<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, 2004
Date of reporting period: February 29, 2004
Item 1 - Report to Shareholders
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Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley High
Yield Securities 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.
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 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.
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Fund Report
For the six-month period ended February 29, 2004
TOTAL RETURN FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004
<Table>
<Caption>
LEHMAN
U.S. LIPPER HIGH
CORPORATE CURRENT YIELD
HIGH YIELD BOND FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
10.78% 9.91% 10.46% 10.87% 10.60% 10.09%
</Table>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR MORE UP-TO-DATE INFORMATION,
INCLUDING MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK
WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURN FIGURES ASSUME THE REINVESTMENT OF
ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES
CHARGES. SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR
STANDARDIZED PERFORMANCE INFORMATION.
MARKET CONDITIONS
The U.S. high-yield securities market closed the fourth quarter of 2003 with
very strong fundamentals amid continuing economic recovery, strong earnings
announcements, low default levels and high inflows into the asset class.
Throughout this early part of the six-month period under review new issuance of
debt was high, but investors' appetite for risk more than compensated for the
increased supply of high-yield securities. In late January, however, investors
became more wary on the news of a few high-profile bond issuance deals falling
through. Investors then also became concerned with the increasing amount of
relatively low-quality issuance and withdrew assets for fear that default levels
would rise in the long term. While the fundamentals remained strong for the
high-yield market, the large outflow of assets and the heavy volume in new
issues caused the market's performance to be flat in the last weeks of the
period.
Sector performance for the six-month period varied. During the first five months
lower-quality sectors like utilities and telecommunications performed most
strongly, on investors' increased appetite for risk. In February, however, the
higher-quality consumer staples and metals sectors were the lead performers as
investors became nervous about the high-yield market. Consumer staples companies
were buoyed by the restructuring of Revlon, while metals companies enjoyed the
rise in demand for basic materials on the heels of increased manufacturing
activity.
PERFORMANCE ANALYSIS
Morgan Stanley High Yield Securities performed in line with both the Lehman U.S.
Corporate High Yield Index and the Lipper High Current Yield Bond Funds Index
for the six months ended February 29, 2004. The Fund performed well through the
end of 2003, but fell behind its benchmark in January and February when several
of its holdings lagged. One wireless company, Dobson Communications, emerged as
one of our biggest disappointments after a poor earnings announcement, which
caused us to trim the Fund's position. The Fund was also hurt by its exposure to
the satellite cable provider Pegasus Communications after a bond issuance deal
fell through. Additionally, the Fund's underweighted exposure relative to the
Lehman High Yield Index in financials and utilities hurt, as these sectors
rallied.
These negative results were partially offset by positive performance elsewhere
in the portfolio. The Fund enjoyed strong results from its security selection in
utilities, led by TNP Enterprises, which emerged from a distressed period in a
turnaround story. The Fund was also helped by its holdings in Charter
Communications, a cable company
2
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that suffered in the early part of the period but rallied in the latter half on
improving fundamentals.
LARGEST INDUSTRIES
<Table>
Cable/Satellite TV 6.4%
Electric Utilties 5.4
Chemicals: Specialty 5.0
Wireless Telecommunications 4.6
Building Products 3.2
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
A/A+ 1.7%
Baa/BBB+ 0.2
Ba/BB- 19.7
B/B 52.0
Caa/CCC 21.7
NR/NA 4.7
</Table>
DATA AS OF FEBRUARY 29, 2004. SUBJECT TO CHANGE DAILY. LARGEST INDUSTRIES IS A
PERCENTAGE OF NET ASSETS AND LONG-TERM CREDIT ANALYSIS IS A PERCENTAGE OF TOTAL
LONG-TERM INVESTMENTS. 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.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80% OF ITS ASSETS IN FIXED-INCOME
SECURITIES (INCLUDING ZERO COUPON SECURITIES) RATED BELOW Baa BY MOODY'S
INVESTORS SERVICE ("MOODY'S") OR BELOW BBB BY STANDARD & POOR'S CORPORATION
("S&P") OR IN NON-RATED SECURITIES CONSIDERED BY THE FUND'S INVESTMENT MANAGER
TO BE APPROPRIATE INVESTMENTS FOR THE FUND. SUCH SECURITIES MAY ALSO INCLUDE
"RULE 144A" SECURITIES, WHICH ARE SUBJECT TO RESALE RESTRICTIONS. SHAREHOLDERS
OF THE FUND WILL RECEIVE AT LEAST 60 DAYS PRIOR NOTICE OF ANY CHANGES IN THIS
POLICY. SECURITIES RATED BELOW Baa OR BBB ARE COMMONLY KNOWN AS "JUNK BONDS."
THERE ARE NO MINIMUM QUALITY RATINGS FOR INVESTMENTS, AND AS SUCH THE FUND MAY
INVEST IN SECURITIES WHICH NO LONGER MAKE PAYMENTS OF INTEREST OR PRINCIPAL.
IN DECIDING WHICH SECURITIES TO BUY, HOLD OR SELL, THE INVESTMENT MANAGER
CONSIDERS AN ISSUER'S CREDITWORTHINESS, ECONOMIC DEVELOPMENTS, INTEREST RATE
TRENDS AND OTHER FACTORS IT DEEMS RELEVANT. IN EVALUATING AN ISSUER'S
CREDITWORTHINESS, THE INVESTMENT MANAGER RELIES PRINCIPALLY ON ITS OWN ANALYSIS.
A SECURITY'S CREDIT RATING IS SIMPLY ONE FACTOR THAT MAY BE CONSIDERED BY THE
INVESTMENT MANAGER IN THIS REGARD.
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 WEB SITE AT
http://www.sec.gov.
3
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Performance Summary
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 29, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 09/26/79) (SINCE 07/28/97) (SINCE 07/28/97) (SINCE 09/26/79)
SYMBOL HYLAX HYLBX HYLCX HYLDX
1 YEAR 23.42%(3) 22.89%(3) 22.65%(3) 24.34%(3)
18.18(4) 17.89(4) 21.65(4) --
5 YEARS (9.57)(3) (10.08)(3) (10.09)(3) (9.27)(3)
(10.35)(4) (10.27)(4) (10.09)(4) --
10 YEARS (2.48)(3) -- -- (2.20)(3)
(2.90)(4) -- -- --
SINCE INCEPTION 4.89(3) (7.72)(3) (7.75)(3) 5.16(3)
4.70(4) (7.72)(4) (7.75)(4) --
</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 TABLE DOES 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.
