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)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: September 30, 2005
Date of reporting period: March 31, 2005
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Income
Securities Inc. performed during the semiannual period. We will provide an
overview of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments.
Market forecasts provided in this report may not necessarily come to pass. There
is no assurance that the Fund will achieve its investment objective. 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
For the six-months ended March 31, 2005
MARKET CONDITIONS
The six-month period under review began amid perceived softness in the economy
in the minds of investors, brought on by lower-than-expected payroll gains. The
Federal Open Market Committee reaffirmed its pledge to raise the federal funds
target rate at a measured pace and did so incrementally at each of its meetings,
raising the target rate 100 basis points, to 2.75 percent from 1.75 percent by
the end of the period.
The economic climate for corporate bonds during the period was generally
positive, fueled by investors' continuing thirst for yield. Nonetheless,
corporate bond yield spreads widened during the first quarter of 2005, with most
of the damage coming in the auto sector. News that General Motors (GM) had
lowered its earnings guidance for the remainder of 2005 brought on elevated
fears that the automaker might lose its investment-grade credit rating. Yield
spreads on GM bonds soared, with the company's longer maturity issues eventually
surpassing the 500 basis-point level relative to equivalent treasuries. Other
auto and auto-related issuers' yield spreads also widened, albeit not by the
same magnitude as GM's spreads.
PERFORMANCE ANALYSIS
For the six-month period ended March 31, 2005, the net asset value (NAV) of
Morgan Stanley Income Securities Inc. (ICB) decreased from $17.59 to $17.27 per
share. Based on this change plus the reinvestment of dividends totaling $0.4875
per share, the Fund's total NAV return was 1.19 percent. ICB's value on the New
York Stock Exchange (NYSE) decreased from $16.04 to $15.39 per share during the
same period. Based on this change plus the reinvestment of dividends, ICB's
total market return was -1.11 percent. ICB's share price was trading at a 10.89
percent discount to its NAV on March 31, 2005. Past performance is no guarantee
of future results.
Monthly dividends for the second quarter of 2005 declared in March remained
unchanged at $0.08125 per share to reflect the Fund's current and projected
earnings level.
Within the corporate sector, the Fund benefited from its emphasis on insurance
company debt and strong security selection in the paper and energy sectors.
Paper, gaming/lodging, and energy remain the focus of the Fund's medium-quality
strategy. Within the high-quality segment of the portfolio, the Fund remained
focused on the insurance industry.
We kept the Fund's overall interest-rate exposure trimmed during the period.
This posture helped the Fund as interest rates rose across the short- and
intermediate-portions of the yield curve. As interest rates declined during the
initial phase of the review period, however, this position hampered the Fund's
performance.
The Fund's procedure for reinvestment of 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 procedure 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.
- ----------------------------------------------------
There is no guarantee that any sectors mentioned will continue to perform well
or be held by the Fund in the future.
2
<Table>
<Caption>
PORTFOLIO COMPOSITION*
Corporate Bonds 76.3%
U.S. Government Obligations 13.0
Asset-Backed Securities 4.1
Foreign Government Obligations 3.4
Short-Term Investments 3.2
</Table>
<Table>
<Caption>
LONG-TERM CREDIT ANALYSIS
AAA 20.5%
AA 1.9
A 14.1
BBB 50.1
BB 11.7
B 1.7
</Table>
Data as of March 31, 2005. Subject to change daily. 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. These data are provided for informational purposes only and should
not be deemed a recommendation to buy or sell the securities mentioned. 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.
* Does not include outstanding short futures contracts with an underlying face
amount of $51,731,875 with unrealized appreciation of $183,215.
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 BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. 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. 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 20549-0102.
