<Page>
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: 811-02932
Morgan Stanley High Yield 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: August 31, 2003
Date of reporting period: August 31, 2003
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY HIGH
YIELD SECURITIES PERFORMED DURING THE ANNUAL 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.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED. 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 THE MARKET
VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF
THE FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN
LOSE MONEY INVESTING IN THIS FUND.
<Page>
FUND REPORT
For the year ended August 31, 2003
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003
<Table>
<Caption>
LEHMAN
BROTHERS U.S. LIPPER HIGH
CORPORATE CURRENT YIELD
HIGH YIELD BOND FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
19.88% 19.27% 19.14% 20.82% 24.86% 21.79%
</Table>
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE TOTAL RETURN FIGURES SHOWN ASSUME THE REINVESTMENT OF
ALL DISTRIBUTIONS, BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES
CHARGES. IF SALES CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR
STANDARDIZED PERFORMANCE INFORMATION.
MARKET CONDITIONS
Market returns during the period were dominated by the high-yield rally that
lasted from mid-October, 2002, through the end of June. The rally was triggered
by a combination of improving fundamentals, declining default rates and record
inflows into the high-yield market, and by the end of June represented the
second-greatest nine-month gain in the market's history. The rallying market
drew record fund inflows, which in turn propelled prices still higher.
The strongest returns during the course of that period were earned by sectors
and securities that were most heavily out of favor during the preceding years.
Wireless communications, utilities, telecommunications and cable all soared
after performing dismally earlier in 2002. These sectors benefited from a
combination of improved financial results (albeit based on greatly reduced
expectations) and low valuations. In a similar vein, performance patterns across
credit tiers differed dramatically as the lowest-rated credits rose far higher
than their higher-quality peers.
While technical factors remained a potent force throughout the 12-month period,
they were especially influential in the closing months. An easing of fund
inflows in July coincided with a surge in issuance to produce a temporary
setback in the high-yield market's upward march that lasted through the first
two weeks of August, when that pattern reversed.
PERFORMANCE ANALYSIS
While the Fund participated in the market's rally, it underperformed the Lehman
Brothers U.S. Corporate High Yield Index for the 12-month period. Much of the
Fund's relative performance was driven by its lower allocation to CCC and below
rated credits, which caused the Fund to miss out on the strong performance of
this more aggressive segment of the market. We de-emphasized CCC rated credits
out of concern for the ongoing viability of many of the companies carrying that
credit rating. Our bottom-up research also led us to keep the Fund's exposure to
telecommunications and utilities companies below that of the benchmark. While we
selectively added companies in both sectors as attractive opportunities came to
market, the Fund remained underweighted to both groups during the rally.
The Fund's performance was helped by strong security selection in several key
sectors. The wireless communications sector entered the period with generally
low valuations for most of its component companies given the sector's poor
performance for most of 2002. Our analysts identified several companies that
appeared to be undervalued relative to their prospects and that went on to
perform strongly on the basis of improving financial results. The Fund also
enjoyed strong performance from securities in the diversified media and
broadcasting sectors that entered the period with low valuations and went on to
deliver solid performance. Our analysis indicated that selected companies in
economically sensitive sectors such as chemicals and manufacturing were also
undervalued, and we added exposure in these areas. This was a positive factor in
the Fund's performance during the period.
2
<Page>
TOP FIVE INDUSTRIES
<Table>
Cable/Satellite TV 5.3%
Chemicals: Specialty 4.6
Electric Utilities 4.4
Casino/Gaming 3.3
Hotels/Resorts/Cruiselines 3.0
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
A/A+ 2.5%
Baa/BBB+ 1.1
Ba/BB- 22.8
B/B 45.7
Caa/CCC 11.0
NR/NR 6.1
</Table>
DATA AS OF AUGUST 31, 2003. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE AS A
PERCENTAGE OF NET ASSETS. PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE DEEMED AS A RECOMMENDATION TO BUY 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.
INVESTMENT STRATEGY
1. THE FUND'S INVESTMENT TEAM BEGINS BY CONSIDERING CURRENT AND PROJECTED
ECONOMIC TRENDS THAT MAY AFFECT THE HIGH-YIELD MARKETS.
2. THIS IS FOLLOWED BY A THOROUGH EVALUATION OF THE CREDIT QUALITY OF EACH
SECURITY AS WELL AS THE FINANCIAL STRENGTH OF EACH UNDERLYING COMPANY. THIS
MAY INCLUDE DIRECT COMMUNICATION WITH PRINCIPALS OF INDIVIDUAL COMPANIES,
AS WELL AS OTHER HIGH-YIELD SPECIALISTS AND RECOGNIZED RATINGS AGENCIES.
3. LASTLY, THE FUND'S MANAGERS SEEK TO MAINTAIN BROAD DIVERSIFICATION ACROSS A
WIDE RANGE OF COMPANIES, INDUSTRIES, COUPONS AND MATURITIES.
ANNUAL HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS TO INVESTORS WITH THE SAME LAST NAME AND WHO RESIDE AT THE SAME
ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED
PERIOD OF TIME, UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE
COPIES OF THESE DOCUMENTS BY CALLING (800) 350-6414, 8:00 AM TO 8:00 PM, ET.
ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN
SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING
OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT
CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
http://www.sec.gov.
3
<Page>
Performance Summary
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT--CLASS A AND D SHARES
($ IN THOUSANDS)
<Table>
<Caption>
CLASS A CLASS D LEHMAN(1) LIPPER(2)
8/31/1993 $ 9,575 $ 10,000 $ 10,000 $ 10,000
8/31/1994 $ 9,640 $ 10,093 $ 10,329 $ 10,259
8/31/1995 $ 10,768 $ 11,302 $ 11,760 $ 11,443
8/31/1996 $ 11,930 $ 12,553 $ 12,895 $ 12,658
8/31/1997 $ 13,688 $ 14,437 $ 14,852 $ 14,628
8/31/1998 $ 13,743 $ 14,528 $ 15,302 $ 14,824
8/31/1999 $ 13,945 $ 14,771 $ 15,930 $ 15,630
8/31/2000 $ 12,707 $ 13,488 $ 16,110 $ 15,730
8/31/2001 $ 7,999 $ 8,503 $ 16,146 $ 14,546
8/31/2002 $ 6,263 $ 6,679 $ 14,911 $ 13,271
8/31/2003 $ 7,508# $ 8,070# $ 18,618 $ 16,163
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
4
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED AUGUST 31, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
09/26/79 07/28/97 07/28/97 09/26/79
SYMBOL HYLAX HYLBX HYLCX HYLDX
1 YEAR 19.88%(3) 19.27%(3) 19.14%(3) 20.82%(3)
14.78(4) 14.27(4) 18.14(4)
5 YEARS (11.39)(3) (11.80)(3) (11.91)(3) (11.09)(3)
(12.15)(4) (11.98)(4) (11.91)(4)
10 YEARS (2.40)(3) (2.12)(3)
(2.83)(4)
SINCE INCEPTION 4.54(3) (9.74)(3) (9.84)(3) 4.82(3)
4.36(4) (9.74)(4) (9.84)(4)
</Table>
- ----------
Notes on Performance
PRIOR TO JULY 28, 1997, THE FUND OFFERED ONLY ONE CLASS OF SHARES. BECAUSE THE
DISTRIBUTION ARRANGEMENT FOR CLASS A MOST CLOSELY RESEMBLED THE DISTRIBUTION
ARRANGEMENT APPLICABLE PRIOR TO THE IMPLEMENTATION OF MULTIPLE CLASSES (I.E.,
CLASS A IS SOLD WITH A FRONT-END SALES CHARGE), HISTORICAL PERFORMANCE
INFORMATION HAS BEEN RESTATED TO REFLECT THE ACTUAL MAXIMUM SALES CHARGE
APPLICABLE TO CLASS A (I.E., 4.25%) AS COMPARED TO THE 5.50% SALES CHARGE IN
EFFECT PRIOR TO JULY 28, 1997. IN ADDITION, CLASS A SHARES ARE NOW SUBJECT TO AN
ONGOING 12b-1 FEE WHICH IS REFLECTED IN THE RESTATED PERFORMANCE FOR THAT CLASS.
BECAUSE ALL SHARES OF THE FUND HELD PRIOR TO JULY 28, 1997 WERE DESIGNATED CLASS
D SHARES, THE FUND'S HISTORICAL PERFORMANCE HAS BEEN RESTATED TO REFLECT THE
ABSENCE OF ANY SALES CHARGE.