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 RESEMBELED 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 REFLECT
THE 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.
4
<Page>
Morgan Stanley High Yield Securities Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
Corporate Bonds (92.3%)
ADVERTISING/MARKETING SERVICES (1.4%)
$ 3,092 Advanstar Communications, Inc. 8.62+% 08/15/08 $ 3,293,252
2,225 Advanstar Communications, Inc. 10.75 08/15/10 2,441,937
495 Advanstar Communications, Inc. (Series B) 12.00 02/15/11 530,887
3,740 Interep National Radio Sales, Inc. (Series B) 10.00 07/01/08 3,347,300
------------
9,613,376
------------
AEROSPACE & DEFENSE (0.3%)
2,010 Dunlop Standard Aerospace Holdings PLC - 144A* 11.875 05/15/09 2,160,750
------------
ALTERNATIVE POWER GENERATION (1.7%)
3,025 Calpine Canada Energy Finance Corp. 8.50 05/01/08 2,351,937
2,845 Calpine Corp. - 144A* 8.50 07/15/10 2,631,625
6,750 Ormat Funding Corp. - 144A* 8.25 12/30/20 6,783,750
------------
11,767,312
------------
APPAREL/FOOTWEAR (0.3%)
1,650 Oxford Industries Inc. - 144A* 8.875 06/01/11 1,765,500
------------
APPAREL/FOOTWEAR RETAIL (0.8%)
5,410 Payless Shoesource, Inc. 8.25 08/01/13 5,382,950
------------
AUTO PARTS: O.E.M. (1.3%)
3,505 Intermet Corp. 9.75 06/15/09 3,312,225
4,660 TRW Automotive, Inc. 9.375 02/15/13 5,335,700
------------
8,647,925
------------
AUTOMOTIVE AFTERMARKET (0.4%)
2,710 Tenneco Automotive Inc. (Series B) 11.625 10/15/09 2,940,350
------------
BROADCASTING (1.0%)
2,245 Granite Broadcasting Corp. - 144A* 9.75 12/01/10 2,216,937
4,325 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 4,741,281
------------
6,958,218
------------
BUILDING PRODUCTS (3.2%)
7,340 Associated Materials Inc. - 144A* 11.25++ 03/01/14 4,250,374
1,705 Brand Services Inc. 12.00 10/15/12 2,003,375
865 Interface Inc. 7.30 04/01/08 869,325
1,075 Interface Inc. 10.375 02/01/10 1,209,375
3,275 Interface Inc. - 144A* 9.50 02/01/14 3,258,625
8,175 Nortek Holdings, Inc. - 144A* 10.00++ 05/15/11 6,069,937
2,250 Ply Gem Industries, Inc. - 144A* 9.00 02/15/12 2,328,750
1,840 WII Components Inc. - 144A* 10.00 02/15/12 1,886,000
------------
21,875,761
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
5
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
CABLE/SATELLITE TV (6.4%)
$ 1,002 Avalon Cable LLC 11.875% 12/01/08 $ 1,063,408
1,780 Charter Communications Holdings LLC 10.75 10/01/09 1,575,300
8,465 Charter Communications Holdings/Charter Capital 11.75++ 05/15/11 5,586,900
1,340 Charter Communications Holdings/Charter Capital 13.50++ 01/15/11 971,500
5,095 CSC Holdings Inc (Series B) 8.125 07/15/09 5,579,025
510 CSC Holdings Inc. 10.50 05/15/16 587,775
4,490 Directv Holdings/Finance 8.375 03/15/13 5,129,825
3,787 Echostar DBS Corp. 9.125 01/15/09 4,307,712
1,545 Echostar DBS Corp. - 144A* 6.375 10/01/11 1,639,631
4,442 Knology, Inc. - 144A* (c) 12.00+ 11/30/09 4,485,977
2,285 Lodgenet Entertainment Corp. 9.50 06/15/13 2,564,912
1,000 Pegagus Communications Corp. (Series B) 12.50 08/01/07 915,000
785 Pegasus Communications Corp. (Series B) 9.75 12/01/06 718,275
350 Pegasus Satellite Communications Inc. 12.375 08/01/06 327,250
1,140 Pegasus Satellite Communications Inc. 13.50++ 03/01/07 946,200
1,780 Renaissance Media Group LLC 10.00 04/15/08 1,851,200
7,980 Telenet Group Holding NV (Belgium) - 144A* 11.50++ 06/15/14 4,987,500
------------
43,237,390
------------
CASINO/GAMING (2.4%)
27,175 Aladdin Gaming Holdings/Capital Corp. LLC
(Series B) (b) 13.50 03/01/10 271,750
3,550 MGM MIRAGE 6.00 10/01/09 3,731,937
3,550 Park Place Entertainment 8.875 09/15/08 4,029,250
27,634 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 4,962,250
2,470 Venetian Casino/LV Sands 11.00 06/15/10 2,852,850
------------
15,848,037
------------
CHEMICALS: MAJOR DIVERSIFIED (2.0%)
4,230 Equistar Chemical Funding 10.125 09/01/08 4,589,550
1,545 Equistar Chemical Funding 10.625 05/01/11 1,684,050
1,575 Huntsman Advanced Materials Corp. - 144A* 11.00 07/15/10 1,779,750
5,480 Huntsman ICI Chemicals 10.125 07/01/09 5,617,000
------------
13,670,350
------------
CHEMICALS: SPECIALTY (5.0%)
3,380 Avecia Group PLC (United Kingdom) 11.00 07/01/09 2,906,800
1,785 FMC Corp. 10.25 11/01/09 2,106,300
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 945 ISP Chemco 10.25% 07/01/11 $ 1,072,575
5,345 ISP Holdings Inc. (Series B) 10.625 12/15/09 5,932,950
1,135 Koppers Inc. - 144A* 9.875 10/15/13 1,265,525
775 Millennium America, Inc. 7.00 11/15/06 786,625
4,185 Millennium America, Inc. 9.25 06/15/08 4,561,650
4,305 Nalco Co. - 144A* 7.75 11/15/11 4,498,725
3,605 Nalco Financial Holdings Inc. - 144A* 9.00++ 02/01/14 2,199,050
3,990 Rhodia SA (France) - 144A* 8.875 06/01/11 3,591,000
2,715 Rockwood Specialties, Inc. 10.625 05/15/11 3,027,225
1,700 Westlake Chemical Corp. 8.75 07/15/11 1,861,500
------------
33,809,925
------------
COMMERCIAL PRINTING/FORMS (0.0%)
16,000 Premier Graphics Inc. (a) (b) 11.50 12/01/05 0
------------
COMPUTER COMMUNICATIONS (0.9%)
5,110 Avaya, Inc. 11.125 04/01/09 6,042,575
------------
CONSUMER/BUSINESS SERVICES (0.8%)
3,245 Muzak LLC/Muzak Finance Corp. 9.875 03/15/09 3,245,000
2,245 Muzak LLC/Muzak Finance Corp. 10.00 02/15/09 2,374,087
------------
