E. Nugent (78)
522 Fifth Avenue
New York, NY 10036

Chairperson of the Board and Director

Chairperson of the Boards since July 2006 and Director since July 1991

Chairperson of the Boards of various Morgan Stanley Funds (since July 2006); Chairperson of the Closed-End Fund Committee (since June 2012) and Director or Trustee of various Morgan Stanley Funds (since July 1991); formerly, Chairperson of the Insurance Committee (until July 2006), General Partner, Triumph Capital, L.P. (private investment partnership) (1988-2013).

100

None.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited) continued

Name, Age and Address of
Independent Director

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

Number of
Portfolios
in Fund
Complex
Overseen by
Independent
Director**

Other Directorships
Held by Independent Director***

W. Allen Reed (67)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036

Director

Since
August 2006

Chairperson of the Equity Sub- Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005).

Director of Temple-Inland Industries (packaging and forest products); Director of Legg Mason, Inc. and Director of the Auburn University Foundation.

Fergus Reid (82)
c/o Joe Pietryka, Inc.
85 Charles Colman Blvd.
Pawling, NY 12564

Director

Since
June 1992

Chairman, Joe Pietryka, Inc.; Chairperson of the Governance Committee and Director or Trustee of various Morgan Stanley Funds (since June 1992).

101

Through December 31, 2012, Trustee and Director of certain investment companies in the JP Morgan Fund Complex managed by JP Morgan Investment Management Inc.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited) continued

Interested Director:

Name, Age and Address of
Interested Director

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

Number of
Portfolios
in Fund
Complex
Overseen by
Interested
Director**

Other Directorships
Held by Interested Director***

James F. Higgins (66)
One New York Plaza,
New York, NY 10004

Director

Since
June 2000

Director or Trustee of various Morgan Stanley Funds (since June 2000); Senior Advisor of Morgan Stanley (since August 2000).

Formerly, Director of AXA Financial, Inc. and AXA Equitable Life Insurance Company (2002-2011) and Director of AXA MONY Life Insurance Company and AXA MONY Life Insurance Company of America (2004-2011).

* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.

** The Fund Complex includes (as of December 31, 2013) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).

*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.

Morgan Stanley Income Securities Inc.

Director and Officer Information (unaudited) continued

Executive Officers:

Name, Age and Address of
Executive Officer

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s) During Past 5 Years

John H. Gernon (51)
522 Fifth Avenue
New York, NY 10036

President and Principal Executive Officer

Since
September 2013

President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and various money market funds (since May 2014) in the Fund Complex, Managing Director of the Adviser; Head of Product (since 2006) and Global Portfolio Analysis and Reporting (since 2012) For MSIM's Long Only business.

Stefanie V. Chang Yu (47)
522 Fifth Avenue
New York, NY 10036

Chief Compliance Officer

Since
December 1997

Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since January 2014); formerly Vice President of various Morgan Stanley Funds (December 1997-January 2014).

Joseph C. Benedetti (49)
522 Fifth Avenue
New York, NY 10036

Vice President

Since January 2014

Managing Director of the Adviser and various entities affiliated with the Adviser; Vice President of various Morgan Stanley Funds (since January 2014); formerly, Assistant Secretary of various Morgan Stanley Funds (October 2004-January 2014).

Francis J. Smith (49)
522 Fifth Avenue
New York, NY 10036

Treasurer and Principal Financial Officer

Treasurer
since July 2003 and Principal Financial
Officer since September 2002

Executive Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002).

Mary E. Mullin (47)
522 Fifth Avenue
New York, NY 10036

Secretary

Since June 1999

Executive Director of the Adviser and various entities affiliated with the Adviser; Secretary of various Morgan Stanley Funds (since June 1999).

* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves an indefinite term, until his or her successor is elected.

Federal Tax Notice (unaudited)

For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2014. For corporate shareholders 0.74% of the dividends qualified for the dividends received deduction.

For Federal income tax purposes, the following information is furnished with respect to the Fund's earnings for its taxable year ended September 30, 2014. When distributed, certain earnings may be subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designated up to a maximum of $44,363 as taxable at this lower rate.

In January, the Fund provides tax information to shareholders for the preceding calendar year.

Item 2. Code of Ethics.

(a) The Trust/Fund has adopted a code of ethics (the “Code of Ethics”) that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Trust/Fund or a third party.

(b) No information need be disclosed pursuant to this paragraph.

(d) Not applicable.

(e) Not applicable.

(f)

(1) The Trust/Fund’s Code of Ethics is attached hereto as Exhibit 12 A.

(2) Not applicable.

(3) Not applicable.

Item 3. Audit Committee Financial Expert.

The Fund’s Board of Trustees has determined that Joseph J. Kearns, an “independent” Trustee, is an “audit committee financial expert” serving on its audit committee. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.