3
RESULTS OF ANNUAL SHAREHOLDERS MEETING
ON DECEMBER 15, 2004, 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:
<Table>
<Caption>
FOR WITHHELD
- ----------------------------------------------------------
MICHAEL BOZIC 8,060,403 188,709
CHARLES A. FIUMEFREDDO 8,058,780 190,332
EDWIN J. GARN 8,051,016 198,096
WAYNE E. HEDIEN 8,059,375 189,737
JAMES F. HIGGINS 8,063,663 185,449
MANUEL H. JOHNSON 8,061,494 187,618
JOSEPH J. KEARNS 8,062,953 186,159
MICHAEL E. NUGENT 8,060,243 188,869
FERGUS REID 8,060,762 188,350
</Table>
4
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
Corporate Bonds (75.2%)
Advertising/Marketing Services (1.0%)
$ 785 Interpublic Group of Companies, Inc. (The).................. 5.40% 11/15/09 $ 755,562
975 WPP Finance Corp. (United Kingdom).......................... 5.875 06/15/14 1,009,915
------------
1,765,477
------------
Aerospace & Defense (0.6%)
328 Raytheon Co. ............................................... 4.50 11/15/07 332,738
618 Systems 2001 Asset Trust LLC - 144A*........................ 6.664 09/15/13 670,145
------------
1,002,883
------------
Air Freight/Couriers (1.2%)
2,000 FedEx Corp. ................................................ 7.25 02/15/11 2,240,394
------------
Airlines (0.5%)
104 Continental Airlines, Inc. ................................. 6.648 09/15/17 98,391
722 Continental Airlines, Inc. ................................. 6.90 01/02/18 708,746
------------
807,137
------------
Beverages: Alcoholic (0.6%)
1,085 Miller Brewing Co. - 144A*.................................. 4.25 08/15/08 1,075,151
------------
Broadcasting (0.8%)
1,330 Clear Channel Communications, Inc. ......................... 7.65 09/15/10 1,457,611
------------
Cable/Satellite TV (3.8%)
1,260 Comcast Cable Communications Inc. .......................... 6.75 01/30/11 1,362,708
1,400 Comcast Cable Communications Inc. .......................... 7.125 06/15/13 1,559,928
750 Comcast Cable Communications Inc. .......................... 8.375 05/01/07 808,268
450 Comcast Corp. .............................................. 6.50 01/15/15 482,544
1,425 Cox Communications, Inc. - 144A*............................ 4.625 01/15/10 1,386,145
710 Echostar DBS Corp. ......................................... 6.375 10/01/11 699,350
390 TCI Communications, Inc. ................................... 7.875 02/15/26 477,122
------------
6,776,065
------------
Casino/Gaming (1.8%)
185 MGM Mirage Inc. ............................................ 6.00 10/01/09 183,381
220 MGM Mirage Inc. ............................................ 6.75 09/01/12 222,750
940 MGM Mirage Inc. ............................................ 8.50 09/15/10 1,034,000
1,615 Park Place Entertainment Corp. ............................. 7.50 09/01/09 1,744,200
------------
3,184,331
------------
</Table>
See Notes to Financial Statements
5
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
Chemicals: Major Diversified (0.3%)
$ 540 ICI Wilmington Inc. ........................................ 4.375% 12/01/08 $ 533,784
------------
Chemicals: Specialty (0.0%)
50 FMC Corp. .................................................. 10.25 11/01/09 56,000
------------
Containers/Packaging (0.6%)
1,060 Sealed Air Corp. - 144A*.................................... 5.625 07/15/13 1,073,889
------------
Department Stores (2.0%)
2,800 Federated Department Stores, Inc. .......................... 6.625 09/01/08 2,951,010
610 May Department Stores Co., Inc. ............................ 5.95 11/01/08 630,384
------------
3,581,394
------------
Electric Utilities (11.0%)
1,360 Arizona Public Service Co. ................................. 5.80 06/30/14 1,427,161
310 Arizona Public Service Co. ................................. 6.75 11/15/06 321,692
165 CC Funding Trust I.......................................... 6.90 02/16/07 172,436
530 Cincinnati Gas & Electric Co. .............................. 5.70 09/15/12 550,439
1,000 Consolidated Natural Gas Co. ............................... 5.00 12/01/14 979,627
625 Consolidated Natural Gas Co. (Series A)..................... 5.00 03/01/14 614,359
170 Consolidated Natural Gas Co. (Series C)..................... 6.25 11/01/11 182,351
1,775 Consumers Energy Co. ....................................... 4.00 05/15/10 1,699,516
90 Consumers Energy Co. ....................................... 4.80 02/17/09 90,149
195 Consumers Energy Co. ....................................... 5.375 04/15/13 196,691
745 Detroit Edison Co. - 144A*.................................. 4.80 02/15/15 723,811
835 Duquesne Light Co. (Series O)............................... 6.70 04/15/12 919,739
930 Entergy Gulf States, Inc.+.................................. 3.31 12/01/09 934,366
915 Entergy Gulf States, Inc. .................................. 3.60 06/01/08 888,601
1,705 Exelon Corp. ............................................... 6.75 05/01/11 1,857,570
215 Indianapolis Power & Light Co. - 144A*...................... 6.30 07/01/13 226,672
460 Monongahela Power Co. ...................................... 5.00 10/01/06 465,054
330 Nevada Power Co. ........................................... 9.00 08/15/13 372,075
1,390 Ohio Edison Co. ............................................ 5.45 05/01/15 1,393,034
1,185 Pacific Gas & Electric Co. ................................. 6.05 03/01/34 1,220,977
235 Panhandle Eastern Pipe Line Co. (Series B).................. 2.75 03/15/07 227,642
