<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: 811-03870
Morgan Stanley U.S. Government Securities Trust
(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: December 31, 2005
Date of reporting period: December 31, 2005
<Page>
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY U.S.
GOVERNMENT SECURITIES TRUST 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 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. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
For the year ended December 31, 2005
TOTAL RETURN FOR THE 12 MONTHS ENDED DECEMBER 31, 2005
<Table>
<Caption>
LEHMAN LIPPER
BROTHERS U.S. GENERAL U.S.
GOVERNMENT GOVERNMENT
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
3.47% 3.46% 2.87% 3.59% 2.65% 2.51%
</Table>
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURNS 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 AND BENCHMARK INFORMATION.
MARKET CONDITIONS
A range of events influenced the fixed-income markets in 2005. The series of
natural disasters that struck the U.S., combined with soaring energy prices, led
to concerns about whether the economy could sustain its level of growth. In the
wake of Hurricane Katrina, some observers initially believed that the economy
would suffer lingering after effects. As the weeks progressed, however, it
became apparent that the impact on the economy would be much smaller and more
temporary than anticipated. Even the sharply higher energy prices failed to
interrupt the positive economic momentum, and real gross domestic product growth
continued at a good clip throughout the year.
Given the economy's solid growth and relatively low inflation, the Federal Open
Market Committee (the "Fed") continued with its tightening policy, raising the
federal funds target rate from 2.25 percent to 4.25 percent through eight
increases of 25 basis points each. The minutes from the Fed's December meeting,
however, indicated that this "measured pace" of increases may slow in the
future.
Short- and intermediate-term Treasury yields rose sharply during the year in
response to stronger-than-expected economic data and the Fed's numerous
tightening moves. In contrast, 10-year Treasury yields experienced little net
change for the year and 30-year yields declined slightly. As a result, the yield
curve flattened during the reporting period.
Within the government securities sector, the U.S. Agency sector modestly
outperformed U.S. Treasuries. Within the mortgage sector, higher-coupon,
longer-dated mortgage-backed issues outperformed the lower-coupon issues.
PERFORMANCE ANALYSIS
Morgan Stanley U.S. Government Securities Trust outperformed the Lehman Brothers
U.S. Government Index and the Lipper General U.S. Government Funds Index for the
12 months ended December 31, 2005, assuming no deduction of applicable sales
charges.
During the period, we kept the Fund's overall interest-rate exposure well below
that of its Lehman benchmark. This posture was beneficial as interest rates rose
across the short-term and intermediate-term portions of the curve. However,
during periods of rate declines, such as we saw in the early part of the period,
this defensive positioning detracted from relative performance.
2
<Page>
A relative underweight to the mortgage sector also benefited performance versus
the Lehman benchmark, as did the specific mortgage securities the Fund owned. As
interest rates rose throughout much of the period, the Fund's emphasis on higher
coupon, slow prepaying mortgage issues benefited performance as these issues
outperformed their lower coupon counterparts. Compared with lower coupon, faster
pre-paying mortgages, the mortgages favored by the Fund tend to be less
sensitive to rising interest rates.
As mandated by its investment objective, the Fund invests only in securities
backed by "the full faith and credit of the U.S. Government." This strategy
resulted in the Fund having an underweight to Agency issues relative to its
Lehman benchmark, which detracted slightly from relative performance.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN THE FUTURE.
PORTFOLIO COMPOSITION*
<Table>
U.S. Government Obligations 57.9%
Mortgage-Backed Securities 16.6
Short-Term Investments 15.6
U.S. Government Agencies 8.6
Collateralized Mortgage Obligations 1.3
</Table>
*Does not include outstanding long futures contracts with an underlying face
amount of $428,325,469 with unrealized appreciation of $3,036,611 and short
futures contracts with an underlying face amount of $811,769,500 with unrealized
depreciation of $4,614,733.
DATA AS OF DECEMBER 31, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR
PORTFOLIO COMPOSITION ARE AS A PERCENTAGE OF TOTAL INVESTMENTS. THESE DATA ARE
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A
RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A
FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE
ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL
ADVISORY SERVICES.
3
<Page>
INVESTMENT STRATEGY
The Fund normally invests at least 80 percent of its net assets in U.S.
Government securities. In making investment decisions, the Fund's "Investment
Adviser," Morgan Stanley Investment Advisors Inc., considers economic
developments, interest rate trends and other factors. The Fund is not limited as
to the maturities of the U.S. Government securities in which it may invest.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in
its semiannual and annual reports within 60 days of the end of the fund's second
and fourth fiscal quarters by filing the schedule electronically with the
Securities and Exchange Commission (SEC). The semiannual reports are filed on
Form N-CSRS and the annual reports are filed on Form N-CSR. Morgan Stanley also
delivers the semiannual and annual reports to fund shareholders and makes these
reports available on its public Web site, www.morganstanley.com. Each Morgan
Stanley fund also files a complete schedule of portfolio holdings with the SEC
for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does
not deliver the reports for the first and third fiscal quarters to shareholders,
nor are the reports posted to the Morgan Stanley public Web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS
filings) by accessing the SEC's Web site, http://www.sec.gov. You may also
review and copy them at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at (800) SEC-0330. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address (publicinfo@sec.gov) or by writing the Public Reference section
of the SEC, Washington, DC 20549-0102.