(1) THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD INDEX TRACKS THE PERFORMANCE
OF ALL BELOW INVESTMENT-GRADE SECURITIES WHICH HAVE AT LEAST $100 MILLION
IN OUTSTANDING ISSUANCE, A MATURITY GREATER THAN ONE YEAR, AND ARE ISSUED
IN FIXED-RATE U.S. DOLLAR DENOMINATIONS. INDEXES ARE UNMANAGED AND THEIR
RETURNS DO NOT INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER
PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER HIGH CURRENT YIELD BOND FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER HIGH CURRENT YIELD BOND FUNDS CLASSIFICATION. THE INDEX, WHICH
IS ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS
UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY
30 FUNDS REPRESENTED IN THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT
REFLECTTHE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 4.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
# CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON AUGUST 31, 2003.
5
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
CORPORATE BONDS (88.3%)
ADVERTISING/MARKETING SERVICES (1.5%)
$ 4,000 Advanstar Communications - 144A* 8.639% 08/15/08 $ 3,970,000
3,805 Interep National Radio Sales, Inc. (Series B) 10.00 07/01/08 3,310,350
2,330 RH Donnelley Financial Corp. - 144A* 10.875 12/15/12 2,714,450
------------
9,994,800
------------
AIRLINES (0.3%)
4,640 Air Canada Corp. (Canada) (a)(b) 10.25 03/15/11 2,273,600
------------
ALTERNATIVE POWER GENERATION (0.6%)
2,650 Calpine Corp. 8.50 02/15/11 1,974,250
1,975 Calpine Corp. - 144A* 8.50 07/15/10 1,856,500
------------
3,830,750
------------
APPAREL/FOOTWEAR (0.2%)
1,650 Oxford Industries Inc. - 144A* 8.875 06/01/11 1,716,000
------------
APPAREL/FOOTWEAR RETAIL (1.2%)
970 Gap, Inc. (The) 6.90 09/15/07 1,022,137
1,770 Gap, Inc. (The) 10.55 12/15/08 2,108,512
5,410 Payless Shoesource Inc. - 144A* 8.25 08/01/13 5,315,325
------------
8,445,974
------------
AUTO PARTS: O.E.M. (2.5%)
1,670 ArvinMeritor, Inc. 8.75 03/01/12 1,728,450
2,110 Collins & Aikman Products 10.75 12/31/11 1,856,800
3,255 Intermet Corp. 9.75 06/15/09 3,092,250
4,845 Lear Corp. (Series B) 8.11 05/15/09 5,414,287
4,660 TRW Automotive, Inc. - 144A* 9.375 02/15/13 5,172,600
------------
17,264,387
------------
BROADCAST/MEDIA (1.0%)
11,475 Tri-State Outdoor Media Group, Inc. (b) 11.00 05/15/08 6,942,375
------------
BROADCASTING (1.5%)
4,815 Nextmedia Operating, Inc. 10.75 07/01/11 5,332,612
4,325 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 4,573,687
------------
9,906,299
------------
BUILDING PRODUCTS (0.4%)
1,705 Brand Services Inc. 12.00 10/15/12 1,911,731
775 Nortek, Inc. 9.25 03/15/07 788,562
------------
2,700,293
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
CABLE/SATELLITE TV (5.3%)
$ 1,590 Avalon Cable LLC 11.75++% 12/01/08 $ 1,564,162
2,725 British Sky Broadcasting Group PLC (United Kingdom) 6.875 02/23/09 2,929,375
425 Charter Communications Holdings LLC 8.25 04/01/07 342,125
1,780 Charter Communications Holdings/Charter Capital 10.75 10/01/09 1,424,000
8,465 Charter Communications Holdings/Charter Capital 11.75++ 05/15/11 4,571,100
1,340 Charter Communications Holdings/Charter Capital 13.50++ 01/15/11 763,800
915 CSC Holdings Inc. 9.875 02/15/13 956,175
510 CSC Holdings Inc. 10.50 05/15/16 555,900
5,095 CSC Holdings Inc. (Series B) 8.125 07/15/09 5,260,587
5,780 Echostar DBS Corp. 9.125 01/15/09 6,401,350
875 Echostar DBS Corp. 9.375 02/01/09 930,781
5,186 Knology, Inc. - 144A* (c) 12.00+ 11/30/09 4,512,238
2,285 Lodgenet Entertainment Corp. 9.50 06/15/13 2,359,262
1,040 Pegasus Communications Corp. (Series B) 9.75 12/01/06 842,400
455 Pegagus Communications Corp. (Series B) 12.50 08/01/07 373,100
350 Pegasus Satellite Communications Inc. 12.375 08/01/06 287,000
885 Pegasus Satellite Communications Inc. 13.50++ 03/01/07 570,825
1,780 Renaissance Media Group LLC 10.00 04/15/08 1,780,000
------------
36,424,180
------------
CASINO/GAMING (3.3%)
27,175 Aladdin Gaming Holdings/Capital Corp. LLC (Series B) (a)(d) 13.50 03/01/10 135,875
2,340 Harrah's Operating Co., Inc. 7.875 12/15/05 2,527,200
5,030 International Game Technology 8.375 05/15/09 5,881,041
5,455 Park Place Entertainment 8.875 09/15/08 6,000,500
27,637 Resort At Summerlin LP/Ras Co. (Series B) (a)(b) 13.00 12/15/07 0
4,600 Station Casinos, Inc. 8.375 02/15/08 4,887,500
2,470 Venetian Casino/LV Sands 11.00 06/15/10 2,809,625
------------
22,241,741
------------
CELLULAR TELEPHONE (0.5%)
3,250 Dobson Communications Corp. 10.875 07/01/10 3,526,250
------------
CHEMICALS: MAJOR DIVERSIFIED (2.1%)
4,731 Equistar Chemical 10.125 09/01/08 4,731,000
1,545 Equistar Chemical Funding - 144A* 10.625 05/01/11 1,537,275
1,575 Huntsman Advanced Materials Corp. - 144A* 11.00 07/15/10 1,661,625
7,010 Huntsman ICI Chemicals 10.125 07/01/09 6,624,450
------------
14,554,350
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
CHEMICALS: SPECIALTY (4.6%)
$ 1,875 Acetex Corp. (Canada) 10.875% 08/01/09 $ 2,043,750
2,890 Avecia Group PLC (United Kingdom) 11.00 07/01/09 2,456,500
1,785 FMC Corp. 10.25 11/01/09 2,017,050
290 Huntsman International LLC - 144A* 9.875 03/01/09 298,700
945 ISP Chemco 10.25 07/01/11 1,041,862
5,345 ISP Holdings Inc. (Series B) 10.625 12/15/09 5,572,162
1,840 Lyondell Chemical Co. 9.50 12/15/08 1,775,600
2,050 Lyondell Chemical Co. (Series B) 9.875 05/01/07 2,029,500
4,185 Millennium America, Inc. 9.25 06/15/08 4,331,475
3,990 Rhodia SA - 144A* (France) 8.875 06/01/11 4,009,950
2,715 Rockwood Specialties Corp. - 144A* 10.625 05/15/11 2,830,387
2,705 Westlake Chemical Corp. - 144A* 8.75 07/15/11 2,759,100
------------
31,166,036
------------
COMMERCIAL PRINTING/FORMS (0.0%)
16,000 Premier Graphics Inc. (a)(b) 11.50 12/01/05 0
------------
COMPUTER COMMUNICATIONS (0.7%)
4,540 Avaya, Inc. 11.125 04/01/09 5,084,800
------------
CONSUMER/BUSINESS SERVICES (0.9%)
3,580 Muzak LLC/Muzak Finance Corp. 9.875 03/15/09 3,423,375
2,610 Muzak LLC/Muzak Finance Corp. - 144A* 10.00 02/15/09 2,753,550
------------
6,176,925
------------
CONTAINERS/PACKAGING (2.3%)
2,850 Graphic Packaging International - 144A* 9.50 08/15/13 2,992,500