600 PSEG Energy Holdings Inc. .................................. 8.625 02/15/08 636,000
300 Reliant Energy Resources Corp. ............................. 7.75 02/15/11 340,609
380 Reliant Energy, Inc. ....................................... 6.75 12/15/14 356,250
250 Southern California Edison Co. ............................. 5.00 01/15/14 248,212
570 Texas Eastern Transmission, LP.............................. 7.00 07/15/32 656,584
</Table>
See Notes to Financial Statements
6
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
$ 305 Texas-New Mexico Power Co. ................................. 6.25% 01/15/09 $ 317,956
220 TXU Corp. .................................................. 6.375 06/15/06 225,144
915 TXU Energy Co. ............................................. 7.00 03/15/13 1,002,895
460 Wisconsin Electric Power Co. ............................... 3.50 12/01/07 450,862
------------
19,698,474
------------
Electronic Equipment/Instruments (0.7%)
215 Xerox Corp. ................................................ 6.875 08/15/11 220,106
1,080 Xerox Corp. ................................................ 7.125 06/15/10 1,121,850
------------
1,341,956
------------
Environmental Services (1.3%)
2,230 USA Waste Services, Inc. ................................... 7.125 10/01/07 2,366,632
------------
Finance/Rental/Leasing (4.6%)
5,020 Ford Motor Credit Co. ...................................... 7.25 10/25/11 4,960,227
2,430 Ford Motor Credit Co. ...................................... 7.375 10/28/09 2,442,952
840 Nationwide Building Society - 144A* (United Kingdom)........ 4.25 02/01/10 822,928
------------
8,226,107
------------
Financial Conglomerates (4.0%)
675 General Motors Acceptance Corp. ............................ 4.50 07/15/06 658,650
6,000 General Motors Acceptance Corp. ............................ 6.875 09/15/11 5,435,868
1,175 General Motors Acceptance Corp. ............................ 8.00 11/01/31 1,025,806
------------
7,120,324
------------
Food: Major Diversified (1.0%)
1,700 Kraft Foods Inc. ........................................... 5.625 11/01/11 1,766,348
------------
Food: Meat/Fish/Dairy (0.8%)
95 Smithfield Foods Inc. ...................................... 7.75 05/15/13 101,175
1,190 Smithfield Foods Inc. (Series B)............................ 8.00 10/15/09 1,267,350
------------
1,368,525
------------
Forest Products (0.1%)
135 Weyerhaeuser Co. ........................................... 6.00 08/01/06 138,416
------------
Gas Distributors (1.4%)
745 Nisource Finance Corp.+..................................... 3.43 11/23/09 750,084
710 Nisource Finance Corp. ..................................... 7.625 11/15/05 726,419
</Table>
See Notes to Financial Statements
7
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
$ 55 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A* (Qatar)...... 7.628% 09/15/06 $ 56,197
705 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A* (Qatar)...... 8.294 03/15/14 813,382
215 Sempra Energy............................................... 4.621 05/17/07 215,961
------------
2,562,043
------------
Home Furnishings (0.4%)
600 Mohawk Industries, Inc. (Series D).......................... 7.20 04/15/12 669,052
------------
Hospital/Nursing Management (1.4%)
735 Columbia/HCA Healthcare Corp. .............................. 7.19 11/15/15 765,867
85 Columbia/HCA Healthcare Corp. .............................. 9.00 12/15/14 99,212
555 HCA, Inc. .................................................. 6.30 10/01/12 557,246
170 HCA, Inc. .................................................. 7.875 02/01/11 184,774
274 Tenet Healthcare Corp. ..................................... 6.875 11/15/31 220,570
750 Tenet Healthcare Corp. ..................................... 7.375 02/01/13 710,625
------------
2,538,294
------------
Hotels/Resorts/Cruiselines (1.8%)
1,140 Hyatt Equities LLC - 144A*.................................. 6.875 06/15/07 1,177,995
285 Marriott International, Inc. (Series E)..................... 7.00 01/15/08 302,866
145 Starwood Hotels & Resorts Worldwide, Inc. .................. 7.375 05/01/07 150,438
1,455 Starwood Hotels & Resorts Worldwide, Inc. .................. 7.875 05/01/12 1,596,863
------------
3,228,162
------------
Industrial Conglomerates (0.8%)
580 Hutchison Whampoa International Ltd. - 144A* (Virgin
Islands).................................................. 5.45 11/24/10 588,492
730 Hutchison Whampoa International Ltd. - 144A* (Virgin
Islands).................................................. 6.50 02/13/13 771,895
150 Tyco International Group S.A. (Luxembourg).................. 5.80 08/01/06 153,200
------------
1,513,587
------------
Insurance Brokers/Services (2.5%)
990 Farmers Exchange Capital - 144A*............................ 7.05 07/15/28 1,036,772
1,330 Farmers Exchange Capital - 144A*............................ 8.625 05/01/24 1,612,927
800 Marsh & McLennan Companies, Inc. ........................... 5.375 07/15/14 768,862
1,125 Marsh & McLennan Companies, Inc. ........................... 5.875 08/01/33 1,028,300
------------
4,446,861
------------
Integrated Oil (1.1%)
1,700 Amerada Hess Corp. ......................................... 7.875 10/01/29 2,037,980
------------
Major Telecommunications (5.0%)
1,535 AT&T Corp. ................................................. 9.75 11/15/31 1,880,375
1,410 Deutsche Telekom International Finance Corp.