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 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 a.m. to 8:00 p.m., ET. Once our
Customer Service Center has received your instructions, we will begin sending
individual copies for each account within 30 days.
4
<Page>
(This page has been left blank intentionally.)
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF $10,000 INVESTMENT--CLASS B
($ IN THOUSANDS)
<Table>
<Caption>
FUND^ LEHMAN BROTHERS U.S. GOV'T INDEX(1) LIPPER GEN. U.S. GOV'T FUNDS INDEX(2)
-------- ----------------------------------- -------------------------------------
December 31, 1995 $ 10,000 $ 10,000 $ 10,000
December 31, 1996 $ 10,316 $ 10,277 $ 10,216
December 31, 1997 $ 11,198 $ 11,263 $ 11,147
December 31, 1998 $ 12,013 $ 12,372 $ 12,022
December 31, 1999 $ 11,934 $ 12,096 $ 11,702
December 31, 2000 $ 13,274 $ 13,698 $ 13,093
December 31, 2001 $ 14,109 $ 14,688 $ 13,967
December 31, 2002 $ 15,507 $ 16,377 $ 15,360
December 31, 2003 $ 15,739 $ 16,762 $ 15,625
December 31, 2004 $ 16,293 $ 17,345 $ 16,149
December 31, 2005 $ 16,856 $ 17,805 $ 16,555
</Table>
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED DECEMBER 31, 2005
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/28/97) (SINCE 06/29/84) (SINCE 07/28/97) (SINCE 07/28/97)
SYMBOL USGAX USGBX USGCX USGDX
1 YEAR 3.47%(3) 3.46%(3) 2.87%(3) 3.59%(3)
(0.92)(4) (1.50)(4) 1.87(4) --
4.98(3) 4.89(3) 4.38(3) 5.19(3)
5 YEARS 4.07(4) 4.56(4) 4.38(4) --
-- 5.36(3) -- --
10 YEARS -- 5.36(4) -- --
SINCE INCEPTION 5.54(3) 7.11(3) 5.07(3) 5.77(3)
5.00(4) 7.11(4) 5.07(4) --
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
www.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 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.
* 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 1.0% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
(1) THE LEHMAN BROTHERS U.S. GOVERNMENT INDEX IS A BROAD-BASED MEASURE OF U.S.
GOVERNMENT AND TREASURY SECURITIES. 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 GENERAL U.S. GOVERNMENT FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER GENERAL U.S. GOVERNMENT 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.
^ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON DECEMBER 31, 2005.
7
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including advisory fees; distribution and service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 07/01/05 - 12/31/05.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- ---------------
CLASS A
Actual (0.43% return) $ 1,000.00 $ 1,004.30 $ 4.40
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.82 $ 4.43
CLASS B
Actual (0.54% return) $ 1,000.00 $ 1,005.40 $ 3.29
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.93 $ 3.31
CLASS C
Actual (0.08% return) $ 1,000.00 $ 1,000.80 $ 6.91
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.30 $ 6.97
CLASS D
Actual (0.45% return) $ 1,000.00 $ 1,004.50 $ 3.13
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.08 $ 3.16
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.87%, 0.65%,
1.37% AND 0.62% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
BECAUSE CLASS B SHARES INCURRED LOWER EXPENSES UNDER THE 12b-1 PLAN THAN
DID CLASS A SHARES FOR THE SIX MONTHS ENDED DECEMBER 31, 2005, THE TOTAL
OPERATING EXPENSE RATIO FOR CLASS B SHARES WAS LOWER AND, AS A RESULT, THE
PERFORMANCE OF CLASS B SHARES WAS HIGHER THAN THAT OF THE CLASS A SHARES.
THERE CAN BE NO ASSURANCE THAT THIS WILL CONTINUE TO OCCUR IN THE FUTURE AS
THE MAXIMUM FEES PAYABLE BY CLASS B SHARES UNDER THE 12b-1 PLAN ARE HIGHER
THAN THOSE PAYABLE BY CLASS A SHARES.