Item 4. Principal Accountant Fees and Services.

(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:

2014

	Registrant			Covered Entities(1)
Audit Fees	$	48,309		N/A

Non-Audit Fees
Audit-Related Fees	$	—	(2)	$		(2)
Tax Fees	$	3,867	(3)	$	8,152,733	(4)
All Other Fees	$			$	280,341	(5)
Total Non-Audit Fees	$	3,867		$	8,433,074

Total	$	52,176		$	8,433,074

2013

	Registrant			Covered Entities(1)
Audit Fees	$	44,977		N/A

Non-Audit Fees
Audit-Related Fees	$	—	(2)	$	—	(2)
Tax Fees	$	3,765	(3)	$	6,883,455	(4)
All Other Fees	$			$	96,000	(5)
Total Non-Audit Fees	$	3,765		$	6,979,455

Total	$	48,742		$	6,979,455

N/A- Not applicable, as not required by Item 4.

(1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant.

(2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities’ and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements.

(3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant’s tax returns.

(4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities’ tax returns.

(5) All other fees represent project management for future business applications and improving business and operational processes.

(e)(1) The audit committee’s pre-approval policies and procedures are as follows:

APPENDIX A

AUDIT COMMITTEE

AUDIT AND NON-AUDIT SERVICES

PRE-APPROVAL POLICY AND PROCEDURES

OF THE

MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

AS ADOPTED AND AMENDED JULY 23, 2004,(1)

1. Statement of Principles

The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor’s independence from the Fund.

The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s administration of the engagement of the independent auditor. The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee or its delegate (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.

The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.

(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the “Policy”), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time.

The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the Independent Auditors to management.

The Fund’s Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors’ independence.

2. Delegation

As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

3. Audit Services

The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.

In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.

The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

4. Audit-related Services

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters

not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR.

The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

5. Tax Services

The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the Independent Auditors may provide such services.

Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

6. All Other Services

The Audit Committee believes, based on the SEC’s rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.

The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

7. Pre-Approval Fee Levels or Budgeted Amounts

Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.

8. Procedures

All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund’s Chief Financial Officer and must include a detailed description of the services to be

rendered. The Fund’s Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund’s Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.

The Audit Committee has designated the Fund’s Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund’s Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund’s Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund’s Chief Financial Officer or any member of management.

9. Additional Requirements

The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence.

10. Covered Entities

Covered Entities include the Fund’s investment adviser(s) and any entity controlling, controlled by or under common control with the Fund’s investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund’s audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include:

Morgan Stanley Retail Funds

Morgan Stanley Investment Advisors Inc.

Morgan Stanley & Co. Incorporated

Morgan Stanley DW Inc.

Morgan Stanley Investment Management Inc.

Morgan Stanley Investment Management Limited

Morgan Stanley Investment Management Private Limited

Morgan Stanley Asset & Investment Trust Management Co., Limited

Morgan Stanley Investment Management Company

Morgan Stanley Services Company, Inc.

Morgan Stanley Distributors Inc.

Morgan Stanley Trust FSB

Morgan Stanley Institutional Funds

Morgan Stanley Investment Management Inc.

Morgan Stanley Investment Advisors Inc.

Morgan Stanley Investment Management Limited

Morgan Stanley Investment Management Private Limited

Morgan Stanley Asset & Investment Trust Management Co., Limited

Morgan Stanley Investment Management Company

Morgan Stanley & Co. Incorporated

Morgan Stanley Distribution, Inc.

Morgan Stanley AIP GP LP

Morgan Stanley Alternative Investment Partners LP

(e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee’s pre-approval policies and procedures (attached hereto).

(f) Not applicable.

(g) See table above.

(h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors’ independence in performing audit services.

Item 5. Audit Committee of Listed Registrants.

(a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:

Joseph Kearns, Michael Nugent and Allen Reed.

(b) Not applicable.

Item 6.

(a) See Item 1.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

The Fund/Trust invests in exclusively non-voting securities and therefore this item is not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

FUND MANAGEMENT

As of the date of this report, the Fund is managed by members of the Taxable Fixed Income team. The team consists of portfolio managers and analysts. Current members of the team jointly and primarily responsible for the day-to-day management of the Fund’s portfolio are Christian G. Roth, Managing Director of the Adviser and Joseph Mehlman, Executive Director of the Adviser.

Mr. Roth has been associated with the Adviser or its investment management affiliates in an investment management capacity since 1991 and began managing the Fund in February 2009. Mr. Mehlman has been associated with the Adviser in an investment management capacity since 2002 and began managing the Fund in November 2008.

OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER

The following information is as of September 30, 2014:

Mr. Roth managed 6 registered investment companies with a total of approximately $557.5 million in assets; 30 pooled investment vehicles other than registered investment companies with a total of approximately $9.8 billion in assets; and 43 other accounts (which include separate accounts managed under certain “wrap fee” programs) with a total of approximately $17.7 billion in assets.