(Netherlands)............................................. 8.75 06/15/30 1,849,528
580 France Telecom S.A. (France)................................ 8.75 03/01/31 765,659
</Table>
See Notes to Financial Statements
8
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
$ 1,635 Sprint Capital Corp. ....................................... 8.375% 03/15/12 $ 1,913,400
485 Sprint Capital Corp. ....................................... 8.75 03/15/32 631,122
1,510 Telecom Italia Capital SpA - 144A* (Luxembourg)............. 4.00 01/15/10 1,445,133
405 Verizon New England Inc. ................................... 6.50 09/15/11 434,166
------------
8,919,383
------------
Managed Health Care (2.8%)
1,905 Aetna, Inc. ................................................ 7.875 03/01/11 2,191,139
445 Anthem, Inc. ............................................... 6.80 08/01/12 494,206
1,560 Health Net, Inc. ........................................... 9.875 04/15/11 1,859,511
515 WellPoint Inc. - 144A*...................................... 3.75 12/14/07 505,753
------------
5,050,609
------------
Media Conglomerates (5.2%)
2,210 AOL Time Warner Inc. ....................................... 6.875 05/01/12 2,416,911
2,305 AOL Time Warner Inc. ....................................... 7.625 04/15/31 2,716,182
370 AOL Time Warner Inc. ....................................... 7.70 05/01/32 440,636
3,000 News America Holdings, Inc. ................................ 7.25 05/18/18 3,375,402
180 News America Holdings, Inc. ................................ 7.30 04/30/28 201,157
140 News America Holdings, Inc. ................................ 7.75 01/20/24 163,101
40 Time Warner, Inc. .......................................... 6.625 05/15/29 42,156
------------
9,355,545
------------
Medical Distributors (0.1%)
205 AmerisourceBergen Corp. .................................... 8.125 09/01/08 220,887
------------
Medical Specialties (0.2%)
360 Fisher Scientific International, Inc. - 144A*............... 6.75 08/15/14 367,200
------------
Metal Fabrications (0.1%)
175 Northwest Pipeline Corp. ................................... 8.125 03/01/10 188,125
------------
Miscellaneous Commercial Services (0.4%)
245 Iron Mountain Inc. ......................................... 6.625 01/01/16 224,788
487 Iron Mountain Inc. ......................................... 7.75 01/15/15 483,347
------------
708,135
------------
</Table>
See Notes to Financial Statements
9
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
Motor Vehicles (2.6%)
$ 1,575 DaimlerChrysler North American Holdings Co. ................ 7.30% 01/15/12 $ 1,719,613
750 DaimlerChrysler North American Holdings Co. ................ 8.00 06/15/10 834,721
830 DaimlerChrysler North American Holdings Co. ................ 8.50 01/18/31 1,004,438
1,355 General Motors Corp. ....................................... 8.375 07/15/33 1,162,322
------------
4,721,094
------------
Multi-Line Insurance (0.4%)
650 Two-Rock Pass Through Trust - 144A* (Bermuda)+.............. 3.71 02/11/10++ 648,674
------------
Oil & Gas Production (2.3%)
245 Kerr-McGee Corp. ........................................... 5.875 09/15/06 249,091
395 Kerr-McGee Corp. ........................................... 6.625 10/15/07 409,425
765 Pemex Project Funding Master Trust.......................... 7.375 12/15/14 820,463
1,200 Pemex Project Funding Master Trust.......................... 8.00 11/15/11 1,330,800
125 Pemex Project Funding Master Trust.......................... 8.625 02/01/22 142,344
120 Plains E & P Corp. ......................................... 7.125 06/15/14 126,000
910 Vintage Petroleum, Inc. .................................... 7.875 05/15/11 969,150
------------
4,047,273
------------
Oil Refining/Marketing (0.2%)
365 Ashland Inc. ............................................... 7.83 08/15/05 370,473
------------
Property - Casualty Insurers (0.8%)
1,400 Mantis Reef Ltd. - 144A* (Australia)........................ 4.692 11/14/08 1,384,901
------------
Pulp & Paper (2.3%)
1,225 Abitibi-Consolidated Inc. (Canada).......................... 8.55 08/01/10 1,249,500
485 Abitibi-Consolidated Inc. (Canada).......................... 8.85 08/01/30 457,112
1,680 Bowater Canada Finance (Canada)............................. 7.95 11/15/11 1,751,400
675 Sappi Papier Holding AG - 144A* (Austria)................... 6.75 06/15/12 733,225
------------
4,191,237
------------
Railroads (2.2%)
615 Burlington North Santa Fe Railway Co. ...................... 4.575 01/15/21 598,668
760 CSX Corp. .................................................. 2.75 02/15/06 751,427
290 CSX Corp. .................................................. 9.00 08/15/06 307,914
585 Norfolk Southern Corp. ..................................... 7.35 05/15/07 620,378
100 Union Pacific Corp. - 144A*................................. 5.214 09/30/14 99,181