1,900 Norampac, Inc. - 144A* (Canada) 6.75 06/01/13 1,876,250
7,140 Owens-Brockway Glass Containers Corp. 8.75 11/15/12 7,497,000
300 Owens-Brockway Glass Containers Corp. - 144A* 7.75 05/15/11 300,000
3,100 Pliant Corp. 13.00 06/01/10 2,697,000
------------
15,362,750
------------
DEPARTMENT STORES (0.7%)
495 Penney (J.C.) Co., Inc. 6.875 10/15/15 446,737
565 Penney (J.C.) Co., Inc. 7.60 04/01/07 589,012
255 Penney (J.C.) Co., Inc. 7.95 04/01/17 253,087
1,650 Penney (J.C.) Co., Inc. 8.00 03/01/10 1,711,875
1,870 Penney (J.C.) Co., Inc. 9.00 08/01/12 2,010,250
------------
5,010,961
------------
DRUGSTORE CHAINS (0.3%)
2,000 Rite Aid Corp. 6.875 08/15/13 1,740,000
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (3.7%)
$ 377 AES Corp. (The) 8.875% 02/15/11 $ 350,610
537 AES Corp. (The) 9.375 09/15/10 515,520
3,615 AES Corp. (The) - 144A* 9.00 05/15/15 3,669,225
1,695 Allegheny Energy, Inc. 7.75 08/01/05 1,695,000
460 CMS Energy Corp. 7.50 01/15/09 439,875
3,010 CMS Energy Corp. 8.50 04/15/11 2,946,037
1,040 IPALCO Enterprises, Inc. 8.625 11/14/11 1,092,000
3,160 Monongahela Power Co. 5.00 10/01/06 3,108,650
695 MSW Energy Holdings/Finance - 144A* 8.50 09/01/10 708,900
3,140 Nevada Power Co. - 144A* 9.00 08/15/13 3,273,450
1,810 PG&E Corp. - 144A* 6.875 07/15/08 1,837,150
3,320 PSEG Energy Holdings Inc. 8.625 02/15/08 3,320,000
1,790 Southern California Edison Co. - 144A* 8.00 02/15/07 1,960,050
------------
24,916,467
------------
ELECTRONIC DISTRIBUTORS (0.8%)
4,745 BRL Universal Equipment Corp. 8.875 02/15/08 5,029,700
26,000 CHS Electronics, Inc. (a)(b) 9.875 04/15/05 227,500
------------
5,257,200
------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (2.1%)
5,415 Directv Holdings/Finance - 144A* 8.375 03/15/13 5,915,887
9,315 High Voltage Engineering, Inc. (b) 10.75 08/15/04 1,863,000
2,335 Xerox Capital Europe PLC (United Kingdom) 5.875 05/15/04 2,337,919
4,075 Xerox Corp. 7.125 06/15/10 3,952,750
------------
14,069,556
------------
ENGINEERING & CONSTRUCTION (0.5%)
3,240 ABB Finance Inc. 6.75 06/03/04 3,188,160
2,600 Encompass Services Corp. (a)(b) 10.50 05/01/09 0
------------
3,188,160
------------
ENVIRONMENTAL SERVICES (1.2%)
6,875 Allied Waste North America, Inc. (Series B) 10.00 08/01/09 7,442,188
660 Waste Management, Inc. 7.00 10/15/06 723,525
------------
8,165,713
------------
FOOD DISTRIBUTORS (0.8%)
5,590 Volume Services America, Inc. 11.25 03/01/09 5,562,050
------------
FOOD RETAIL (0.9%)
4,640 Delhaize America, Inc. 8.125 04/15/11 4,837,200
1,241 Kroger Co. - 144A* 8.50 07/15/17 1,349,570
------------
6,186,770
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
FOOD: MEAT/FISH/DAIRY (2.4%)
$ 3,595 Michael Foods Inc. (Series B) 11.75% 04/01/11 $ 4,134,250
1,750 National Beef Packing/NB Finance - 144A* 10.50 08/01/11 1,828,750
4,140 Pilgrim's Pride Corp. 9.625 09/15/11 4,388,400
5,780 Smithfield Foods Inc. 7.625 02/15/08 5,837,800
120 Smithfield Foods Inc. (Series B) 8.00 10/15/09 126,000
------------
16,315,200
------------
FOOD: SPECIALTY/CANDY (0.3%)
2,245 Merisant Co. - 144A* 9.50 07/15/13 2,357,250
------------
FOREST PRODUCTS (1.2%)
1,250 Louisiana Pacific Corp. 8.875 08/15/10 1,434,375
1,375 Louisiana Pacific Corp. 10.875 11/15/08 1,577,813
1,115 Tembec Industries Inc. (Canada) 7.75 03/15/12 1,053,675
3,910 Tembec Industries Inc. (Canada) 8.50 02/01/11 3,851,350
------------
7,917,213
------------
GAS DISTRIBUTORS (1.1%)
2,775 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 2,816,625
4,080 Dynegy Holdings, Inc. 6.875 04/01/11 3,141,600
1,435 Southern Natural Gas 8.875 03/15/10 1,513,925
------------
7,472,150
------------
HOME BUILDING (2.7%)
2,975 KB HOME 7.75 02/01/10 3,034,500
1,525 Meritage Corp. 9.75 06/01/11 1,626,031
4,090 Schuler Homes, Inc. 9.375 07/15/09 4,396,750
1,310 Tech Olympic USA, Inc. 9.00 07/01/10 1,323,100
1,700 Tech Olympic USA, Inc. 9.00 07/01/10 1,717,000
2,630 Tech Olympic USA, Inc. 10.375 07/01/12 2,656,300
580 Tech Olympic USA, Inc. - 144A* 10.375 07/01/12 585,800
3,110 Toll Corp. 8.25 02/01/11 3,296,600
------------
18,636,081
------------
HOME FURNISHINGS (0.4%)
2,795 Tempur-Pedic/Tempur Products - 144A* 10.25 08/15/10 2,850,900
------------
HOSPITAL/NURSING MANAGEMENT (1.9%)
625 HCA, Inc. 7.19 11/15/15 618,918
3,600 HCA, Inc. 7.875 02/01/11 3,837,744
750 HCA, Inc. 8.75 09/01/10 833,210
1,145 HCA, Inc. 7.58 09/15/25 1,093,189
390 Manor Care, Inc. 7.50 06/15/06 415,350
1,060 Manor Care, Inc. 8.00 03/01/08 1,144,800
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
$ 1,050 Manor Care, Inc. - 144A* 6.25% 05/01/13 $ 1,013,250
2,285 Tenet Healthcare Corp. 6.50 06/01/12 2,102,200
1,985 Tenet Healthcare Corp. 7.375 02/01/13 1,950,263
------------
13,008,924
------------
HOTELS/RESORTS/CRUISELINES (3.0%)
2,980 Hilton Hotels Corp. 7.625 12/01/12 3,143,900
2,085 Hilton Hotels Corp. 7.95 04/15/07 2,207,494
3,715 HMH Properties, Inc. (Series B) 7.875 08/01/08 3,733,575
5,725 Horseshoe Gaming Holding Corp. (Series B) 8.625 05/15/09 6,025,563
530 Starwood Hotels & Resorts Worldwide, Inc. 7.375 05/01/07 555,175
4,385 Starwood Hotels & Resorts Worldwide, Inc. 7.875 05/01/12 4,582,325
------------
20,248,032
------------
INDUSTRIAL CONGLOMERATES (0.5%)
3,200 Tyco International Group S.A. (Luxembourg) 6.75 02/15/11 3,256,000
------------
INDUSTRIAL MACHINERY (0.2%)
1,111 Flowserve Corp. 12.25 08/15/10 1,272,095
------------
INDUSTRIAL SPECIALTIES (2.6%)
4,065 Cabot Safety Corp. 12.50 07/15/05 4,115,813
4,535 International Wire Group, Inc. 11.75 06/01/05 2,312,850
4,010 Johnsondiversey, Inc. 9.625 05/15/12 4,240,575
3,371 Tekni-Plex Inc. (Series B) 12.75 06/15/10 3,253,015
3,670 UCAR Finance, Inc. 10.25 02/15/12 3,803,038
------------
17,725,291
------------
INTERNET SOFTWARE/SERVICES (0.2%)
7,131 Exodus Communications, Inc. (a)(b) 11.625 07/15/10 427,865
1,410 Globix Corp. - 144A* 11.00+ 05/01/08 1,092,370
------------
1,520,235
------------
INVESTMENT MANAGERS (0.8%)
4,960 JSG Funding PLC (Ireland) 9.625 10/01/12 5,356,800
------------
MEDIA CONGLOMERATES (0.7%)
1,570 Vivendi Universal SA - 144A* (France) 6.25 07/15/08 1,570,000
3,155 Vivendi Universal SA - 144A* (France) 9.25 04/15/10 3,525,713