8
<Page>
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS DESCRIPTION AND MATURITY DATE RATE VALUE
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (60.4%)
U.S. TREASURY BONDS (19.8%)
$ 19,500 08/15/29 6.125% $ 23,758,781
99,000 08/15/27 6.375 122,671,098
153,000 02/15/27 6.625 194,154,705
84,000 02/15/25 7.625 115,769,136
65,725 08/15/20 8.75 94,572,162
4,750 02/15/15 11.25 7,153,206
----------------
558,079,088
----------------
U.S. TREASURY NOTES (37.7%)
85,900 03/31/06 1.50 85,386,662
214,875 02/28/06 1.63 214,136,475
5,000 05/31/06 2.50 4,964,845
300,000 11/15/06 3.50 297,738,300
365,000 02/15/13 3.875 353,893,415
52,755 08/15/13 4.25 52,298,771
55,000 05/15/14 4.75 56,355,695
----------------
1,064,774,163
----------------
U.S. TREASURY STRIPS (2.9%)
200,550 02/15/25 - 02/15/27 0.00 81,384,647
----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $1,678,877,154) 1,704,237,898
----------------
MORTGAGE-BACKED SECURITIES (17.3%)
GOVERNMENT NATIONAL MORTGAGE ASSOC. I (15.0%)
5,062 08/20/34 5.25 5,053,251
2,070 08/20/34 5.50 2,084,406
30,516 02/15/28 - 09/20/34 6.00 31,259,545
91,900 * 6.50 95,891,906
39,341 03/15/14 - 07/15/31 6.50 40,939,700
93,181 04/15/17 - 03/15/27 7.00 98,134,724
76,956 08/15/06 - 08/15/34 7.50 81,197,361
10,777 10/15/16 - 09/15/31 8.00 11,541,572
18,767 05/15/16 - 11/15/24 8.50 20,370,368
14,169 10/15/08 - 08/15/21 9.00 15,385,406
8,850 10/15/09 - 12/15/20 9.50 9,741,767
11,604 11/15/09 - 11/15/20 10.00 12,949,321
53 06/15/10 - 06/15/15 12.50 58,729
----------------
424,608,056
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS DESCRIPTION AND MATURITY DATE RATE VALUE
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOC. II (0.9%)
$ 18,959 04/20/35 4.00% $ 18,455,772
2,981 01/20/24 - 02/20/24 6.50 3,100,812
2,568 03/20/26 - 07/20/29 7.00 2,681,257
----------------
24,237,841
----------------
GOVERNMENT NATIONAL MORTGAGE ASSOC. GPM I (1.4%)
39,259 05/20/34 3.75 38,391,559
570 09/15/13 - 07/15/15 12.25 631,242
----------------
39,022,801
----------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $474,350,071) 487,868,698
----------------
U.S. GOVERNMENT AGENCIES (8.9%)
HOUSING URBAN DEVELOPMENT SER 99-A (1.2%)
18,800 08/01/10 6.06 19,338,112
15,290 08/01/11 6.16 15,735,627
----------------
35,073,739
----------------
RESOLUTION FUNDING CORP. ZERO COUPON STRIPS (7.7%)
74,000 10/15/08 0.00 65,537,804
138,134 01/15/12 0.00 106,274,222
61,607 04/15/12 0.00 46,775,176
----------------
218,587,202
----------------
TOTAL U.S. GOVERNMENT AGENCIES (COST $246,243,027) 253,660,941
----------------
COLLATERIZED MORTGAGE OBLIGATIONS (1.3%)
GOVERNMENT NATIONAL MORTGAGE ASSOC.
2,605 1999-44 FP (PAC) 06/16/27 4.77++ 2,612,749
7,772 2003-10 MX (PAC) 06/20/28 5.00 7,759,995
8,674 2005-37 (IO) 11/16/32 5.50 1,341,275
24,430 2002-23 PE (PAC) 04/16/32 6.50 25,767,021
----------------
TOTAL COLLATERIZED MORTGAGE OBLIGATIONS (COST $37,561,371) 37,481,040
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS DESCRIPTION AND MATURITY DATE RATE VALUE
- ------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) (16.3%)
FEDERAL HOME LOAN BANKS (1.8%)
$ 50,000 01/13/06 4.185% $ 49,924,437
----------------
FEDERAL HOME LOAN MORTGAGE ASSOC. (4.8%)
60,000 01/30/06 - 01/31/06 4.20 59,784,167
25,000 01/30/06 4.21 24,912,500
50,000 03/14/06 4.31 49,557,028
----------------
134,253,695
----------------
FEDERAL NATIONAL MORTGAGE ASSOC. (4.7%)
36,850 01/09/06 4.14 36,811,860
96,700 01/06/06 - 01/12/06 4.17 96,598,043
----------------
133,409,903
----------------
U.S. TREASURY BILLS (5.0%)
8,450 01/12/06+ 3.350 8,440,564
610 02/16/06 3.630 607,109
83,500 03/23/06 3.650 82,831,188
50,000 02/16/06 3.681 49,759,713
----------------
141,638,574
----------------
TOTAL SHORT-TERM INVESTMENTS
(COST $459,258,778) 459,226,609
----------------
TOTAL INVESTMENTS
(COST $2,896,290,401) (b)(c) 104.2% 2,942,475,186
LIABILITIES IN EXCESS OF OTHER ASSETS (4.2) (119,393,962)
----- ----------------
NET ASSETS 100.0% $ 2,823,081,224
===== ================
</Table>
- ----------
GPM GRADUATED PAYMENT MORTGAGE.
IO INTEREST-ONLY SECURITY.
PAC PLANNED AMORTIZATION CLASS.
* SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE
PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL
AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT.
+ A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $1,707,250.
++ FLOATING RATE SECURITY, RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31,
2005 .
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED
TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$1,363,731,583 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS AND OPEN FUTURES CONTRACTS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $2,936,651,173. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $28,751,540 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $22,927,527, RESULTING IN NET UNREALIZED
APPRECIATION OF $5,824,013.