820 Union Pacific Corp. ........................................ 6.65 01/15/11 890,757
625 Union Pacific Corp. ........................................ 6.79 11/09/07 661,724
------------
3,930,049
------------
</Table>
See Notes to Financial Statements
10
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
Real Estate Development (0.7%)
$ 938 World Financial Properties - 144A*.......................... 6.91% 09/01/13 $ 1,006,163
210 World Financial Properties - 144A*.......................... 6.95 09/01/13 225,296
------------
1,231,459
------------
Real Estate Investment Trusts (0.8%)
775 Reckson Operating Partnership............................... 5.15 01/15/11 773,386
470 Rouse Co. (The)............................................. 3.625 03/15/09 440,123
210 Rouse Co. (The)............................................. 5.375 11/26/13 201,301
------------
1,414,810
------------
Savings Banks (0.9%)
1,455 Washington Mutual Inc. ..................................... 8.25 04/01/10 1,652,228
------------
Specialty Stores (0.2%)
275 Autonation, Inc. ........................................... 9.00 08/01/08 303,875
------------
Tobacco (1.1%)
625 Altria Group, Inc. ......................................... 7.00 11/04/13 671,734
1,135 Altria Group, Inc. ......................................... 7.75 01/15/27 1,299,070
------------
1,970,804
------------
Wireless Telecommunications (0.8%)
330 AT&T Wireless Services, Inc. ............................... 7.875 03/01/11 375,790
815 AT&T Wireless Services, Inc. ............................... 8.75 03/01/31 1,078,470
------------
1,454,260
------------
Total Corporate Bonds (Cost $130,785,611)...................................... 134,707,898
------------
U.S. Government Obligations (12.8%)
10,775 U.S. Treasury Bonds......................................... 6.125 08/15/29 12,694,728
6,800 U.S. Treasury Note.......................................... 4.25 08/15/13 6,707,833
4,250 U.S. Treasury Strips........................................ 0.00 05/15/25 1,561,000
2,660 U.S. Treasury Strips........................................ 0.00 02/15/25 993,079
2,660 U.S. Treasury Strips........................................ 0.00 02/15/27 903,176
------------
Total U.S. Government Obligations (Cost $23,059,542)........................... 22,859,816
------------
Asset-Backed Securities (4.0%)
Finance/Rental/Leasing
650 CIT Equipment Collateral 2004-EF1 A3........................ 3.50 09/20/08 $ 639,919
675 CNH Equipment Trust 2005-A A3............................... 4.02 04/15/09 672,520
800 Harley-Davidson Motorcycle Trust 2004-2 A2.................. 3.56 02/15/12 789,832
1,300 Harley-Davidson Motorcycle Trust 2005-1 A2.................. 3.76 12/17/12 1,283,237
950 TXU Electric Delivery Transition Bond Company LLC 2004-1
A2........................................................ 4.81 11/17/14 948,502
</Table>
See Notes to Financial Statements
11
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
$ 1,400 USAA Auto Owner Trust 2004-2 A-4............................ 3.58% 02/15/11 $ 1,379,768
825 USAA Auto Owner Trust 2005-1 A3............................. 3.90 07/15/09 819,973
725 Volkswagen Auto Lease Trust 2005-A A3....................... 3.82 05/20/08 722,384
------------
Total Asset-Backed Securities (Cost $7,315,453)................................ 7,256,135
------------
Foreign Government Obligations (3.4%)
910 Russian Federation (Russia)................................. 5.00 03/31/30 939,575
550 United Mexican States (Mexico).............................. 8.30 08/15/31 631,125
3,930 United Mexican States (Mexico).............................. 8.375 01/14/11 4,482,165
------------
Total Foreign Obligations (Cost $5,570,209).................................... 6,052,865
------------
Short-Term Investments (3.2%)
U.S. Government Obligation (a) (0.2%)
300 U.S. Treasury Bill** (Cost $297,557)........................ 2.818 07/14/05 297,557
------------
Repurchase Agreements (3.0%)
4,736 Joint repurchase agreement account (dated 03/31/05; proceeds
$4,736,374) (b) (Cost $4,736,000)......................... 2.845 04/01/05 4,736,000
------------
The Bank of New York (dated 03/31/05; proceeds $674,845 (c)
(Cost $674,795)........................................... 2.688 04/01/05 674,795
------------
Total Short-Term Investments (Cost $5,708,352)................................. 5,708,352
------------
</Table>
<Table>
Total Investments (Cost $172,439,167) (d)(e)....................... 98.6% 176,585,066
Other Assets in Excess of Liabilities.............................. 1.4 2,426,344
----- ------------
Net Assets......................................................... 100.0% $179,011,410
===== ============
</Table>
- ---------------------
<Table>
* Resale is restricted to qualified institutional investors.