5,619,087
------------
CONTAINERS/PACKAGING (2.7%)
2,850 Graphic Packaging International Corp. 9.50 08/15/13 3,220,500
1,900 Norampac Inc. (Canada) 6.75 06/01/13 2,014,000
300 Owens-Brockway Glass Containers Corp. 7.75 05/15/11 319,500
7,140 Owens-Brockway Glass Containers Corp. 8.75 11/15/12 7,871,850
1,000 Owens-Illinois Inc. 7.35 05/15/08 1,007,500
3,020 Pliant Corp. (Issued 04/10/02) 13.00 06/01/10 2,582,100
1,530 Pliant Corp. (Issued 08/29/00) 13.00 06/01/10 1,308,150
------------
18,323,600
------------
DRUGSTORE CHAINS (0.3%)
2,000 Rite Aid Corp. 6.875 08/15/13 1,910,000
------------
ELECTRIC UTILITIES (4.5%)
1,330 AES Corp. (The) 7.75 03/01/14 1,323,350
377 AES Corp. (The) 8.875 02/15/11 403,390
537 AES Corp. (The) 9.375 09/15/10 589,357
3,615 AES Corp. (The) - 144A* 9.00 05/15/15 4,012,650
2,405 Allegheny Energy, Inc. 7.75 08/01/05 2,501,200
460 CMS Energy Corp. 7.50 01/15/09 476,675
3,010 CMS Energy Corp. 8.50 04/15/11 3,243,275
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 1,040 IPALCO Enterprises, Inc. 8.625% 11/14/11 $ 1,180,400
3,160 Monongahela Power Co. 5.00 10/01/06 3,227,150
695 MSW Energy Holdings/Finance 8.50 09/01/10 761,025
3,235 MSW Energy Holdings/Finance - 144A* 7.375 09/01/10 3,380,575
3,140 Nevada Power Co. - 144A* 9.00 08/15/13 3,501,100
1,810 PG&E Corp. - 144A* 6.875 07/15/08 1,954,800
3,320 PSEG Energy Holdings Inc. 8.625 02/15/08 3,593,900
------------
30,148,847
------------
ELECTRICAL PRODUCTS (0.4%)
2,525 Rayovac Corp. 8.50 10/01/13 2,708,063
------------
ELECTRONIC DISTRIBUTORS (0.8%)
5,225 BRL Universal Equipment Corp. 8.875 02/15/08 5,616,875
------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (1.4%)
9,315 High Voltage Engineering, Inc. (b) 10.75 08/15/04 2,375,325
2,335 Xerox Capital Europe PLC (United Kingdom) 5.875 05/15/04 2,352,513
4,475 Xerox Corp. 7.125 06/15/10 4,765,875
------------
9,493,713
------------
ENGINEERING & CONSTRUCTION (0.5%)
3,240 ABB Finance Inc. 6.75 06/03/04 3,270,877
2,600 Encompass Services Corp. (a) (b) 10.50 05/01/09 0
------------
3,270,877
------------
ENVIRONMENTAL SERVICES (0.8%)
1,515 Allied Waste North America, Inc. - 144A* 6.50 11/15/10 1,545,300
3,355 Allied Waste North America, Inc. (Series B) 10.00 08/01/09 3,619,206
------------
5,164,506
------------
FINANCE/RENTAL/LEASING (1.0%)
3,105 United Rentals NA Inc. - 144A* 6.50 02/15/12 3,105,000
3,410 United Rentals NA Inc. - 144A* 7.75 11/15/13 3,401,475
------------
6,506,475
------------
FOOD RETAIL (1.0%)
4,540 Delhaize America, Inc. 8.125 04/15/11 5,255,050
1,201 Kroger Co. - 144A* 8.50 07/15/17 1,370,430
------------
6,625,480
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
FOOD: MEAT/FISH/DAIRY (2.6%)
$ 2,735 Michael Foods, Inc. (Series B) - 144A* 8.00% 11/15/13 $ 2,851,238
5,870 Pilgrim's Pride Corp. 9.625 09/15/11 6,398,300
1,770 PPC Escrow Corp. - 144A* 9.25 11/15/13 1,876,200
5,780 Smithfield Foods Inc. 7.625 02/15/08 6,126,800
410 Smithfield Foods Inc. (Series B) 8.00 10/15/09 449,463
------------
17,702,001
------------
FOREST PRODUCTS (0.7%)
1,115 Tembec Industries Inc. (Canada) 7.75 03/15/12 1,070,400
3,910 Tembec Industries Inc. (Canada) 8.50 02/01/11 3,851,350
------------
4,921,750
------------
GAS DISTRIBUTORS (1.1%)
4,080 Dynegy Holdings, Inc. 6.875 04/01/11 3,580,200
3,390 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 3,745,950
------------
7,326,150
------------
HOME BUILDING (1.9%)
1,870 Meritage Corp. 9.75 06/01/11 2,103,750
4,090 Schuler Homes, Inc. 9.375 07/15/09 4,580,800
2,195 Tech Olympic USA, Inc. 10.375 07/01/12 2,502,300
1,700 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 1,848,750
1,310 Tech Olympic USA, Inc. (Issued 11/27/02) 9.00 07/01/10 1,424,625
------------
12,460,225
------------
HOME FURNISHINGS (0.2%)
1,235 Tempur-Pedic Inc. - 144A* 10.25 08/15/10 1,392,463
------------
HOSPITAL/NURSING MANAGEMENT (2.1%)
625 HCA, Inc. 7.19 11/15/15 698,828
1,145 HCA, Inc. 7.58 09/15/25 1,249,972
3,600 HCA, Inc. 7.875 02/01/11 4,164,919
390 Manor Care, Inc. 7.50 06/15/06 426,075
1,060 Manor Care, Inc. 8.00 03/01/08 1,226,950
1,985 Tenet Healthcare Corp. 5.375 11/15/06 1,895,675
1,450 Tenet Healthcare Corp. 6.50 06/01/12 1,286,875
3,755 Tenet Healthcare Corp. 7.375 02/01/13 3,492,150
------------
14,441,444
------------
HOTELS/RESORTS/CRUISELINES (2.2%)
2,980 Hilton Hotels Corp. 7.625 12/01/12 3,389,750
2,085 Hilton Hotels Corp. 7.95 04/15/07 2,329,988
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 3,700 Horseshoe Gaming Holding Corp. (Series B) 8.625% 05/15/09 $ 3,898,875
530 Starwood Hotels & Resorts Worldwide Inc. 7.375 05/01/07 576,375
4,385 Starwood Hotels & Resorts Worldwide Inc. 7.875 05/01/12 4,911,200
------------
15,106,188
------------
INDUSTRIAL MACHINERY (0.2%)
1,111 Flowserve Corp. 12.25 08/15/10 1,288,760
------------
INDUSTRIAL SPECIALTIES (2.7%)
4,065 Cabot Safety Corp. 12.50 07/15/05 4,156,463
4,010 Johnsondiversy, Inc. 9.625 05/15/12 4,390,950
1,440 Tekni-Plex Inc. - 144A* 8.75 11/15/13 1,508,400
3,371 Tekni-Plex Inc. (Series B) 12.75 06/15/10 3,657,535
3,670 UCAR Finance, Inc. 10.25 02/15/12 4,202,150
------------
17,915,498
------------
INTERNET SOFTWARE/SERVICES (0.0%)
6,642 Exodus Communications, Inc. (a) (b) 11.625 07/15/10 0