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE APPRECIATION/
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------------
295 Short U.S. Treasury Note 2 Year
March 2006 $ (60,530,313) $ (4,652)
Long U.S. Treasury Note 10 Year
3,915 March 2006 428,325,469 3,036,611
Short U.S. Treasury Note 5 Year
5,532 March 2006 (588,293,625) (2,020,617)
Short U.S. Treasury Bond 20 Year
1,427 March 2006 (162,945,562) (2,589,464)
--------------
Net Unrealized Depreciation $ (1,578,122)
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
<Table>
ASSETS:
Investments in securities, at value
(cost $2,896,290,401) $ 2,942,475,186
Cash 23,153
Receivable for:
Interest 24,459,706
Investments sold 6,850,454
Shares of beneficial interest sold 6,609,319
Receivable from affiliate 488,301
Prepaid expenses and other assets 148,069
---------------
TOTAL ASSETS 2,981,054,188
---------------
LIABILITIES:
Payable for:
Investments purchased 139,828,438
Shares of beneficial interest redeemed 12,024,448
Dividends and distributions to shareholders 3,545,427
Distribution fee 926,278
Investment advisory fee 918,489
Administration fee 192,465
Transfer agent fee 178,791
Variation margin 33,770
Accrued expenses and other payables 324,858
---------------
TOTAL LIABILITIES 157,972,964
---------------
NET ASSETS $ 2,823,081,224
---------------
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 2,882,923,238
Net unrealized appreciation 44,606,663
Dividends in excess of net investment income (19,421,527)
Accumulated net realized loss (85,027,150)
---------------
NET ASSETS $ 2,823,081,224
===============
CLASS A SHARES:
Net Assets $ 1,781,950,092
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 196,099,926
NET ASSET VALUE PER SHARE $ 9.09
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44%
OF NET ASSET VALUE) $ 9.49
===============
CLASS B SHARES:
Net Assets $ 783,193,106
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 86,099,279
NET ASSET VALUE PER SHARE $ 9.10
===============
CLASS C SHARES:
Net Assets $ 68,513,183
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 7,475,167
NET ASSET VALUE PER SHARE $ 9.17
===============
CLASS D SHARES:
Net Assets $ 189,424,843
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 20,833,600
NET ASSET VALUE PER SHARE $ 9.09
===============
</Table>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
NET INVESTMENT INCOME:
Interest Income $ 130,948,217
---------------
EXPENSES
Investment advisory fee 11,636,304
Transfer agent fees and expenses 3,715,358
Distribution fee (Class A shares) 3,378,248
Distribution fee (Class B shares) 1,398,871
Distribution fee (Class C shares) 535,638
Administration fee 2,471,576
Custodian fees 553,383
Shareholder reports and notices 208,763
Professional fees 91,144
Registration fees 78,236
Trustees' fees and expenses 47,285
Other 363,533
---------------
TOTAL EXPENSES 24,478,339
---------------
NET INVESTMENT INCOME 106,469,878
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN ON:
Investments 16,501,735
Futures contracts 3,178,958
---------------
NET REALIZED GAIN 19,680,693
---------------
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments (22,127,640)
Futures contracts 772,846
---------------
NET DEPRECIATION (21,354,794)
---------------
NET LOSS (1,674,101)
---------------
NET INCREASE $ 104,795,777
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 106,469,878 $ 110,989,753
Net realized gain 19,680,693 19,888,823
Net change in unrealized appreciation (21,354,794) (7,271,387)
----------------- -----------------
NET INCREASE 104,795,777 123,607,189
----------------- -----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (54,370,484) (9,671,007)
Class B shares (61,881,850) (125,791,123)
Class C shares (2,703,465) (3,088,726)
Class D shares (8,983,258) (10,316,791)
----------------- -----------------
TOTAL DIVIDENDS (127,939,057) (148,867,647)
----------------- -----------------
Net decrease from transactions in shares of beneficial interest (487,081,087) (759,386,244)
----------------- -----------------
NET DECREASE (510,224,367) (784,646,702)
NET ASSETS:
Beginning of period 3,333,305,591 4,117,952,293
----------------- -----------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF
$19,421,527 AND $22,925,801, RESPECTIVELY) $ 2,823,081,224 $ 3,333,305,591
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley U.S. Government Securities Trust (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 investment objective is high
current income consistent with safety of principal. The Fund was organized as a
Massachusetts business trust on September 29, 1983 and commenced operations on
June 29, 1984. 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 eighteen
months, 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.
Effective August 29, 2005, the Board of Trustees of the Fund approved the
implementation of a 2% redemption fee on Class A shares, Class B shares, Class C
shares, and Class D shares, which is paid directly to the Fund, for shares
redeemed within seven days of purchase. The redemption fee is designed to
protect the Fund and its remaining shareholders from the effects of short-term
trading.
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 Trustees; (2) portfolio
securities for which over-the-counter market quotations are readily available
are valued at the mean between the last reported bid and asked price; (3) when
market quotations are not readily available or Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser") determines that the market quotations
are not reflective of a security's market value, portfolio securities are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Trustees; and (4) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
15
<Page>
C. 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.
D. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
E. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement with the Investment Adviser, the
Fund pays an advisory fee, accrued daily and payable monthly, by applying the
following annual rates to the Fund's net assets determined at the close of each
business day: 0.42% to the portion of the daily net assets not exceeding $1
billion; 0.395% to the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.37% to the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.345% to the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.32%
to the portion of the daily net assets exceeding $2.5 billion but not exceeding
$5 billion; 0.295% to the portion of the daily net assets exceeding $5 billion
but not exceeding $7.5 billion; 0.27% to the portion of the daily net assets
exceeding $7.5 billion but not exceeding $10 billion; 0.245% to the portion of
the daily net assets exceeding $10 billion but not exceeding $12.5 billion; and
0.22% to the portion of the daily net assets exceeding $12.5 billion.