** A portion of this security has been physically segregated in
connection with open futures contracts in the amount of
$176,250.
+ Floating rate security; rate shown is the rate in effect at
March 31, 2005.
++ Perpetual note security, callable at 02/11/10.
(a) Purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by federal agency and U.S. Treasury
obligations.
(c) Collateralized by Federal National Mortgage Association 5.5%
due 04/01/34 valued at $688,291.
(d) Securities have been designated as collateral in an amount
equal to $51,739,794 in connection with open futures
contracts.
(e) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $6,222,142 and
the aggregate gross unrealized depreciation is $2,076,243,
resulting in net unrealized appreciation of $4,145,899.
</Table>
See Notes to Financial Statements
12
Morgan Stanley Income Securities Inc.
PORTFOLIO OF INVESTMENTS - MARCH 31, 2005 (UNAUDITED) continued
Futures Contracts Open at March 31, 2005:
<Table>
<Caption>
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
- --------- ---------- --------------------------- --------------- ------------
201 Short U.S. Treasury Notes, 5 Year $(21,525,844) $ 86,828
June 2005
146 Short U.S. Treasury Notes, 2 Year (30,206,031) 96,387
June 2005 --------
Total Unrealized Appreciation............... $183,215
========
</Table>
13
See Notes to Financial Statements
Morgan Stanley Income Securities Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2005 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $172,439,167)....................................... $176,585,066
Receivable for:
Investments sold........................................ 3,051,620
Interest................................................ 2,608,760
Prepaid expenses and other assets........................... 16,129
------------
Total Assets............................................ 182,261,575
------------
Liabilities:
Payable for:
Investments purchased................................... 2,874,324
Variation margin........................................ 129,336
Investment advisory fee................................. 71,298
Capital stock repurchased............................... 65,996
Administration fee...................................... 13,581
Accrued expenses and other payables......................... 95,630
------------
Total Liabilities....................................... 3,250,165
------------
Net Assets.............................................. $179,011,410
============
Composition of Net Assets:
Paid-in-capital............................................. $192,560,119
Net unrealized appreciation................................. 4,329,114
Dividends in excess of net investment income................ (23,038)
Accumulated net realized loss............................... (17,854,785)
------------
Net Assets.............................................. $179,011,410
============
Net Asset Value Per Share,
10,365,483 shares outstanding (15,000,000 shares authorized
of $.01 par value).......................................... $17.27
============
</Table>
See Notes to Financial Statements
14
Morgan Stanley Income Securities Inc.
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended March 31, 2005 (unaudited)
<Table>
Net Investment Income:
Interest Income............................................. $ 5,297,977
-----------
Expenses
Investment advisory fee..................................... 400,495
Transfer agent fees and expenses............................ 71,481
Administration fee.......................................... 61,209
Professional fees........................................... 26,703
Shareholder reports and notices............................. 23,764
Custodian fees.............................................. 12,780
Registration fees........................................... 7,544
Directors' fees and expenses................................ 4,891
Other....................................................... 11,455
-----------
Total Expenses.......................................... 620,322
-----------
Net Investment Income................................... 4,677,655
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................................. 2,953,716
Futures contracts........................................... (199,275)
-----------
Net Realized Gain....................................... 2,754,441
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. (6,580,891)
Futures contracts........................................... 600,955
-----------
Net Depreciation........................................ (5,979,936)
-----------
Net Loss................................................ (3,225,495)
-----------
Net Increase................................................ $ 1,452,160
===========
</Table>
See Notes to Financial Statements
15
Morgan Stanley Income Securities Inc.