------------
INVESTMENT MANAGERS (0.8%)
4,960 JSG Funding PLC (Ireland) 9.625 10/01/12 5,604,800
------------
MEDIA CONGLOMERATES (0.6%)
670 Nextmedia Operating, Inc. 10.75 07/01/11 755,425
1,570 Vivendi Universal SA (France) 6.25 07/15/08 1,691,675
1,370 Vivendi Universal SA (France) 9.25 04/15/10 1,620,025
------------
4,067,125
------------
MEDICAL DISTRIBUTORS (0.9%)
220 AmerisourceBergen Corp. 7.25 11/15/12 237,600
5,260 AmerisourceBergen Corp. 8.125 09/01/08 5,878,050
------------
6,115,650
------------
MEDICAL SPECIALTIES (0.1%)
665 National Nephrology Associates, Inc. - 144A* 9.00 11/01/11 774,725
------------
MEDICAL/NURSING SERVICES (1.0%)
5,140 Fresenius Medical Care Capital Trust 7.875 06/15/11 5,609,025
795 Fresenius Medical Care Capital Trust II (Units)^^ 7.875 02/01/08 862,575
------------
6,471,600
------------
METAL FABRICATIONS (0.9%)
1,680 General Cable Corp. - 144A* 9.50 11/15/10 1,864,800
4,010 Trimas Corp. 9.875 06/15/12 4,350,850
------------
6,215,650
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL SERVICES (1.0%)
$ 2,971 Iron Mountain Inc. 7.75% 01/15/15 $ 3,149,260
3,545 Iron Mountain Inc. 8.625 04/01/13 3,872,913
------------
7,022,173
------------
MISCELLANEOUS MANUFACTURING (1.3%)
3,315 Amsted Industries Inc. - 144A* 10.25 10/15/11 3,762,525
4,550 Jacuzzi Brands, Inc. 9.625 07/01/10 5,005,000
------------
8,767,525
------------
MOVIES/ENTERTAINMENT (0.8%)
4,850 Alliance Atlantis Communications, Inc. (Canada) 13.00 12/15/09 5,480,500
------------
OIL & GAS PIPELINES (3.1%)
7,025 El Paso Production Holdings 7.75 06/01/13 6,638,625
852 GulfTerra Energy Partners, L.P. 8.50 06/01/10 967,020
2,863 GulfTerra Energy Partners, L.P. 10.625 12/01/12 3,550,120
730 Northwest Pipeline Corp. 8.125 03/01/10 799,350
1,435 Southern Natural Gas Co. 8.875 03/15/10 1,585,675
1,315 Transcontinental Gas Pipe Line Corp. (Series B) 8.875 07/15/12 1,564,850
5,425 Williams Companies, Inc. (The) 7.875 09/01/21 5,560,625
340 Williams Companies, Inc. (The) - (Series A) 6.75 01/15/06 353,175
------------
21,019,440
------------
OIL & GAS PRODUCTION (2.7%)
4,210 Chesapeake Energy Corp. 7.50 09/15/13 4,620,475
4,420 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 4,950,400
2,155 Magnum Hunter Resources, Inc. 9.60 03/15/12 2,413,600
5,830 Vintage Petroleum, Inc. 7.875 05/15/11 6,238,100
------------
18,222,575
------------
OIL REFINING/MARKETING (1.5%)
1,750 CITGO Petroleum Corp. 11.375 02/01/11 2,091,250
3,000 Husky Oil Ltd. 8.90 08/15/28 3,510,000
2,165 Tesoro Petroleum Corp. 9.00 07/01/08 2,257,013
1,815 Tesoro Petroleum Corp. 9.625 04/01/12 2,023,725
------------
9,881,988
------------
OILFIELD SERVICES/EQUIPMENT (0.8%)
625 Hanover Compress Co. 8.625 12/15/10 659,375
2,760 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 2,939,400
1,655 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 1,787,400
------------
5,386,175
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
OTHER METALS/MINERALS (0.0%)
$ 3,750 Murrin Murrin Holdings Property Ltd. (Australia) (b) 9.375% 08/31/07 $ 375
------------
OTHER TRANSPORTATION (0.8%)
4,740 Laidlaw International Inc. - 144A* 10.75 06/15/11 5,462,850
------------
PUBLISHING: BOOKS/MAGAZINES (2.4%)
2,730 Dex Media East/Finance 12.125 11/15/12 3,241,875
5,225 Dex Media Inc. - 144A* 9.00++ 11/15/13 3,513,813
2,805 Dex Media West LLC - 144A 9.875 08/15/13 3,162,638
1,580 PEI Holdings, Inc. 11.00 03/15/10 1,828,850
4,050 PRIMEDIA, Inc. 8.875 05/15/11 4,201,875
------------
15,949,051
------------
PUBLISHING: NEWSPAPERS (1.0%)
5,983 Hollinger Participation Trust - 144A* (Canada) 12.125+ 11/15/10 6,924,953
------------
PULP & PAPER (1.6%)
4,305 Abitibi-Consolidated, Inc. (Canada) 6.00 06/20/13 4,140,398
5,600 Georgia-Pacific Corp. 8.875 02/01/10 6,412,000
------------
10,552,398
------------
REAL ESTATE DEVELOPMENT (1.5%)
5,535 CB Richard Ellis Services, Inc. 11.25 06/15/11 6,254,550
3,370 LNR Property Corp. 7.625 07/15/13 3,589,050
------------
9,843,600
------------
REAL ESTATE INVESTMENT TRUSTS (0.9%)
3,715 HMH Properties, Inc. (Series B) 7.875 08/01/08 3,863,600
2,035 Istar Financial Inc. 8.75 08/15/08 2,269,025
------------
6,132,625
------------
SPECIALTY STORES (2.0%)
3,600 Autonation, Inc. 9.00 08/01/08 4,176,000
2,315 General Nutrition Center - 144A* 8.50 12/01/10 2,422,069
1,845 Petro Stopping Centers/Financial Corp. - 144A* 9.00 02/15/12 1,937,250
4,550 Sonic Automotive, Inc. 8.625 08/15/13 4,823,000
------------
13,358,319
------------
SPECIALTY TELECOMMUNICATIONS (3.7%)
3,735 American Tower Corp. 9.375 02/01/09 3,977,775
2,375 American Tower Corp. - 144A* 7.50 05/01/12 2,291,875
2,565 Primus Telecommunications Group, Inc. 12.75 10/15/09 2,834,325
6,855 Primus Telecommunications Group, Inc. - 144A* 8.00 01/15/14 6,477,975
2,310 Qwest Corp. 5.625 11/15/08 2,310,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 3,395 Qwest Services Corp. - 144A* 13.00% 12/15/07 $ 3,938,200
3,040 U.S. West Communications Corp. 6.625 09/15/05 3,146,400
12,900 Worldwide Fiber, Inc. (Canada) (a) (b) 12.00 08/01/09 1,290
------------
24,977,840
------------
STEEL (0.6%)
3,360 United States Steel Corp. 9.75 05/15/10 3,805,200
------------
TELECOMMUNICATIONS (0.0%)
28,598 Rhythms Netconnections, Inc. (a) (b) 12.75 04/15/09 0