16
<Page>
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund
pays an administration fee, accrued daily and payable monthly, by applying the
annual rate of 0.08% to the Fund's daily net assets.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. 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 -- up
to 0.75% (0.65% on amounts over $10 billion) of the lesser of: (a) the average
daily aggregate gross sales of the Class B shares since the inception of the
Fund (not including reinvestment of dividend or capital gain distributions) less
the average daily aggregate net asset value of the Class B shares redeemed since
the Fund's inception upon which a contingent deferred sales charge has been
imposed or waived; or (b) the average daily net assets of Class B; and (iii)
Class C -- up to 0.75% 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 there were no excess expenses at
December 31, 2005.
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 0.75% 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 December 31, 2005, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.25% and 0.71%, respectively.
For the year ended December 31, 2005, the distribution fee for Class B shares
was accrued at the annual rate of 0.10%. At December 31, 2005, included in the
Statement of Assets and Liabilities, is a receivable from affiliate which
represents payments due from the Distributor to the Fund.
17
<Page>
The Distributor has informed the Fund that for the year ended December 31, 2005,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $15,735, $1,898,734
and $10,203, respectively and received $224,575 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 costs of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the year ended December 31,
2005 were $5,325,430,848 and $6,228,925,041, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Trustees voted to close the plan to new participants and eliminate the future
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the year ended December 31, 2005 included in Trustees' fees
and expenses in the Statement of Operations amounted to $7,483. At December 31,
2005, the Fund had an accrued pension liability of $64,428 which is included in
accrued expenses in the Statement of Assets and Liabilities.
The Fund has an unfunded Deferred Compensation Plan (the "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 Trustees. Each eligible Trustee
generally may elect to have the deferred amounts credited with a return equal to
the total return on one or more of the Morgan Stanley funds that are offered as
investment options under the Compensation Plan. Appreciation/depreciation and
distributions received from these investments are recorded with an offsetting
increase/decrease in the deferred compensation obligation and do not affect the
net asset value of the Fund.
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
To hedge against adverse interest rate, the Fund may purchase and sell interest
rate futures contracts ("futures contracts").
Futures contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
18
<Page>
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A SHARES
Sold 7,828,665 $ 71,535,567 8,705,976 $ 79,928,293
Conversion from Class B 191,354,524 1,748,934,523 -- --
Reinvestment of dividends 3,798,045 34,681,980 891,975 8,162,666
Redeemed (33,187,809) (302,528,017) (9,600,159) (87,972,860)
--------------- --------------- --------------- ---------------
Net increase (decrease) -- Class A 169,793,425 1,552,624,053 (2,208) 118,099
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold 6,910,637 63,219,869 10,036,507 92,228,433
Conversion to Class A (190,941,694) (1,748,934,52)(3) -- --
Reinvestment of dividends 3,772,007 34,450,404 8,086,291 74,145,148
Redeemed (37,658,291) (344,042,143) (89,240,076) (818,127,811)
--------------- --------------- --------------- ---------------
Net decrease -- Class B (217,917,341) (1,995,306,39) (71,117,278) (651,754,230)
--------------- --------------- --------------- ---------------
CLASS C SHARES
Sold 941,457 8,680,615 1,276,507 11,833,867
Reinvestment of dividends 205,630 1,892,753 231,030 2,133,042
Redeemed (2,373,022) (21,829,432) (4,151,303) (38,337,464)
--------------- --------------- --------------- ---------------
Net decrease -- Class C (1,225,935) (11,256,064) (2,643,766) (24,370,555)
--------------- --------------- --------------- ---------------
CLASS D SHARES
Sold 3,389,847 31,035,655 3,931,072 36,089,803
Reinvestment of dividends 733,130 6,694,298 843,674 7,723,414
Redeemed (7,764,515) (70,872,636) (13,827,289) (127,192,775)
--------------- --------------- --------------- ---------------
Net decrease -- Class D (3,641,538) (33,142,683) (9,052,543) (83,379,558)
--------------- --------------- --------------- ---------------
Net decrease in Fund (52,991,389) $ (487,081,087) (82,815,795) $ (759,386,244)
=============== =============== =============== ===============
</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.
19
<Page>
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
Ordinary income $ 127,939,057 $ 148,867,647
================= =================
</Table>
As of December 31, 2005, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed ordinary income $ 1,362,260
Undistributed long-term gains --
--------------
Net accumulated earnings 1,362,260
Capital loss carryforward* (63,861,670)
Post-October losses (3,097,498)
Temporary differences (69,119)
Net unrealized appreciation 5,824,013
--------------
Total accumulated losses $ (59,842,014)
==============
</Table>
*As of December 31, 2005, the Fund had a net capital loss carryforward of
$63,861,670 of which $2,711,317 will expire on December 31, 2006, $6,588,410
will expire on December 31, 2007 and $54,561,943 will expire on December 31,
2013 to offset future capital gains to the extent provided by regulations.