------------
5,095,713
------------
MEDICAL DISTRIBUTORS (0.8%)
220 AmerisourceBergen Corp. 7.25 11/15/12 222,200
4,885 AmerisourceBergen Corp. 8.125 09/01/08 5,165,888
------------
5,388,088
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
MEDICAL SPECIALTIES (0.2%)
$ 1,405 Apogent Technologies Inc. - 144A* 6.50% 05/15/13 $ 1,383,925
------------
MEDICAL/NURSING SERVICES (0.9%)
5,140 Fresenius Medical Care Capital Trust 7.875 06/15/11 5,345,600
795 Fresenius Medical Care Capital Trust II (Units)# 7.875 02/01/08 828,788
------------
6,174,388
------------
METAL FABRICATIONS (0.6%)
4,010 Trimas Corp. 9.875 06/15/12 3,929,800
------------
MISCELLANEOUS COMMERCIAL SERVICES (1.0%)
2,971 Iron Mountain Inc. 7.75 01/15/15 3,030,420
3,545 Iron Mountain Inc. 8.625 04/01/13 3,686,800
------------
6,717,220
------------
MISCELLANEOUS MANUFACTURING (1.0%)
3,315 Amsted Industries Inc. - 144A* 10.25 10/15/11 3,397,875
3,135 Jacuzzi Brands Inc. - 144A* 9.625 07/01/10 3,260,400
------------
6,658,275
------------
MOVIES/ENTERTAINMENT (0.8%)
4,850 Alliance Atlantis Communications, Inc. (Canada) 13.00 12/15/09 5,425,938
------------
OIL & GAS PIPELINES (2.9%)
5,125 El Paso Production Holdings - 144A* 7.75 06/01/13 4,971,250
4,305 GulfTerra Energy Partners, L.P. 10.625 12/01/12 4,956,131
1,010 GulfTerra Energy Partners, L.P. - 144A* 8.50 06/01/10 1,070,600
730 Northwest Pipeline Corp. 8.125 03/01/10 759,200
1,315 Transcontinental Gas Pipe Line Corp. (Series B) 8.875 07/15/12 1,416,913
4,410 Williams Companies, Inc. (The) 7.875 09/01/21 4,057,200
2,065 Williams Companies, Inc. (The) 9.25 03/15/04 2,101,138
340 Williams Companies, Inc. (The) - (Series A) 6.75 01/15/06 333,200
------------
19,665,632
------------
OIL & GAS PRODUCTION (2.2%)
4,395 Chesapeake Energy Corp. 8.125 04/01/11 4,592,775
3,800 Hillcorp Energy/Finance - 144A* 10.50 09/01/10 3,899,750
2,155 Magnum Hunter Resources, Inc. 9.60 03/15/12 2,284,300
4,030 Vintage Petroleum, Inc. 7.875 05/15/11 4,070,300
------------
14,847,125
------------
OIL REFINING/MARKETING (1.5%)
1,750 CITGO Petroleum Corp. - 144A* 11.375 02/01/11 1,951,250
1,055 Frontier Escrow Corp. - 144A* 8.00 04/15/13 1,070,825
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
$ 3,000 Husky Oil Ltd. 8.90% 08/15/28 $ 3,435,000
2,165 Tesoro Petroleum Corp. 9.00 07/01/08 2,121,700
1,815 Tesoro Petroleum Corp. 9.625 04/01/12 1,805,925
------------
10,384,700
------------
OILFIELD SERVICES/EQUIPMENT (0.6%)
2,760 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 2,773,800
1,655 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 1,646,725
------------
4,420,525
------------
OTHER METALS/MINERALS (0.0%)
3,750 Murrin Holdings Property Ltd. (Australia) (a)(b) 9.375 08/31/07 375
------------
OTHER TRANSPORTATION (0.6%)
3,700 Laidlaw International Inc. - 144A* 10.75 06/15/11 3,885,000
------------
PUBLISHING: BOOKS/MAGAZINES (1.3%)
1,330 Dex Media West/Finance - 144A* 9.875 08/15/13 1,482,950
980 Houghton Mifflin Co. - 144A* 9.875 02/01/13 1,068,200
1,580 PEI Holdings, Inc. - 144A* 11.00 03/15/10 1,736,025
4,050 PRIMEDIA, Inc. 8.875 05/15/11 4,242,375
------------
8,529,550
------------
PUBLISHING: NEWSPAPERS (0.8%)
4,854 Hollinger Participation Trust - 144A* (Canada) 12.125+ 11/15/10 5,266,445
------------
PULP & PAPER (2.1%)
4,305 Abitibi-Consolidated Inc. (Canada) 6.00 06/20/13 3,888,603
5,600 Georgia-Pacific Corp. - 144A* 8.875 02/01/10 5,894,000
4,350 Norske Skog Canada Ltd. (Canada) 8.625 06/15/11 4,426,125
255 Norske Skog Canada Ltd. - 144A* (Canada) 8.625 06/15/11 259,463
------------
14,468,191
------------
REAL ESTATE DEVELOPMENT (1.6%)
5,535 CB Richard Ellis Services, Inc. 11.25 06/15/11 5,839,425
5,080 LNR Property Corp. - 144A* 7.625 07/15/13 5,130,800
------------
10,970,225
------------
REAL ESTATE INVESTMENT TRUSTS (0.5%)
3,365 Istar Financial Inc. 8.75 08/15/08 3,695,780
------------
SEMICONDUCTORS (0.5%)
2,800 Fairchild Semiconductors Corp. 10.50 02/01/09 3,087,000
------------
SERVICES TO THE HEALTH INDUSTRY (0.6%)
1,560 Medco Health Solutions 7.25 08/15/13 1,614,594
2,190 Omnicare, Inc. (Series B) 8.125 03/15/11 2,321,400
------------
3,935,994
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (1.1%)
$ 3,600 Autonation, Inc. 9.00% 08/01/08 $ 3,969,000
3,285 Sonic Automotive Inc. - 144A* 8.625 08/15/13 3,317,850
------------
7,286,850
------------
SPECIALTY TELECOMMUNICATIONS (1.7%)
715 American Tower Corp. 9.375 02/01/09 723,938
2,565 Primus Telecommunications Group, Inc. 12.75 10/15/09 2,616,300
260 Primus Telecommunications Group, Inc. (Series B) 9.875 05/15/08 245,700
5,570 Qwest Corp. 5.625 11/15/08 5,263,650
3,040 U.S. West Communications Corp. 6.625 09/15/05 3,055,200
12,900 Worldwide Fiber, Inc. (Canada) (a)(b) 12.00 08/01/09 1,290
------------
11,906,078
------------
STEEL (0.9%)
3,065 Oregon Steel Mills, Inc. 10.00 07/15/09 2,436,675
3,360 United States Steel Corp. 9.75 05/15/10 3,410,400
------------
5,847,075
------------
TELECOMMUNICATION EQUIPMENT (0.7%)
4,635 SBA Communications Corp. 12.00 03/01/08 4,820,400
------------
TELECOMMUNICATIONS (0.9%)
4,630 Cincinnati Bell Inc. - 144A* 7.25 07/15/13 4,537,400
1,470 NTL Inc. 19.00+ 01/01/10 1,440,600
28,834 Rhythms Netconnections, Inc. (a)(b) 12.75 04/15/09 0
4,351 Rhythms Netconnections, Inc. (a)(b) 14.00 02/15/10 0
13,538 Rhythms Netconnections, Inc. (Series B) (a)(d) 13.50 05/15/08 0
15,250 Startec Global Communications Corp. (a)(b) 12.00 05/15/08 1,525
------------
5,979,525
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.7%)
5,260 J.B. Poindexter & Co., Inc. 12.50 05/15/07 4,523,600
4,535 Manitowoc Inc. (The) 10.50 08/01/12 4,988,500
2,115 NMHG Holding Co. 10.00 05/15/09 2,263,050
------------
11,775,150
------------
WHOLESALE DISTRIBUTORS (1.3%)
4,485 Burhmann US, Inc. 12.25 11/01/09 4,776,525
2,330 Fisher Scientific International, Inc. 7.125 12/15/05 2,399,900
1,785 Fisher Scientific International, Inc. - 144A* 8.125 05/01/12 1,847,475
------------
9,023,900
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATIONS (1.6%)
$ 87,300 CellNet Data Systems, Inc. (a)(b) 14.00% 10/01/07 $ 0
7,085 Nextel Communications Inc. 9.375 11/15/09 7,651,800