4,316 Rhythms Netconnections, Inc. (a) (b) 14.00 02/15/10 0
13,461 Rhythms Netconnections, Inc. (Series B) (a) (b) 13.50 05/15/08 0
15,250 Startec Global Communications Corp. (a) (b) 12.00 05/15/08 1,525
------------
1,525
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.1%)
4,535 Manitowoc Inc. (The) 10.50 08/01/12 5,203,913
2,115 NMHG Holding Co. 10.00 05/15/09 2,337,075
------------
7,540,988
------------
WHOLESALE DISTRIBUTORS (1.7%)
4,910 Burhmann US, Inc. 12.25 11/01/09 5,450,100
1,675 Fisher Scientific International Inc. 8.125 05/01/12 1,821,563
1,300 Fisher Scientific International Inc. - 144A* 8.00 09/01/13 1,433,250
2,415 Nebraska Book Company, Inc. - 144A* 8.625 03/15/12 2,415,000
------------
11,119,913
------------
WIRELESS TELECOMMUNICATIONS (4.5%)
4,700 Centennial Communications Corp. - 144A* 8.125 02/01/14 4,441,500
3,845 Metropcs, Inc. 10.75 10/01/11 4,046,863
7,770 Nextel Communications Inc. 9.375 11/15/09 8,479,013
3,310 Nextel Partners Inc. (Class A) 11.00 03/15/10 3,682,375
4,385 SBA Communications Corp. 10.25 02/01/09 4,417,888
2,245 SBA Communications Corp. - 144A* 9.75++ 12/15/11 1,560,275
1,175 Ubiquitel Operating Co. 14.00++ 04/15/10 1,086,875
2,525 Ubiquitel Operating Co. - 144A* 9.875 03/01/11 2,487,125
------------
30,201,914
------------
Total Corporate Bonds
(COST $736,262,673) 622,563,898
------------
Convertible Bond (0.0%)
HOTELS/RESORTS/CRUISELINES (0.0%)
1,643 Premier Cruises Ltd. - 144A* (a) (d)
(COST $2,309,826) 10.00+ 08/15/05 0
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------
Common Stocks (d) (2.5%)
AEROSPACE & DEFENSE (0.1%)
75,021 Orbital Sciences Corp. (c) $ 946,765
------------
APPAREL/FOOTWEAR RETAIL (0.0%)
5,421,101 County Seat Stores Corp. (c) 0
------------
BROADCASTING (1.0%)
573,750 Tri-State Outdoor Media Group Inc. 6,928,031
------------
CASINO/GAMING (0.0%)
212,312 Fitzgerald Gaming Corp.** 0
------------
CONSUMER/BUSINESS SERVICES (1.0%)
292,845 Anacomp, Inc. (Class A) (c) 6,420,627
------------
ENTERTAINMENT & LEISURE (0.1%)
15,308 AMF Bowling Worldwide, Inc. 382,700
------------
FOOD: SPECIALTY/CANDY (0.0%)
13,317 SFAC New Holdings Inc. (c) 0
2,447 SFFB New Holdings Inc. (c) 0
1,069,725 Specialty Foods Acquisition Corp. - 144A* 0
------------
0
------------
HOTELS/RESORTS/CRUISELINES (0.0%)
981,277 Premier Holdings Inc. (c) 0
------------
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%)
64,807 American Restaurant Group Holdings, Inc. - 144A* 0
111,558 American Restaurant Group, Inc. 0
13,107 American Restaurant Group, Inc. 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
------------
0
------------
TEXTILES (0.0%)
2,389,334 U.S. Leather, Inc. (c) 0
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATIONS (0.1%)
78,771 Motient Corp. (c) $ 545,889
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
------------
545,889
------------
Total Common Stocks
(COST $374,779,532) 16,798,332
------------
Non-Convertible Preferred Stocks (2.2%)
BROADCASTING (0.8%)
533 Paxson Communications Corp. 5,058,513
------------
CELLULAR TELEPHONE (0.3%)
2,414 Dobson Communications Corp. 2,033,795
------------
ELECTRIC UTILITIES (0.9%)
5,304 TNP Enterprises, Inc. (Series D)+ 6,225,570
------------
RESTAURANTS (0.2%)
1,337 Catalina Restaurant Group (Units)^^ 1,203,300
------------
Total Non-Convertible Preferred Stocks
(COST $14,400,670) 14,521,178
------------
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- -----------
Warrants (d) (0.0%)
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 22,200
------------
ENTERTAINMENT & LEISURE (0.0%)
35,191 AMF Bowling Worldwide, Inc. (Series B) 03/09/09 7,038
36,019 AMF Bowling Worldwide, Inc. (Series A) 03/09/09 108,057
------------
115,095
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -----------------------------------------------------------------------------------------------------
RESTAURANTS (0.0%)
4,500 American Restaurant Group Holdings, Inc. - 144A* 08/15/08 $ 0
334,250 Catalina Restaurant Group (c) 07/10/12 0
------------
0
------------
TELECOMMUNICATIONS (0.0%)
13,250 Startec Global Communications Corp. - 144A* 05/15/08 0
------------
Total Warrants
(COST $652,807) 137,295
------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------
Short-Term Investments (1.4%)
Repurchase Agreements
$ 9,610 Joint repurchase agreement account
(dated 02/27/04; proceeds $9,610,825) (e) 1.03% 03/01/04 9,610,000
139 The Bank of New York (dated 02/27/04; proceeds
$138,730) (f) 0.875 03/01/04 138,720
-------------
Total Short-Term Investments
(COST $9,748,720) 9,748,720
-------------
Total Investments
(COST $1,138,154,228) (g) 98.4% 663,769,423
Other Assets in Excess of Liabilities 1.6 11,033,597
--------- -------------
Net Assets 100.0% $ 674,803,020
========= =============
</Table>
- ----------
* 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.
++ CURRENTLY A ZERO COUPON BOND AND IS SCHEDULED TO PAY INTEREST AT THE RATE
SHOWN AT A FUTURE SPECIFIED DATE.
^^ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
PREFERRED STOCKS WITH ATTACHED WARRANTS.
^ FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT FEBRUARY 29,
2004.
(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) COLLATERALIZED BY FEDERAL NATIONAL MORTGAGE ASSOCIATION 3.53% DUE 09/01/33