As of December 31, 2005, 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), mark-to-market of open futures contracts, capital
loss deferrals on straddles and book amortization of premiums on debt securities
and permanent book/tax differences attributable to losses on paydowns, tax
adjustments on debt securities sold by the Fund and an expired capital loss
carryforward. To reflect reclassifications arising from the permanent
differences, accumulated net realized loss was charged $40,021,275,
paid-in-capital was credited $15,047,822 and dividends in excess of net
investment income was credited $24,973,453.
8. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, filed in the United States District
Court Southern District of New York on April 16, 2004, generally alleges that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Adviser and certain
20
<Page>
affiliates of the Investment Adviser allegedly offered economic incentives to
brokers and others to recommend the funds advised by the Investment Adviser or
its affiliates to investors rather than funds managed by other companies, and
(ii) that the funds advised by the Investment Adviser or its affiliates,
including the Fund, allegedly 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 have moved to dismiss the action and intend to
otherwise vigorously defend it. On March 9, 2005, Plaintiffs sought leave to
supplement their complaint to assert claims on behalf of other investors. While
the Fund and Adviser believe that each has meritorious defenses, the ultimate
outcome of this matter is not presently determinable at this stage of the
litigation, and no provision has been made in the Fund's financial statements
for the effect, if any, of this matter.
21
<Page>
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- ------------- ------------- ------------- -------------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.15 $ 9.21 $ 9.41 $ 8.99 $ 8.94
------------- ------------- ------------- ------------- -------------
Income (loss) from investment operations:
Net investment income 0.31 0.24 0.26 0.43 0.51
Net realized and unrealized gain (loss) 0.00 0.07 (0.12) 0.45 0.07
------------- ------------- ------------- ------------- -------------
Total income from investment operations 0.31 0.31 0.14 0.88 0.58
------------- ------------- ------------- ------------- -------------
Less dividends from net investment income (0.37) (0.37) (0.34) (0.46) (0.53)
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 9.09 $ 9.15 $ 9.21 $ 9.41 $ 8.99
============= ============= ============= ============= =============
TOTAL RETURN+ 3.47% 3.41% 1.48% 10.07% 6.66%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.87% 0.81% 0.76% 0.75% 0.73%
Net investment income 3.37% 2.94% 2.94% 4.50% 5.65%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 1,781,950 $ 240,835 $ 242,335 $ 235,787 $ 122,863
Portfolio turnover rate 182% 212% 153% 85% 73%
</Table>
- ----------
+ 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
22
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ----------- ----------- ----------- -----------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.17 $ 9.23 $ 9.43 $ 9.00 $ 8.95
------------ ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income 0.32 0.25 0.26 0.40 0.48
Net realized and unrealized gain (loss) (0.01) 0.07 (0.12) 0.46 0.07
------------ ----------- ----------- ----------- -----------
Total income from investment operations 0.31 0.32 0.14 0.86 0.55
------------ ----------- ----------- ----------- -----------
Less dividends from net investment income (0.38) (0.38) (0.34) (0.43) (0.50)
------------ ----------- ----------- ----------- -----------
Net asset value, end of period $ 9.10 $ 9.17 $ 9.23 $ 9.43 $ 9.00
============ =========== =========== =========== ===========
TOTAL RETURN+ 3.46% 3.52% 1.49% 9.91% 6.29%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.72% 0.70%(2) 0.76%(2) 1.00%(2) 1.07%(2)
Net investment income 3.52% 3.05%(2) 2.95%(2) 4.25%(2) 5.30%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 783,193 $ 2,787,959 $ 3,461,241 $ 4,440,980 $ 4,025,297
Portfolio turnover rate 182% 212% 153% 85% 73%
</Table>
- ----------
+ 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.