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2005 SEPTEMBER 30, 2004
-------------- ------------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income........................ $ 4,677,655 $ 10,204,567
Net realized gain............................ 2,754,441 1,825,476
Net change in unrealized
appreciation/depreciation.................. (5,979,936) (425,803)
------------ ------------
Net Increase............................. 1,452,160 11,604,240
Dividends to shareholders from net investment
income..................................... (5,114,891) (10,365,415)
Decrease from capital stock transactions..... (3,279,151) (5,587,976)
------------ ------------
Net Decrease............................. (6,941,882) (4,349,151)
Net Assets:
Beginning of period.......................... 185,953,292 190,302,443
------------ ------------
End of Period
(Including dividends in excess of net
investment income of $23,038 and accumulated
undistributed investment income of $414,198,
respectively)................................ $179,011,410 $185,953,292
============ ============
</Table>
16
See Notes to Financial Statements
Morgan Stanley Income Securities Inc.
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2005 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Income Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's primary investment objective is to
provide as high a level of current income as is consistent with prudent
investment and, as a secondary objective, capital appreciation. The Fund
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 Directors (2) portfolio
securities for which over-the-counter market quotations are readily available
are valued at the mean between the last reported bid and asked price; (3)
futures are valued at the latest price published by the commodities exchange on
which they trade; (4) when market quotations are not readily available or Morgan
Stanley Investment Advisors Inc. (the "Investment Adviser") 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 Fund's
Directors; and (5) short-term debt securities having a maturity date of more
than sixty days at time of purchase are valued on a mark-to-market basis until
sixty days prior to maturity and thereafter at amortized cost based on their
value on the 61st day. Short-term debt securities having a maturity date of
sixty days or less at the time of purchase are valued at amortized cost.
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.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Adviser, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon
17
Morgan Stanley Income Securities Inc.
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2005 (UNAUDITED) continued
entering into such a contract, the Fund is required to pledge to the broker
cash, U.S. Government securities or other liquid portfolio securities equal to
the minimum initial margin requirements of the applicable futures exchange.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments known as variation margin are recorded by the Fund as
unrealized gains and losses. Upon closing of the contract, the Fund realizes a
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
E. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
F. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Effective November 1, 2004, pursuant to an Investment Advisory Agreement, the
Fund pays an advisory fee, accrued weekly and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business week: 0.42% to the portion of weekly net assets not exceeding $500
million and 0.35% to the portion of weekly net assets exceeding $500 million.
Effective November 1, 2004, pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, accrued weekly and
payable monthly, by applying the annual rate of 0.08% to the Fund's weekly net
assets.
Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement pursuant to which the Fund
paid the Investment Adviser a monthly management fee accrued weekly and payable
monthly, by applying the following annual rate of 0.50% to the Fund's weekly net
assets.
18
Morgan Stanley Income Securities Inc.
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2005 (UNAUDITED) continued
3. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended March 31,
2005 aggregated $44,131,427 and $50,413,742, respectively. Included in the
aforementioned are purchases of U.S. Government securities of $21,676,511.
Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent. At March 31, 2005, the Fund had transfer agent
fees and expenses payable of approximately $1,700.
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.
Aggregate pension costs for the six months ended March 31, 2005 included in
Directors' fees and expenses in the Statement of Operations amounted to $3,744.
At March 31, 2005, the Fund had an accrued pension liability of $61,782 which is
included in accrued expenses in the Statement of Assets and Liabilities. On
December 2, 2003, 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.
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 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.
4. Dividends
On March 29, 2005, the Fund declared the following dividends from net investment
income:
<Table>
<Caption>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------ -------------
April 8, April 22,
$0.08125 2005 2005
$0.08125 May 6, 2005 May 20, 2005
$0.08125 June 3, 2005 June 17, 2005
</Table>
19
Morgan Stanley Income Securities Inc.
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2005 (UNAUDITED) continued
5. Capital Stock
Transactions in capital stock were as follows:
<Table>
<Caption>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
Balance, September 30, 2003................................. 10,922,518 109,223 $201,318,023
Treasury shares purchased and retired (weighted average
discount 8.81%)*.......................................... (352,200) (3,522) (5,584,454)
---------- -------- ------------
Balance, September 30, 2004................................. 10,570,318 $105,701 $195,733,569
Treasury shares purchased and retired (weighted average
discount 8.07%)*.......................................... (204,835) (2,048) (3,277,103)
---------- -------- ------------
Balance, March 31, 2005..................................... 10,365,483 $103,653 $192,456,466
========== ======== ============
</Table>
- ---------------------
* The Directors have voted to retire the shares purchased.
6. Purpose of Risks Relating to Certain Financial Instruments
To hedge against adverse interest rate and market risks, the Fund may enter into
interest rate futures contracts ("future contracts").
These futures contracts involve element of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
7. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for tax purposes are reported as distributions of paid-in-capital.
As of September 30, 2004 the Fund had a net capital loss carryforward of
$20,980,110 of which $1,742,631 will expire on September 30, 2009, $9,696,127
will expire on September 30, 2010
20
Morgan Stanley Income Securities Inc.
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2005 (UNAUDITED) continued
and $9,541,352 will expire on September 30, 2011 to offset future capital gains
to the extent provided by regulations.