VALUED AT $141,494.
(g) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $47,447,278 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION
IS $521,832,083, RESULTING IN NET UNREALIZED DEPRECIATION OF $474,384,805.
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
Morgan Stanley High Yield Securities Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
FEBRUARY 29, 2004 (UNAUDITED)
<Table>
Assets:
Investments in securities, at value (cost $1,138,154,228) $ 663,769,423
Cash 100,708
Receivable for:
Interest 11,778,638
Investments sold 8,833,651
Capital stock sold 289,054
Prepaid expenses and other assets 137,751
-----------------
Total Assets 684,909,225
-----------------
Liabilities:
Payable for:
Investments purchased 8,086,233
Capital stock redeemed 983,768
Distribution fee 306,384
Investment management fee 269,908
Accrued expenses and other payables 459,912
-----------------
Total Liabilities 10,106,205
-----------------
Net Assets $ 674,803,020
=================
Composition of Net Assets:
Paid-in-capital $ 3,061,322,592
Net unrealized depreciation (474,384,805)
Accumulated undistributed net investment income 12,314,545
Accumulated net realized loss (1,924,449,312)
-----------------
Net Assets $ 674,803,020
=================
Class A Shares:
Net Assets $ 27,905,120
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE) 15,559,470
Net Asset Value Per Share $ 1.79
=================
Maximum Offering Price Per Share,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 1.87
=================
Class B Shares:
Net Assets $ 428,149,668
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE) 239,791,130
Net Asset Value Per Share $ 1.79
=================
Class C Shares:
Net Assets $ 46,590,002
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE) 26,031,656
Net Asset Value Per Share $ 1.79
=================
Class D Shares:
Net Assets $ 172,158,230
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE) 95,868,064
Net Asset Value Per Share $ 1.80
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
Statement OF Operations
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004 (UNAUDITED)
<Table>
Net Investment Income:
Income
Interest $ 38,862,495
Dividends 164,755
-----------------
Total Income 39,027,250
-----------------
Expenses
Investment management fee 1,663,630
Distribution fee (Class A shares) 45,740
Distribution fee (Class B shares) 1,633,448
Distribution fee (Class C shares) 199,348
Transfer agent fees and expenses 774,193
Professional fees 105,918
Shareholder reports and notices 74,683
Registration fees 34,900
Custodian fees 20,444
Directors' fees and expenses 12,376
Other 169,651
-----------------
Total Expenses 4,734,331
-----------------
Net Investment Income 34,292,919
-----------------
Net Realized and Unrealized Gain (Loss):
Net realized loss (94,266,465)
Net change in unrealized depreciation 129,995,029
-----------------
Net Gain 35,728,564
-----------------
Net Increase $ 70,021,483
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
----------------- ---------------
(UNAUDITED)
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 34,292,919 $ 69,794,597
Net realized loss (94,266,465) (927,632,141)
Net change in unrealized depreciation 129,995,029 966,925,307
--------------- ---------------
Net Increase 70,021,483 109,087,763
--------------- ---------------
Dividends to Shareholders from Net Investment Income:
Class A shares (1,213,337) (3,157,603)
Class B shares (13,452,495) (38,559,338)
Class C shares (1,421,113) (3,797,508)
Class D shares (6,054,091) (14,815,212)
--------------- ---------------
Total Dividends (22,141,036) (60,329,661)
--------------- ---------------
Net increase (decrease) from capital stock transactions (54,201,203) 116,673,515
--------------- ---------------
Net Increase (Decrease) (6,320,756) 165,431,617
Net Assets:
Beginning of period 681,123,776 515,692,159
--------------- ---------------
End of Period
(Including accumulated undistributed net investment income of $12,314,545
and $162,662, respectively) $ 674,803,020 $ 681,123,776
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
Morgan Stanley High Yield Securities Inc.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2004 (UNAUDITED)
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) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") 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; (2) 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; (3) all other 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; (4) 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; (5) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Manager") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect 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. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are expected to materially affect the value of
such securities, such valuations may be adjusted to reflect the estimated fair
value of such securities as of the close of the NYSE, as determined in good
faith by the Fund's Directors or by the Investment Manager using a pricing
service and/or procedures approved
20
<Page>
by the Directors of the Fund; (6) certain portfolio securities may be valued by