(2) IF THE DISTRIBUTOR HAD NOT REBATED A PORTION OF ITS FEES TO THE FUND, THE
EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- ------- --------------
DECEMBER 31, 2004 0.93% 2.82%
DECEMBER 31, 2003 1.32 2.38
DECEMBER 31, 2002 1.29 3.96
DECEMBER 31, 2001 1.29 5.08
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- ------------- ------------- ------------- -------------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.23 $ 9.29 $ 9.49 $ 9.07 $ 9.02
------------- ------------- ------------- ------------- -------------
Income (loss) from investment operations:
Net investment income 0.27 0.20 0.21 0.38 0.46
Net realized and unrealized gain (loss) 0.00 0.06 (0.12) 0.45 0.07
------------- ------------- ------------- ------------- -------------
Total income from investment operations 0.27 0.26 0.09 0.83 0.53
------------- ------------- ------------- ------------- -------------
Less dividends from net investment income (0.33) (0.32) (0.29) (0.41) (0.48)
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 9.17 $ 9.23 $ 9.29 $ 9.49 $ 9.07
============= ============= ============= ============= =============
TOTAL RETURN+ 2.87% 2.86% 0.93% 9.42% 6.03%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.33% 1.34% 1.32% 1.29% 1.29%
Net investment income 2.91% 2.41% 2.38% 3.96% 5.08%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 68,513 $ 80,342 $ 105,392 $ 129,515 $ 63,646
Portfolio turnover rate 182% 212% 153% 85% 73%
</Table>
- ----------
+ 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
24
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------- ------------- ------------- ------------- -------------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.16 $ 9.22 $ 9.42 $ 8.99 $ 8.95
------------- ------------- ------------- ------------- -------------
Income (loss) from investment operations:
Net investment income 0.32 0.26 0.28 0.45 0.53
Net realized and unrealized gain (loss) 0.00 0.07 (0.12) 0.46 0.06
------------- ------------- ------------- ------------- -------------
Total income from investment operations 0.32 0.33 0.16 0.91 0.59
------------- ------------- ------------- ------------- -------------
Less dividends from net investment income (0.39) (0.39) (0.36) (0.48) (0.55)
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 9.09 $ 9.16 $ 9.22 $ 9.42 $ 8.99
============= ============= ============= ============= =============
TOTAL RETURN+ 3.59% 3.63% 1.67% 10.41% 6.85%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.62% 0.59% 0.57% 0.54% 0.54%
Net investment income 3.62% 3.16% 3.13% 4.71% 5.83%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 189,425 $ 224,169 $ 308,984 $ 309,109 $ 138,669
Portfolio turnover rate 182% 212% 153% 85% 73%
</Table>
- ----------
+ 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
25
<Page>
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley U.S. Government Securities Trust (the "Fund"), including the portfolio
of investments, as of December 31, 2005, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian and brokers. 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 U.S. Government Securities Trust as of December 31, 2005, 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
FEBRUARY 17, 2006
26
<Page>
MORGAN STANLEY U.S. GOVERNMENT SECURITIES TRUST
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<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) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------- ------------ ------------- ----------------------------------- ------------- ---------------------
Michael Bozic (64) Trustee Since Private Investor; Director or 197 Director of various
c/o Kramer Levin Naftalis April 1994 Trustee of the Retail Funds (since business
& Frankel LLP April 1994) and the Institutional organizations.
Counsel to the Funds (since July 2003); formerly
Independent Trustees Vice Chairman of Kmart Corporation
1177 Avenue of the (December 1998-October 2000),
Americas Chairman and Chief Executive
New York, NY 10036 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 (73) Trustee Since Consultant; Director or Trustee of 197 Director of Franklin
1031 N. Chartwell Court January 1993 the Retail Funds (since January Covey (time
Salt Lake City, UT 84103 1993) and the Institutional Funds management systems),
(since July 2003); member of the BMW Bank of North
Utah Regional Advisory Board of America, Inc.
Pacific Corp. (utility company); (industrial loan
formerly Managing Director of corporation), Escrow
Summit Ventures LLC (2000-2004) Bank USA (industrial
(lobbying and consulting firm); loan corporation),
United States Senator (R-Utah) United Space Alliance
(1974-1992) and Chairman, Senate (joint venture
Banking Committee (1980-1986), between Lockheed
Mayor of Salt Lake City, Utah Martin and the Boeing
(1971-1974), Astronaut, Space Company) and Nuskin
Shuttle Discovery (April 12-19, Asia Pacific
1985), and Vice Chairman, Huntsman (multilevel
Corporation (chemical company). marketing); member of
the board of various
civic and charitable
organizations.
Wayne E. Hedien (71) Trustee Since Retired; Director or Trustee of the 197 Director of The PMI
c/o Kramer Levin Naftalis September 1997 Retail Funds (since September 1997) Group Inc. (private
& Frankel LLP and the Institutional Funds (since mortgage insurance);
Counsel to the July 2003); formerly associated Trustee and Vice
Independent Trustees with the Allstate Companies Chairman of The Field
1177 Avenue of the (1966-1994), most recently as Museum of Natural
Americas Chairman of The Allstate History; director of
New York, NY 10036 Corporation (March 1993-December various other
1994) and Chairman and Chief business and
Executive Officer of its charitable
wholly-owned subsidiary, Allstate organizations.
Insurance Company (July
1989-December 1994).
</Table>
27
<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) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------- ------------ ------------- ----------------------------------- ------------- ---------------------
Dr. Manuel H. Johnson Trustee Since Senior Partner, Johnson Smick 197 Director of NVR, Inc.
(56) July 1991 International, Inc., a consulting (home construction);
c/o Johnson Smick Group, firm; Chairman of the Audit Director of KFX
Inc. Committee and Director or Trustee Energy; Director of
888 16th Street, NW of the Retail Funds (since July RBS Greenwich Capital
Suite 740 1991) and the Institutional Funds Holdings (financial
Washington, D.C. 20006 (since July 2003); Co-Chairman and holding company).
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 (63) Trustee Since President, Kearns & Associates LLC 198 Director of Electro
c/o Kearns & Associates July 2003 (investment consulting); Deputy Rent Corporation
LLC Chairman of the Audit Committee and (equipment leasing),
PMB754 Director or Trustee of the Retail The Ford Family
23852 Pacific Coast Funds (since July 2003) and the Foundation, and the
Highway Institutional Funds (since August UCLA Foundation.
Malibu, CA 90265 1994); previously Chairman of the
Audit Committee of the
Institutional Funds (October
2001-July 2003); formerly CFO of
the J. Paul Getty Trust.