As of September 30, 2004, the Fund had temporary book/tax differences primarily
attributable to book amortization of premiums on debt securities and
mark-to-market of open futures contracts.
21
Morgan Stanley Income Securities Inc.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30
MONTHS ENDED ---------------------------------------------------------
MARCH 31, 2005 2004 2003 2002 2001 2000
-------------- --------- --------- --------- --------- ---------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of period...... $17.59 $17.42 $16.13 $17.10 $16.83 $17.51
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income*................ 0.45 0.95 0.97 1.05 1.28 1.33
Net realized and unrealized gain
(loss)................................ (0.31) 0.13 1.21 (0.89) 0.31 (0.72)
------ ------ ------ ------ ------ ------
Total income from investment operations... 0.14 1.08 2.18 0.16 1.59 0.61
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................. (0.49) (0.96) (0.93) (1.12) (1.32) (1.34)
Paid-in capital....................... -- -- -- (0.02) -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions......... (0.49) (0.96) (0.93) (1.14) (1.32) (1.34)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury
shares*.................................. 0.03 0.05 0.04 0.01 -- 0.05
------ ------ ------ ------ ------ ------
Net asset value, end of period............ $17.27 $17.59 $17.42 $16.13 $17.10 $16.83
====== ====== ====== ====== ====== ======
Market value, end of period............... $15.39 $16.04 $15.87 $15.23 $17.00 $16.06
====== ====== ====== ====== ====== ======
Total Return+............................. (1.11)%(1) 7.27% 10.61% (3.89)% 14.07% 7.17%
Ratios to Average Net Assets:
Expenses.................................. 0.67%(2) 0.66% 0.67% 0.66% 0.67% 0.65%
Net investment income..................... 5.07%(2) 5.43% 5.81% 6.28% 7.53% 7.89%
Supplemental Data:
Net assets, end of period, in thousands... $179,011 $185,953 $190,302 $182,461 $194,863 $192,131
Portfolio turnover rate................... 25%(1) 40% 56% 62% 105% 26%
</Table>
- ---------------------------------------------------
<Table>
* The per share amounts were computed using an average number
of shares outstanding during the period.
+ 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.
(1) Not annualized.
(2) Annualized.
</Table>
See Notes to Financial Statements
22
Morgan Stanley Income Securities Inc.
REVISED INVESTMENT POLICY
The Directors approved the following investment policies: The Fund may invest up
to 10% of its assets in non-U.S. dollar denominated investment grade securities.
Investments in non-U.S. dollars are subject to currency risk. While the price of
the Fund's shares is quoted in U.S. dollars, the Fund generally converts U.S.
dollars to a foreign market's local currency to purchase a security in that
market. If the value of the local currency falls relative to the U.S. dollar,
the U.S. dollar value of the foreign security will decrease. This is true even
if the foreign security's local price remains unchanged.
The fund may invest up to 20% of its assets in U.S. dollar denominated high
yield securities. High yield securities are commonly known as "junk bonds" and
are likely to be more sensitive to adverse economic changes or individual
corporate developments than higher rated securities. During an economic downturn
or substantial period of rising interest rates, junk bond issuers, and in
particular, highly leveraged issuers, may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, meet their projected business goals, or obtain additional
financing, all of which may result in increased volatility of market prices of
high yield securities and a corresponding volatility in the Fund's net asset
value.
23
DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Joseph J. McAlinden
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Income Securities
Semiannual Report
March 31, 2005
[MORGAN STANLEY LOGO]
38531RPT-RA-05-003768-Y03/05
Item 1 - Report to Shareholders
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports covering periods ending on or after December 31,
2005.
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(d) Maximum
(c) Total Number (or
Number of Approximate
Shares (or Dollar Value)
Units) of Shares (or
(a) Total Purchased as Units) that May
Number of Part of Publicly Yet Be
Shares (or (b) Average Announced Purchased
Units) Price Paid per Plans or Under the Plans
Period Purchased Share (or Unit) Programs or Programs
- ------ --------- --------------- -------- -----------
October 1, 2004 --
October 31, 2004 24,200.00 16.0237 N/A N/A
November 1, 2004 --
November 30, 2004 26,900.00 16.0761 N/A N/A
December 1, 2004 --
December 31, 2004 33,300.00 15.7387 N/A N/A
January 1, 2005 -
January 31, 2005 44,900.00 16.0030 N/A N/A
February 1, 2005 -
February 29, 2005 37,700.00 16.3914 N/A N/A
March 1, 2005 -
March 31, 2005 37,835.00 15.8146 N/A N/A
Total 204,835.00 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 principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust 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.
2
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(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.
3
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/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
May 19, 2005
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/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
May 19, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
May 19, 2005
4