3,310 Nextel Partners Inc. (Class A) 11.00 03/15/10 3,558,250
------------
11,210,050
------------
TOTAL CORPORATE BONDS
(COST $826,890,186) 601,423,475
------------
CONVERTIBLE BONDS (0.9%)
HOTELS/RESORTS/CRUISELINES (0.0%)
1,643 Premier Cruises Ltd. - 144A* (a)(d) 10.00+ 08/15/05 0
------------
SPECIALTY TELECOMMUNICATIONS (0.9%)
6,665 American Tower Corp. 6.25 10/15/09 6,331,750
------------
TOTAL CONVERTIBLE BONDS
(COST $7,672,802) 6,331,750
------------
<Caption>
NUMBER OF
SHARES
---------
COMMON STOCKS (D) (3.1%)
AEROSPACE & DEFENSE (0.1%)
45,973 Orbital Sciences Corp. (c) 403,180
------------
APPAREL/FOOTWEAR RETAIL (0.0%)
5,421,101 County Seat Stores Corp. (c) 0
------------
CASINO/GAMING (0.0%)
212,312 Fitzgerald Gaming Corp.** 0
------------
CELLULAR TELEPHONE (0.5%)
391,333 Dobson Communications Corp. (c) 3,600,264
------------
CONSUMER/BUSINESS SERVICES (0.7%)
292,845 Anacomp, Inc. (Class A) (c) 4,539,097
------------
ENTERTAINMENT & LEISURE (0.1%)
15,308 AMF Bowling Worldwide, Inc. 413,316
------------
FOOD: SPECIALTY/CANDY (0.0%)
13,317 SFAC New Holdings Inc. (c) 0
2,447 SFAC New Holdings Inc. (c) 0
1,069,725 Specialty Foods Acquisition Corp. - 144A* 0
------------
0
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
HOTELS/RESORTS/CRUISELINES (0.0%)
981,277 Premier Holdings Inc. (c) $ 0
------------
INTERNET SOFTWARE/SERVICES (0.4%)
825,693 Globix Corp. (c) 2,559,648
------------
MEDICAL SPECIALTIES (0.0%)
57,963 MEDIQ, Inc. (c) 314,739
------------
MEDICAL/NURSING SERVICES (0.0%)
1,754,896 Raintree Healthcare Corp. (c) 0
------------
MOTOR VEHICLES (0.0%)
913 Northern Holdings Industrial Corp.* (c) 0
------------
RESTAURANTS (0.2%)
111,549 American Restaurant Group Holdings, Inc. (c) 0
64,807 American Restaurant Group Holdings, Inc. - 144A* 0
787,160 Catalina Restaurant Group, Inc. (c) 1,574,320
------------
1,574,320
------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
34,159 Birch Telecom Inc. (c) 0
1,448,200 PFB Telecom NV (Series B) (c) 0
331,128 Viatel Holdings Bermuda Ltd. (c) 0
25,075 XO Communications, Inc. (c) 154,713
------------
154,713
------------
TEXTILES (0.0%)
2,389,334 U.S. Leather, Inc. (c) 0
------------
WIRELESS TELECOMMUNICATIONS (1.1%)
381,789 Arch Wireless, Inc. (Class A) (c) 3,937,340
580,766 Motient Corp. (c) 3,542,673
315,021 Vast Solutions, Inc. (Class B1) (c) 0
315,021 Vast Solutions, Inc. (Class B2) (c) 0
315,021 Vast Solutions, Inc. (Class B3) (c) 0
------------
7,480,013
------------
TOTAL COMMON STOCKS
(COST $384,918,125) 21,039,290
------------
NON-CONVERTIBLE PREFERRED STOCKS (2.2%)
BROADCASTING (0.7%)
523 Paxson Communications Corp.+ 4,658,260
------------
CABLE/SATELLITE TV (0.0%)
384,629 Knology Holdings, Inc. - 144A* (c) 3,846
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
CELLULAR TELEPHONE (0.6%)
4,127 Dobson Communications Corp.+ $ 4,147,635
------------
ELECTRIC UTILITIES (0.7%)
6,773 TNP Enterprises, Inc. (Series D)+ 4,537,910
------------
RESTAURANTS (0.2%)
1,337 Catalina Restaurant Group, Inc. (Units)# 1,203,300
------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
5 Crown Castle International Corp. 5,738
------------
TOTAL NON-CONVERTIBLE PREFERRED STOCKS
(COST $26,896,078) 14,556,689
------------
CONVERTIBLE PREFERRED STOCKS (0.2%)
CELLULAR TELEPHONE (0.2%)
6,080 Dobson Communications Corp. $0.06 - 144A* 1,252,480
------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
53,058 McLeodUSA, Inc. (Series A) $0.44 300,308
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $1,404,618) 1,552,788
------------
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE
--------- ----------
WARRANTS (0.1%)
BROADCASTING (0.0%)
6,410 XM Satellite Radio Holdings, Inc. - 144A* 03/15/10 51,280
------------
CASINO/GAMING (0.0%)
319,500 Aladdin Gaming Enterprises, Inc. - 144A* 03/01/10 0
23,000 Resort At Summerlin LP - 144A* 12/15/07 0
------------
0
------------
ELECTRIC UTILITIES (0.0%)
1,850 TNP Enterprises, Inc. - 144A* 04/01/11 18
------------
MOVIES/ENTERTAINMENT (0.1%)
36,019 AMF Bowling Worldwide, Inc. (Series A) 03/09/09 306,162
35,191 AMF Bowling Worldwide, Inc. (Series B) 03/09/09 158,360
------------
464,522
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------
RESTAURANTS (0.0%)
9,526 American Restaurant Group Holdings, Inc. (c) 12/15/03 $ 0
4,500 American Restaurant Group Holdings, Inc. - 144A* 08/15/08 0
334,250 Catalina Restaurant Group (c) 07/10/12 0
-------------
0
-------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
17,500 Birch Telecom Inc. 06/15/08 0
117,571 McLeodUSA, Inc. 04/16/07 43,501
526,668 Versatel Telecom International NV (Netherlands) 10/08/04 63,628
50,148 XO Communications Inc. (Class A) 01/16/10 0
37,609 XO Communications Inc. (Class B) 01/16/10 0
37,609 XO Communications Inc. (Class C) 01/16/10 0
-------------
107,129
-------------
TELECOMMUNICATIONS (0.0%)
13,250 Startec Global Communications Corp. - 144A* 05/15/08 0
-------------
TOTAL WARRANTS
(COST $2,124,966) 622,949
-------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
--------- ------ --------
SHORT-TERM INVESTMENT (1.7%)
REPURCHASE AGREEMENT
$ 11,794 Joint repurchase agreement account (dated 08/29/03;
proceeds $11,795,376) (e)
(COST $11,794,000) 1.05% 09/02/03 11,794,000
-------------
TOTAL INVESTMENTS
(COST $1,261,700,775) (f) 96.5% 657,320,941
OTHER ASSETS IN EXCESS OF LIABILITIES 3.5 23,802,835
-------- -------------
NET ASSETS 100.0% $ 681,123,776
======== =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
- ----------
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
** RESALE IS RESTRICTED; ACQUIRED (12/22/98) AT A COST BASIS OF $957,527.
+ PAYMENT-IN-KIND SECURITY.
# CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
BOND OR PREFERRED STOCK WITH ATTACHED WARRANTS.
++ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN
AT A FUTURE SPECIFIED DATE.
(a) ISSUER IN BANKRUPTCY.
(b) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT.
(c) ACQUIRED THROUGH EXCHANGE OFFER.
(d) NON-INCOME PRODUCING SECURITIES.
(e) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(f) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $1,258,804,227.
THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $35,168,716 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $636,652,002, RESULTING IN
NET UNREALIZED DEPRECIATION OF $601,483,286.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2003
<Table>
ASSETS:
Investments in securities, at value (cost $1,261,700,775) $ 657,320,941
Receivable for:
Interest 12,501,914
Capital stock sold 7,450,991
Investments sold 6,102,326
Prepaid expenses and other assets 94,976
---------------
TOTAL ASSETS 683,471,148
---------------
LIABILITIES:
Payable for:
Investments purchased 972,923
Capital stock redeemed 428,867
Distribution fee 306,612
Investment management fee 273,149
Accrued expenses and other payables 365,821
---------------
TOTAL LIABILITIES 2,347,372
---------------
NET ASSETS $ 681,123,776
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 3,115,523,795
Net unrealized depreciation (604,379,834)
Accumulated undistributed net investment income 162,662
Accumulated net realized loss (1,830,182,847)
---------------
NET ASSETS $ 681,123,776
===============
Class A Shares:
Net Assets $ 38,071,507
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 22,753,637
NET ASSET VALUE PER SHARE $ 1.67
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 1.74
===============
CLASS B SHARES:
Net Assets $ 422,467,542
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 253,379,711
NET ASSET VALUE PER SHARE $ 1.67
===============
CLASS C SHARES:
Net Assets $ 45,113,502
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 26,997,188
NET ASSET VALUE PER SHARE $ 1.67
===============
CLASS D SHARES:
Net Assets $ 175,471,225
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 104,651,794
NET ASSET VALUE PER SHARE $ 1.68
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2003
<Table>
NET INVESTMENT INCOME:
INCOME
Interest $ 73,781,585
Dividends 4,477,876
---------------
TOTAL INCOME 78,259,461
---------------
EXPENSES
Investment management fee 2,927,240
Distribution fee (Class A shares) 62,328
Distribution fee (Class B shares) 2,915,939
Distribution fee (Class C shares) 333,318
Transfer agent fees and expenses 1,469,816
Taxes 294,555
Professional fees 189,965
Shareholder reports and notices 136,836
Registration fees 72,445
Directors' fees and expenses 26,644
Custodian fees 7,233
Other 28,545
---------------
TOTAL EXPENSES 8,464,864
---------------
NET INVESTMENT INCOME 69,794,597
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss (927,632,141)
Net change in unrealized depreciation 966,925,307
---------------
NET GAIN 39,293,166
---------------
NET INCREASE $ 109,087,763
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2003 AUGUST 31, 2002
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 69,794,597 $ 90,450,964
Net realized loss (927,632,141) (375,136,573)
Net change in unrealized depreciation 966,925,307 111,513,872
----------------- -----------------
NET INCREASE (DECREASE) 109,087,763 (173,171,737)
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares (3,157,603) (3,878,089)
Class B shares (38,559,338) (69,129,555)
Class C shares (3,797,508) (5,647,596)
Class D shares (14,815,212) (16,092,318)
Paid-in-capital
Class A shares -- (425,216)
Class B shares -- (7,579,753)
Class C shares -- (619,234)
Class D shares -- (1,764,452)
----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (60,329,661) (105,136,213)
----------------- -----------------
Net increase (decrease) from capital stock transactions 116,673,515 (94,605,170)
----------------- -----------------
NET INCREASE (DECREASE) 165,431,617 (372,913,120)
NET ASSETS:
Beginning of period 515,692,159 888,605,279
----------------- -----------------
END OF PERIOD
(Including accumulated undistributed net investment income of
$162,662 and dividends in excess of net investment income of
$17,405,768, respectively) $ 681,123,776 $ 515,692,159
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, (the "Act") as a diversified,
open-end management investment company. The Fund's primary investment objective
is to earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund was
incorporated in Maryland on June 14, 1979 and commenced operations on September
26, 1979. On July 28, 1997, the Fund converted to a multiple class share
structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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) fixed income
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price prior to the time of valuation; (3)
an equity portfolio security listed or traded on the New York or American Stock
Exchange or other exchange is valued at its latest sale price prior to the time
when assets are valued; if there were no sales that day, the security is valued
at the mean between the last reported bid and asked price; (4) an equity
portfolio security listed or traded on the Nasdaq is valued at the Nasdaq
Official Closing Price; if there were no sales that day, the security is valued
at the mean between the last reported bid and asked price; (5) all other equity
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.
In cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market; (6) for equity
securities traded on foreign exchanges, the last reported sale price or the
latest bid price may be used if there were no sales on a particular day; (7)
when market quotations are not readily available or Morgan Stanley Investment
Advisors Inc. (the "Investment Manager") 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 (8) 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.
23
<Page>
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.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
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 Manager, 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. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
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 MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of daily net assets not exceeding
$500 million; 0.425% to the portion of daily net assets exceeding $500 million
but not exceeding $750 million; 0.375% to the portion of daily net assets
exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of
daily net assets exceeding $1 billion but not exceeding $2 billion; 0.325% to
the portion of daily net assets exceeding $2 billion but not exceeding $3
billion; and 0.30% to the portion of daily net assets exceeding $3 billion.
24
<Page>
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 0.75% of the average daily
net assets of Class B; and (iii) Class C -- up to 0.85% of the average daily net
assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$60,327,882 at August 31, 2003.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended August 31, 2003, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.20% and 0.85%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 2003,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $23,338, $918,343
and $21,706, respectively and received $277,628 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 2003, aggregated
$386,219,201 and $369,664,877, respectively.
25
<Page>
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At August 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $20,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all 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 years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended August 31, 2003 included
in Directors' fees and expenses in the Statement of Operations amounted to
$13,434. At August 31, 2003, the Fund had an accrued pension liability of
$57,234 which is included in accrued expenses in the Statement of Assets and
Liabilities.
An affiliated company is a company in which the Fund has ownership of at least
5% of the voting securities. Transactions with such companies during the year
ended August 31, 2003 were as follows:
<Table>
<Caption>
ISSUER PURCHASES SALES REALIZED GAIN INCOME VALUE
- ------ --------- ------------ ---------------- -------- ------------
Anacomp Inc. -- Class A -- $ 3,784,829 $ 321,482 -- $ 4,539,097
Catalina Restaurant Group -- -- -- -- 1,574,320
Globix Corp. -- -- -- -- 2,559,648
</Table>
5. FUND ACQUISITIONS -- MORGAN STANLEY HIGH INCOME ADVANTAGE TRUSTS
On December 16, 2002, the Fund acquired all the net assets of Morgan Stanley
High Income Advantage Trust ("HIAT"), Morgan Stanley High Income Advantage Trust
II ("HIAT II") and Morgan Stanley High Income Advantage Trust III ("HIAT III")
based on the respective valuations as of the close of business on December 13,
2002, pursuant to three reorganization plans approved by the shareholders of
HIAT, HIAT II, and HIAT III on December 10, 2002. The acquisition was
accomplished by a tax-free exchange of 16,043,676 Class D shares of the Fund at
a net asset value of $1.53 per share for 29,935,152 shares of HIAT; 21,167,160
Class D shares of the Fund at a net asset value of $1.53 per share for
35,201,907 shares of HIAT II; and 8,521,386 Class D shares of the Fund at a net
asset value of $1.53 per share for 12,782,079 shares of HIAT III. The net assets
of the Fund and HIAT, HIAT II, and HIAT III immediately before the acquisition
were $504,383,912, $24,638,052, $32,445,236, and $12,976,663, respectively,
including unrealized depreciation of $78,827,004, $102,180,638, and $38,615,052
for HIAT, HIAT II, and HIAT III, respectively. Immediately after the
acquisition, the combined net assets of the Fund amounted to $574,443,863.
26
<Page>
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2003 AUGUST 31, 2002
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 39,836,992 $ 64,688,820 10,201,614 $ 20,177,481
Reinvestment of dividends and distributions 1,022,505 1,601,355 1,119,515 2,083,474
Redeemed (33,475,330) (54,476,121) (11,782,958) (23,700,021)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class A 7,384,167 11,814,054 (461,829) (1,439,066)
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 77,421,752 122,904,213 39,306,397 74,811,260
Reinvestment of dividends and distributions 9,626,091 15,003,266 14,993,853 27,953,825
Redeemed (73,660,925) (116,540,305) (101,220,067) (190,557,689)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class B 13,386,918 21,367,174 (46,919,817) (87,792,604)
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 12,695,388 20,107,539 7,565,119 14,251,142
Reinvestment of dividends and distributions 1,158,259 1,809,569 1,601,530 2,981,218
Redeemed (8,770,002) (13,966,548) (8,724,288) (16,164,050)
-------------- -------------- -------------- --------------
Net increase -- Class C 5,083,645 7,950,560 442,361 1,068,310
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 32,279,099 51,598,560 13,842,546 25,568,899
Reinvestment of dividends and distributions 4,850,711 7,624,480 6,026,961 11,290,465
Shares issued in connection with the
acquisition of the Morgan Stanley High Income
Advantage Trusts (See Note 7) 45,732,222 70,059,951 -- --
Redeemed (33,881,962) (53,741,264) (23,300,211) (43,301,174)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class D 48,980,070 75,541,727 (3,430,704) (6,441,810)
-------------- -------------- -------------- --------------
Net increase (decrease) in Fund 74,834,800 $ 116,673,515 (50,369,989) $ (94,605,170)
============== ============== ============== ==============
</Table>
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.
27
<Page>
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2003 AUGUST 31, 2002
---------------- ----------------
Ordinary income $ 60,329,661 $ 95,176,609
Paid-in capital -- 9,959,604
---------------- ---------------
Total distributions $ 60,329,661 $ 105,136,213
================ ===============
</Table>
As of August 31, 2003, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed ordinary income $ 116,367
Undistributed long-term gains --
----------------
Net accumulated earnings 116,367
Capital loss carryforward* (1,072,223,163)
Post-October losses (756,963,011)
Temporary differences (3,846,926)
Net unrealized depreciation (601,483,286)
----------------
Total accumulated losses $ (2,434,400,019)
================
</Table>
*As of August 31, 2003, the Fund had a net capital loss carryforward of
$1,072,223,163 of which $27,363,677 will expire on August 31, 2004, $42,577,150
will expire on August 31, 2005, $15,861,101 will expire on August 31, 2006,
$28,176,968 will expire on August 31, 2007, $73,114,566 will expire on August
31, 2008, $92,557,036 will expire on August 31, 2009, $224,095,251 will expire
on August 31, 2010 and $568,477,414 will expire on August 31, 2011 to offset
future capital gains to the extent provided by regulations.