an outside pricing service approved by the Fund's Directors; (7) 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.
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
21
<Page>
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.
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
Directors will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$59,580,095 at February 29, 2004.
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 six months ended February 29, 2004, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 0.85%,
respectively.
The Distributor has informed the Fund that for the six months ended February 29,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $18,727,
$495,415 and $10,080, respectively and received $53,971 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.
22
<Page>
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended February 29, 2004, aggregated
$186,928,422 and $221,268,889, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At February 29, 2004, the Fund had transfer agent
fees and expenses payable of approximately $9,000.
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 February 29, 2004 included in
Directors' fees and expenses in the Statement of Operations amounted to $7,922.
At February 29, 2004, the Fund had an accrued pension liability of $56,266 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,
eliminate the future benefits growth due to increases to compensation after July
31, 2003 and effective April 1, 2004, establish an unfunded deferred
compensation plan which allows each independent Trustee to defer payment of all
or a portion of the fees he receives for serving on the Board of Directors
throughout the year.
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 period
ended February 29, 2004 were as follows:
<Table>
<Caption>
REALIZED
ISSUER PURCHASES SALES GAIN INCOME VALUE
- ------ --------- ----------- ----------- ------ -----------
Anacomp Inc. -- Class A -- -- -- -- $ 6,420,627
Catalina Restaurant Group -- -- -- -- 1,574,320
Globix Corp -- $ 1,634,872 $ 1,531,916 -- --
</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, HIAT, HIAT II, and HIAT III
23
<Page>
immediately before the acquisition were $504,383,912, $24,638,052, $32,445,236,
and $12,976,663, respectively, including unrealized appreciation of $79,344,659,
$102,732,515, and $38,150,028 for HIAT, HIAT II, and HIAT III, respectively.
Immediately after the acquisition, the combined net assets of the Fund amounted
to $574,443,863.
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
--------------------------------- ---------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 5,081,881 $ 8,897,131 39,836,992 $ 64,688,820
Reinvestment of dividends and distributions 328,295 582,039 1,022,505 1,601,355
Redeemed (12,604,343) (22,337,685) (33,475,330) (54,476,121)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class A (7,194,167) (12,858,515) 7,384,167 11,814,054
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 17,103,242 29,963,933 77,421,752 122,904,213
Reinvestment of dividends and distributions 3,168,910 5,587,093 9,626,091 15,003,266
Redeemed (33,860,733) (59,695,405) (73,660,925) (116,540,305)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class B (13,588,581) (24,144,379) 13,386,918 21,367,174
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 3,645,015 6,450,390 12,695,388 20,107,539
Reinvestment of dividends and distributions 389,058 686,292 1,158,259 1,809,569
Redeemed (4,999,605) (8,849,774) (8,770,002) (13,966,548)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class C (965,532) (1,713,092) 5,083,645 7,950,560
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 4,085,515 7,199,292 32,279,099 51,598,560
Reinvestment of dividends and distributions 1,845,866 3,269,614 4,850,711 7,624,480
Shares issued in connection with
the acquisition of the Morgan Stanley
High Income Advantage
Trusts (See Note 5) -- -- 45,732,222 70,059,951
Redeemed (14,715,111) (25,954,123) (33,881,962) (53,741,264)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class D (8,783,730) (15,485,217) 49,980,070 75,541,727
-------------- -------------- -------------- --------------
Net increase (decrease) in Fund (30,532,010) $ (54,201,203) 74,834,800 $ 116,673,515
============== ============== ============== ==============
</Table>
24
<Page>
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 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 HIAT, HIAT II and HIAT III
(collectively 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.
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly
25
<Page>
paid excessive commissions to brokers in return for their efforts to recommend
these funds to investors. The complaint seeks, among other things, unspecified
compensatory damages, rescissionary damages, fees and costs. The defendants
intend to move to dismiss the action and otherwise vigorously to defend it.
While the Fund believes that it has meritorious defenses, the ultimate outcome
of this matter is not presently determinable at this early stage of the
litigation, and no provision has been made in the Fund's financial statements
for the effect, if any, of this matter.