Mr. Mehlman managed 7 registered investment companies with a total of approximately $727.9 million in assets; no pooled investment vehicles other than registered investment companies; and 73 other accounts (which include separate accounts managed under certain “wrap fee” programs) with a total of approximately $16.0 billion in assets.

Because the portfolio managers manages assets for other investment companies, pooled investment vehicles and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), there may be an incentive to favor one client over another resulting in conflicts of interest. For instance, the Adviser may receive fees from certain accounts that are higher than the fee it receives from the Fund, or it may receive a performance-based fee on certain accounts. In those instances, the portfolio manager may have an incentive to favor the higher and/or performance-based fee accounts over the Fund. In addition, a conflict of interest could exist to the extent the Adviser has proprietary investments in certain accounts, where portfolio managers have personal investments in certain accounts or when certain accounts are investment options in the Adviser’s employee benefits and/or deferred compensation plans. The portfolio managers may have an incentive to favor these accounts over others. If the Adviser manages accounts that engage in short sales of securities of the type in which the Fund invests, the Adviser could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall. The Adviser has adopted trade allocation and other policies and procedures that it believes are reasonably designed to address these and other conflicts of interest.

Portfolio Manager Compensation Structure

Morgan Stanley’s compensation structure is based on a total reward system of base salary and Incentive Compensation which is paid partially as a cash bonus and partially as mandatory deferred compensation. Deferred compensation may be granted as deferred cash under the Adviser’s Investment Management Alignment Plan (“IMAP”), as an equity-based awards or it may be granted under other plans as determined annually by Morgan Stanley’s Compensation, Management Development and Succession Committee subject to vesting and other conditions.

Base salary compensation. Generally, portfolio managers receive base salary compensation based on the level of their position with the Adviser.

Incentive compensation. In addition to base compensation, portfolio managers may receive discretionary year-end compensation.

Incentive compensation may include:

· Cash Bonus.

· Deferred Compensation:

· A mandatory program that defers a portion of incentive compensation into restricted stock units or other awards based on Morgan Stanley common stock or other plans that are subject to vesting and other conditions.

· IMAP is a mandatory program that defers a portion of incentive compensation and notionally invests it in designated funds advised by the Adviser or its affiliates. The award is subject to vesting and other conditions. Portfolio managers must notionally invest a minimum of 25% to a maximum of 100% of their IMAP deferral account into a combination of the designated funds they manage that are included in the IMAP fund menu, which may or may not include one of the Portfolios.

All deferred compensation awards are subject to clawback provisions where awards can be cancelled, in whole or in part, if an employee takes any action, or omits to take any action which; causes a restatement of Morgan Stanley’s consolidated financial results; constitutes a violation by the portfolio manager of Morgan Stanley’s Global Risk Management Principles, Policies and Standards; or constitutes violation of internal risk and control policies involving a subsequent loss.

Several factors determine discretionary compensation, which can vary by portfolio management team and circumstances. These factors include:

· Revenues generated by the investment companies, pooled investment vehicles and other accounts managed by the portfolio manager.

· The investment performance of the funds/accounts managed by the portfolio manager.

· Contribution to the business objectives of the Adviser.

· The dollar amount of assets managed by the portfolio manager.

· Market compensation survey research by independent third parties.

· Other qualitative factors, such as contributions to client objectives.

· Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the investment team(s) of which the portfolio manager is a member.

SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS

As of September 30, 2014, the portfolio managers did not own any shares of the Fund.

Item 9. Closed-End Fund Repurchases

REGISTRANT PURCHASE OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 2013	1,843.00		N/A	N/A
November 2013	9,103.00		N/A	N/A
December 2013	—		N/A	N/A
January 2014	—		N/A	N/A
February 2014	—		N/A	N/A
March 2014	—		N/A	N/A
April 2014	—		N/A	N/A
May 2014	—		N/A	N/A
June 2014	—		N/A	N/A
July 2014	—		N/A	N/A
August 2014	3,690.00		N/A	N/A
September 2014			N/A	N/A
Total	14,636.00		N/A	N/A

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 11. Controls and Procedures

(a) The Trust’s/Fund’s principal executive officer and principal financial officer have concluded that the Trust’s/Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust/Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits

(a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto.

(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Morgan Stanley Income Securities Inc.

/s/ John H. Gernon
John H. Gernon
Principal Executive Officer
November 19, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ John H. Gernon
John H. Gernon
Principal Executive Officer
November 19, 2014

/s/ Francis Smith
Francis Smith
Principal Financial Officer
November 19, 2014

Morgan Stanley Income Securities (ICB) Inactive N-CSRCertified annual shareholder report (management investment company)