As part of the Fund's acquisition of the assets of Morgan Stanley High Income
Advantage Trusts I, II and III (the "HIATs"), the Fund obtained a net capital
loss carryforward of $231,274,856 from the HIATs. Utilization of this
carryforward is subject to limitations imposed by the Internal Revenue Code and
Treasury Regulations, reducing the total carryforward available.
As of August 31, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year), interest on bonds in default and book
amortization of discounts on debt securities and permanent book/tax differences
primarily attributable to tax adjustments on debt securities sold by the Fund
and capital loss carryforwards expired or written off by the Fund. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $318,746,954, accumulated undistributed net investment income was
credited $10,205,488 and accumulated net realized loss was credited
$308,541,466.
28
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.55 $ 2.32 $ 4.35 $ 5.51 $ 6.16
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.19 0.26 0.47 0.69 0.72
Net realized and unrealized gain (loss) 0.10 (0.73) (1.99) (1.13) (0.63)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations 0.29 (0.47) (1.52) (0.44) 0.09
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.17) (0.27) (0.51) (0.72) (0.74)
Paid-in-capital - (0.03) - - -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.17) (0.30) (0.51) (0.72) (0.74)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.67 $ 1.55 $ 2.32 $ 4.35 $ 5.51
============ ============ ============ ============ ============
TOTAL RETURN+ 19.88% (21.70)% (37.05)% (8.88)% 1.47%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.06% 0.99% 0.77% 0.70% 0.68%
Net investment income 11.96% 13.76% 15.17% 13.62% 12.42%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 38,072 $ 23,879 $ 36,762 $ 57,273 $ 68,667
Portfolio turnover rate 66% 39% 49% 20% 36%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.55 $ 2.32 $ 4.34 $ 5.50 $ 6.15
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.18 0.25 0.46 0.66 0.69
Net realized and unrealized gain (loss) 0.10 (0.73) (1.99) (1.13) (0.64)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations 0.28 (0.48) (1.53) (0.47) 0.05
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.16) (0.26) (0.49) (0.69) (0.70)
Paid-in-capital - (0.03) - - -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.16) (0.29) (0.49) (0.69) (0.70)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.50
============ ============ ============ ============ ============
TOTAL RETURN+ 19.27% (22.00)% (37.27)% (9.39)% 0.92%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.61% 1.56% 1.37% 1.25% 1.24%
Net investment income 11.41% 13.19% 14.57% 13.07% 11.86%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 422,468 $ 371,399 $ 664,706 $ 1,381,008 $ 1,927,186
Portfolio turnover rate 66% 39% 49% 20% 36%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.55 $ 2.32 $ 4.34 $ 5.51 $ 6.15
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.18 0.25 0.45 0.66 0.68
Net realized and unrealized gain (loss) 0.10 (0.73) (1.98) (1.14) (0.62)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations 0.28 (0.48) (1.53) (0.48) 0.06
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.16) (0.26) (0.49) (0.69) (0.70)
Paid-in-capital - (0.03) - - -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.16) (0.29) (0.49) (0.69) (0.70)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.51
============ ============ ============ ============ ============
TOTAL RETURN+ 19.14% (22.11)% (37.24)% (9.66)% 0.99%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.71% 1.66% 1.47% 1.35% 1.34%
Net investment income 11.31% 13.09% 14.47% 12.97% 11.76%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 45,114 $ 33,978 $ 49,818 $ 86,951 $ 109,142
Portfolio turnover rate 66% 39% 49% 20% 36%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.55 $ 2.32 $ 4.35 $ 5.51 $ 6.16
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.19 0.26 0.48 0.70 0.74
Net realized and unrealized gain (loss) 0.11 (0.73) (1.99) (1.13) (0.64)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations 0.30 (0.47) (1.51) (0.43) 0.10
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.17) (0.27) (0.52) (0.73) (0.75)
Paid-in-capital - (0.03) - - -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.17) (0.30) (0.52) (0.73) (0.75)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.68 $ 1.55 $ 2.32 $ 4.35 $ 5.51
============ ============ ============ ============ ============
TOTAL RETURN+ 20.82% (21.45)% (36.95)% (8.69)% 1.67%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.86% 0.81% 0.62% 0.50% 0.49%
Net investment income 12.16% 13.94% 15.32% 13.82% 12.61%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 175,471 $ 86,436 $ 137,319 $ 246,941 $ 333,714
Portfolio turnover rate 66% 39% 49% 20% 36%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
MORGAN STANLEY HIGH YIELD SECURITIES INC.:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley High Yield Securities Inc. (the "Fund"), including the portfolio of
investments, as of August 31, 2003, and the related statements of operations for
the year then ended and changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five 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.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2003, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. 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 High Yield Securities Inc. as of August 31, 2003, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
OCTOBER 21, 2003
33
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
DIRECTOR AND OFFICER INFORMATION
INDEPENDENT DIRECTORS:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS HELD BY
INDEPENDENT DIRECTOR REGISTRANT TIME SERVED* PAST 5 YEARS** BY DIRECTOR*** DIRECTOR
- ------------------------ ----------- ------------ ------------------------------ -------------- ------------------------------
Michael Bozic (62) Director Since Retired; Director or Trustee 216 Director of Weirton Steel
c/o Mayer, Brown, April 1994 of the Retail Funds and TCW/DW Corporation.
Rowe & Maw LLP Term Trust 2003 (since
Counsel to the April 1994) and the
Independent Directors Institutional Funds (since
1675 Broadway July 2003); formerly Vice
New York, NY 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); formerly
variously Chairman, Chief
Executive Officer, President
and Chief Operating Officer
(1987-1991) of the Sears
Merchandise Group of Sears,
Roebuck & Co.
Edwin J. Garn (70) Director Since Director or Trustee of the 216 Director of Franklin Covey
c/o Summit Ventures LLC January 1993 Retail Funds and TCW/DW Term (time management systems), BMW
1 Utah Center Trust 2003 (since January 1993) Bank of North America, Inc.
201 S. Main Street and the Institutional Funds (industrial loan corporation),
Salt Lake City, UT (since July 2003); member of United Space Alliance (joint
the Utah Regional Advisory venture between Lockheed
Board of Pacific Corp.; Martin and the Boeing Company)
formerly United States Senator and Nuskin Asia Pacific
(R-Utah) (1974-1992) and (multilevel marketing); member
Chairman, Senate Banking of the board of various civic
Committee (1980-1986), Mayor and charitable organizations.
of Salt Lake City, Utah
(1971-1974), Astronaut, Space
Shuttle Discovery (April 12-19,
1985), and Vice Chairman,
Huntsman Corporation (chemical
company).
Wayne E. Hedien (69) Director Since Retired; Director or Trustee 216 Director of The PMI Group Inc.
c/o Mayer, Brown, September of the Retail Funds and TCW/DW (private mortgage insurance);
Rowe & Maw LLP 1997 Term Trust 2003; (Since Trustee and Vice Chairman of
Counsel to the Independent September 1997) and the The Field Museum of Natural
Directors Institutional Funds (since History; director of various
1675 Broadway July 2003); formerly associated other business and charitable
New York, NY with the Allstate Companies organizations.
(1966-1994), most recently as
Chairman of The Allstate
Corporation (March 1993-
December 1994) and Chairman and
Chief Executive Officer of its
wholly-owned subsidiary,
Allstate Insurance Company
(July 1989-December 1994).
</Table>
34
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS HELD BY
INDEPENDENT DIRECTOR REGISTRANT TIME SERVED* PAST 5 YEARS** BY DIRECTOR*** DIRECTOR
- ------------------------ ----------- ------------ ------------------------------ -------------- ------------------------------
Dr.Manuel H. Johnson (54) Director Since Chairman of the Audit 216 Director of NVR, Inc. (home
c/o Johnson Smick July 1991 Committee and Director or construction); Chairman and
International, Inc. Trustee of the Retail Funds Trustee of the Financial
2099 Pennsylvania and TCW/DW Term Trust 2003 Accounting Foundation
Avenue, N.W. (since July 1991) and the (oversight organization of the
Suite 950 Institutional Funds (since Financial Accounting Standards
Washington, D.C. July 2003); Senior Partner, Board); Director of RBS
Johnson Smick International, Greenwich Capital Holdings
Inc., a consulting firm; (financial holding company).