26
<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 SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -----------------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.67 $ 1.55 $ 2.32 $ 4.35 $ 5.51 $ 6.16
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income++ 0.09 0.19 0.26 0.47 0.69 0.72
Net realized and unrealized
gain (loss) 0.09 0.10 (0.73) (1.99) (1.13) (0.63)
--------- --------- --------- --------- --------- ---------
Total income (loss) from investment
operations 0.18 0.29 (0.47) (1.52) (0.44) 0.09
--------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.06) (0.17) (0.27) (0.51) (0.72) (0.74)
Paid-in-capital - - (0.03) - - -
--------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.06) (0.17) (0.30) (0.51) (0.72) (0.74)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 1.79 $ 1.67 $ 1.55 $ 2.32 $ 4.35 $ 5.51
========= ========= ========= ========= ========= =========
TOTAL RETURN+ 10.78%(1) 19.88% (21.70)% (37.05)% (8.88)% 1.47%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.07%(2) 1.06% 0.99% 0.77% 0.70% 0.68%
Net investment income 10.13%(2) 11.96% 13.76% 15.17% 13.62% 12.42%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 27,905 $ 38,072 $ 23,879 $ 36,762 $ 57,273 $ 68,667
Portfolio turnover rate 28%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ---------- ---------- ---------- ----------- -----------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value,
beginning of period $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.50 $ 6.15
--------- ---------- ---------- ---------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.08 0.18 0.25 0.46 0.66 0.69
Net realized and unrealized gain (loss) 0.09 0.10 (0.73) (1.99) (1.13) (0.64)
--------- ---------- ---------- ---------- ----------- -----------
Total income (loss) from
investment operations 0.17 0.28 (0.48) (1.53) (0.47) 0.05
--------- ---------- ---------- ---------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.05) (0.16) (0.26) (0.49) (0.69) (0.70)
Paid-in-capital - - (0.03) - - -
--------- ---------- ---------- ---------- ----------- -----------
Total dividends and distributions (0.05) (0.16) (0.29) (0.49) (0.69) (0.70)
--------- ---------- ---------- ---------- ----------- -----------
Net asset value, end of period $ 1.79 $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.50
========= ========== ========== ========== =========== ===========
TOTAL RETURN+ 9.91%(1) 19.27% (22.00)% (37.27)% (9.39)% 0.92%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.57%(2) 1.61% 1.56% 1.37% 1.25% 1.24%
Net investment income 9.63%(2) 11.41% 13.19% 14.57% 13.07% 11.86%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 428,150 $ 422,468 $ 371,399 $ 664,706 $ 1,381,008 $ 1,927,186
Portfolio turnover rate 28%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ---------- ---------- ---------- ----------- -----------
(UNAUDITED)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.51 $ 6.15
--------- --------- ---------- ---------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.08 0.18 0.25 0.45 0.66 0.68
Net realized and unrealized gain (loss) 0.09 0.10 (0.73) (1.98) (1.14) (0.62)
--------- --------- ---------- ---------- ----------- -----------
Total income (loss) from investment
operations 0.17 0.28 (0.48) (1.53) (0.48) 0.06
--------- --------- ---------- ---------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.05) (0.16) (0.26) (0.49) (0.69) (0.70)
Paid-in-capital - - (0.03) - - -
--------- --------- ---------- ---------- ----------- -----------
Total dividends and distributions (0.05) (0.16) (0.29) (0.49) (0.69) (0.70)
--------- --------- ---------- ---------- ----------- -----------
Net asset value, end of period $ 1.79 $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.51
========= ========== ========== ========== =========== ===========
TOTAL RETURN+ 10.46%(1) 19.14% (22.11)% (37.24)% (9.66)% 0.99%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.67%(2) 1.71% 1.66% 1.47% 1.35% 1.34%
Net investment income 9.53%(2) 11.31% 13.09% 14.47% 12.97% 11.76%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 46,590 $ 45,114 $ 33,978 $ 49,818 $ 86,951 $ 109,142
Portfolio turnover rate 28%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ---------- ---------- ---------- ----------- -----------
(UNAUDITED)
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value,
beginning of period $ 1.68 $ 1.55 $ 2.32 $ 4.35 $ 5.51 $ 6.16
--------- ---------- ---------- ---------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.09 0.19 0.26 0.48 0.70 0.74
Net realized and unrealized
gain (loss) 0.09 0.11 (0.73) (1.99) (1.13) (0.64)
--------- ---------- ---------- ---------- ----------- -----------
Total income (loss) from
investment operations 0.18 0.30 (0.47) (1.51) (0.43) 0.10
--------- ---------- ---------- ---------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.06) (0.17) (0.27) (0.52) (0.73) (0.75)
Paid-in-capital - - (0.03) - - -
--------- ---------- ---------- ---------- ----------- -----------
Total dividends and distributions (0.06) (0.17) (0.30) (0.52) (0.73) (0.75)
--------- ---------- ---------- ---------- ----------- -----------
Net asset value, end of period $ 1.80 $ 1.68 $ 1.55 $ 2.32 $ 4.35 $ 5.51
========= ========== ========== ========== =========== ===========
TOTAL RETURN+ 10.87%(1) 20.82% (21.45)% (36.95)% (8.69)% 1.67%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.82%(2) 0.86% 0.81% 0.62% 0.50% 0.49%
Net investment income 10.38%(2) 12.16% 13.94% 15.32% 13.82% 12.61%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 172,158 $ 175,471 $ 86,436 $ 137,319 $ 246,941 $ 333,714
Portfolio turnover rate 28%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
(This page has been left blank intentionally.)
<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 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 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
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.
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)2004 Morgan Stanley
[MORGAN STANLEY LOGO]
37915RPT-RA04-00029P-A02/04
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
HIGH YIELD
SECURITIES
SEMIANNUAL REPORT
FEBRUARY 29, 2004
[MORGAN STANLEY LOGO]
<Page>
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. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
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.
Item 10 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.
<Page>
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.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 20, 2004
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
April 20, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 20, 2004