Co-Chairman and a founder of
the Group of Seven Council
(G7C), an international
economic commission; formerly
Vice Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Director Since Deputy Chairman of the Audit 217 Director of Electro Rent
PMB754 July 2003 Committee and Director or Corporation (equipment
23852 Pacific Coast Trustee of the Retail Funds leasing), The Ford Family
Highway and TCW/DW Term Trust 2003 Foundation, and the UCLA
Malibu, CA (since July 2003) and the Foundation.
Institutional Funds (since
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July 2003);
President, Kearns & Associates
LLC (investment consulting);
formerly CFO of the J. Paul
Getty Trust.
Michael E. Nugent (67) Director Since Chairman of the Insurance 216 Director of various business
c/o Triumph Capital, July 1991 Committee and Director or organizations.
L.P. Trustee of the Retail Funds
445 Park Avenue and TCW/DW Term Trust 2003
New York, NY (since July 1991) and the
Institutional Funds (since
July 2001); General Partner of
Triumph Capital, L.P., a
private investment
partnership; formerly Vice
President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Fergus Reid (71) Director Since Chairman of the Governance 217 Trustee and Director of
85 Charles Colman Blvd. July 2003 Committee and Director or certain investment companies
Pawling, NY Trustee of the Retail Funds in the JPMorgan Funds
and TCW/DW Term Trust 2003 complex managed by JP Morgan
(since July 2003) and the Investment Management Inc.
Institutional Funds (since
June 1992); Chairman of
Lumelite Plastics Corporation.
</Table>
35
<Page>
INTERESTED DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS HELD BY
INDEPENDENT DIRECTOR REGISTRANT TIME SERVED* PAST 5 YEARS** BY DIRECTOR*** DIRECTOR
- ------------------------ ----------- ------------ ------------------------------ -------------- -------------------------------
Charles A. Chairman of Since Chairman and Director or 216 None
Fiumefreddo (70) the Board July 1991 Trustee of the Retail Funds
c/o Morgan Stanley Trust and and TCW/DW Term Trust 2003
Harborside Financial Director (since July 1991) and the
Center, Institutional Funds (since
Plaza Two, July 2003); formerly Chief
Jersey City, NJ Executive Officer of the
Retail Funds and the TCW/DW
Term Trust 2003 (until
September 2002).
James F. Higgins (55) Director Since Director or Trustee of the 216 Director of AXA Financial, Inc.
c/o Morgan Stanley Trust June 2000 Retail Funds and TCW/DW Term and The Equitable Life
Harborside Financial Trust 2003 (since June 2000) Assurance Society of the
Center, and the Institutional Funds United States (financial
Plaza Two, (since July 2003); Senior services).
Jersey City, NJ Advisor of Morgan Stanley
(since August 2000); Director
of the Distributor and Dean
Witter Realty Inc.; previously
President and Chief Operating
Officer of the Private Client
Group of Morgan Stanley
(May 1999-August 2000), and
President and Chief Operating
Officer of Individual
Securities of Morgan Stanley
(February 1997-May 1999).
Philip J. Purcell (59) Director Since Director or Trustee of the 216 Director of American Airlines,
1585 Broadway April 1994 Retail Funds and TCW/DW Term Inc. and its parent company,
New York, NY Trust 2003 (since April 1994) AMR Corporation.
and the Institutional Funds
(since July 2003); Chairman of
the Board of Directors and
Chief Executive Officer of
Morgan Stanley and Morgan
Stanley DW Inc.; Director of
the Distributor; Chairman of
the Board of Directors and
Chief Executive Officer of
Novus Credit Services Inc.;
Director and/or officer of
various Morgan Stanley
subsidiaries.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE DIRECTOR BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (THE
"RETAIL FUNDS").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND
MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST
DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS
AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC. AND MORGAN STANLEY INVESTMENTS LP).
36
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S)DURING PAST 5 YEARS**
- --------------------------- ---------------- -------------- ------------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief
New York, NY Executive Officer of the Investment Manager and
Morgan Stanley Services; Chairman, Chief Executive Officer
and Director of the Distributor; Chairman and Director of
the Transfer Agent; Director of various Morgan Stanley
subsidiaries; President Morgan Stanley Investments LP (since
February 2003); President of the Institutional Funds (since
July 2003) and President of the Retail Funds and TCW/DW Term
Trust 2003 (since May 1999); Trustee (since July 2003) and
President (since December 2002) of the Van Kampen Closed-End
Funds; Trustee (since May 1999) and President (since
October 2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (64) Executive Vice Since Chief Global Operations Officer and Managing Director of
1221 Avenue of the Americas President and April 2003 Morgan Stanley Investment Management Inc.; Managing DIrector
New York, NY Principal of Morgan Stanley & Co. Incorporated; Managing DIrector of
Executive Morgan Stanley; Managing Director, Chief Administrative
Officer Officer and Director of the Investment Manager and Morgan
Stanley Services; Chief Executive Officer and Director of
the Transfer Agent; Executive Vice President and Principal
Executive Officer of the Institutional Funds (since
July 2003); and the TCW/DW Term Trust 2003 (since April 2003);
previously President of the Institutional Funds
(March 2001-July 2003) and Director of the Institutional Funds
(March 2001-July 2003).
Barry Fink (48) Vice President Since General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the Americas and General February 1997 December 2000) of Morgan Stanley Investment Management;
New York, NY Counsel Managing Director (since December 2000), Secretary (since
February 1997) and Director (since July 1998) of the
Investment Manager and Morgan Stanley Services; Assistant
Secretary of Morgan Stanley DW; Chief Legal Officer of
Morgan Stanley Investments LP (since July 2002); Vice
President of the Institutional Funds (since July 2003); Vice
President and Secretary of the Distributor; previously
Secretary of the Retail Funds (February 1997-July 2003);
previously Vice President and Assistant General Counsel of
the Investment Manager and Morgan Stanley Services
(February 1997-December 2001).
Joseph J. McAlinden (60) Vice President Since Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas July 1995 Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; Director of the
Transfer Agent, Chief Investment Officer of the Van Kampen
Funds; Vice President of the Institutional Funds (since
July 2003) and the Retail Funds (since July 1995).
Stefanie V. Chang (36) Vice President Since Executive Director of Morgan Stanley & Co. and Morgan Stanley
1221 Avenue of the Americas July 2003 Investment Management Inc. and Vice President of the
New York, NY Institutional Funds (since December 1997) and the Retail
Funds (since July 2003); formerly practiced law with the
New York law firm of Rogers & Wells (now Clifford Chance LLP).
</Table>
37
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S)DURING PAST 5 YEARS**
- --------------------------- ---------------- -------------- ------------------------------------------------------------
Francis Smith (38) Treasurer and Treasurer Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust Chief Financial since July Stanley Services (since December 2001); previously Vice
Harborside Financial Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003);
Center, Financial previously Vice President of the Investment Manager and
Plaza Two, Officer since Morgan Stanley Services (August 2000-November 2001) and Senior
Jersey City, NJ September 2002 Manager at PricewaterhouseCoopers LLP (January 1998-August 2000).
Thomas F. Caloia (57) Vice President Since Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust July 2003 Treasurer of the Investment Manager, the Distributor and
Harborside Financial Morgan Stanley Services; previously Treasurer of the Retail
Center, Funds (April 1989-July 2003); formerly First Vice President
Plaza Two, of the Investment Manager, the Distributor and Morgan
Jersey City, NJ Stanley Services.
Mary E. Mullin (36) Secretary Since Vice President of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas July 2003 Morgan Stanley Investment Management Inc.; Secretary of the
New York, NY Institutional Funds (since June 1999) and the Retail Funds
(since July 2003); formerly practiced law with the New York
law firms of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH
OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED.
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER
FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE
OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
38
<Page>
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
Philip J. Purcell
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT and GENERAL COUNSEL
Joseph J. McAlinden
VICE PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Francis 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 AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its directors. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
37915RPT-12455J03-ANP-10/03
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
HIGH YIELD SECURITIES
ANNUAL REPORT
AUGUST 31, 2003
[MORGAN STANLEY LOGO]
<Page>
Item 2. Code of Ethics.
(a) The 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 Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto
(d) The Fund has granted a waiver or an implicit waiver from a provision of
its Code of Ethics.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Directors has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. 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 Directors in the absence of such designation or
identification.
<Page>
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the 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.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(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.
<Page>
Item 10 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.
Items 4 - 8 are not applicable
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 High Yield Securities Inc.
Ronald E. Robison
Principal Executive Officer
October 20, 2003
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.
Ronald E. Robison
Principal Executive Officer
October 20, 2003
Francis Smith
Principal Financial Officer
October 20, 2003