Michael E. Nugent (69) Trustee Since General Partner of Triumph Capital, 197 None.
c/o Triumph Capital, L.P. July 1991 L.P., a private investment
445 Park Avenue partnership; Chairman of the
New York, NY 10022 Insurance Committee and Director or
Trustee of the Retail Funds (since
July 1991) and the Institutional
Funds (since July 2001); formerly
Vice President, Bankers Trust
Company and BT Capital Corporation
(1984-1988).
Fergus Reid (73) Trustee Since Chairman of Lumelite Plastics 198 Trustee and Director
c/o Lumelite Plastics July 2003 Corporation; Chairman of the of certain investment
Corporation Governance Committee and Director companies in the
85 Charles Colman Blvd. or Trustee of the Retail Funds JPMorgan Funds
Pawling, NY 12564 (since July 2003) and the complex managed by
Institutional Funds (since June J.P. Morgan
1992). Investment Management
Inc.
</Table>
28
<Page>
INTERESTED TRUSTEES
<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) OVERSEEN OTHER DIRECTORSHIPS
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------- ------------ ------------- ----------------------------------- ------------- ---------------------
Charles A. Fiumefreddo Chairman of Since Chairman and Director or Trustee of 197 None.
(72) the Board July 1991 the Retail Funds (since July 1991)
c/o Morgan Stanley Trust and Trustee and the Institutional Funds (since
Harborside Financial July 2003); formerly Chief
Center, Executive Officer of the Retail
Plaza Two, Funds (until September 2002).
Jersey City, NJ 07311
James F. Higgins (57) Trustee Since Director or Trustee of the Retail 197 Director of AXA
c/o Morgan Stanley Trust June 2000 Funds (since June 2000) and the Financial, Inc. and
Harborside Financial Institutional Funds (since July The Equitable Life
Center, 2003); Senior Advisor of Morgan Assurance Society of
Plaza Two, Stanley (since August 2000); the United States
Jersey City, NJ 07311 Director of the Distributor and (financial services).
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).
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT ADVISER ") (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. 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 ADVISER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
ADVISER (INCLUDING, BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT
MANAGEMENT INC.).
29
<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**
- --------------------------- ----------------------- ----------------- ---------------------------------------------------
Ronald E. Robison (66) President and Principal Since May 2003 President (since September 2005) and Principal
1221 Avenue of the Americas Executive Officer Executive Officer of funds in the Fund Complex
New York, NY 10020 (since May 2003); Managing Director of Morgan
Stanley & Co. Incorporated and Morgan Stanley;
Managing Director and Director of Morgan Stanley
Investment Management Inc., Morgan Stanley
Distribution Inc. and Morgan Stanley Distributors
Inc.; Managing Director, Chief Administrative
Officer and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company
Inc.; Chief Executive Officer and Director of
Morgan Stanley Trust; Director of Morgan Stanley
SICAV (since May 2004); President (since September
2005) and Principal Executive Officer (since May
2003) of the Van Kampen Funds; previously,
Executive Vice President (July 2003-September 2005)
of funds in the Fund Complex and the Van Kampen
Funds. He was also previously President and
Director of the Institutional Funds (March
2001-July 2003), Chief Global Operations Officer of
Morgan Stanley Investment Management Inc. and Chief
Executive Officer and Chairman of Van Kampen
Investor Services.
J. David Germany (51) Vice President Since Managing Director and Chief Investment Officer -
25 Cabot Square, February 2006 Global Fixed Income of Morgan Stanley Investment
Canary Wharf, London, Management Inc., Morgan Stanley Investment Advisors
United Kingdom E144QA Inc., and Van Kampen Asset Management. Managing
Director and Director of Morgan Stanley Investment
Management Ltd. Vice President (since February
2006) of the Morgan Stanley Retail Funds and Morgan
Stanley Institutional Funds.
Dennis F. Shea (52) Vice President Since February Managing Director and Chief Investment Officer -
1221 Avenue of the Americas 2006 Global Equity of Morgan Stanley Investment Advisors
New York, NY 10020 Inc., Morgan Stanley Investment Management Inc. and
Van Kampen Asset Management. Vice President (since
February 2006) of the Morgan Stanley Retail Funds
and Morgan Stanley Institutional Funds. Previously,
Managing Director and Director of Global Equity
Research at Morgan Stanley.
Barry Fink (50) Vice President Since February General Counsel (since May 2000) and Managing
1221 Avenue of the Americas 1997 Director (since December 2000) of Morgan Stanley
New York, NY 10020 Investment Management; Managing Director (since
December 2000) of the Investment Adviser and the
Administrator; Vice President of the Retail Funds;
Assistant Secretary of Morgan Stanley DW; Vice
President of the Institutional Funds (since July
2003); Managing Director, Secretary and Director of
the Distributor; previously Secretary (February
1997-July 2003) and General Counsel (February
1997-April 2004) of the Retail Funds; previously
Secretary (1997-2006) and Director (1997-2005) of
the Investment Adviser and the Administrator; and
Secretary and Director of the Distributor
(1997-2005).
Amy R. Doberman (43) Vice President Since July 2004 Managing Director and General Counsel, U.S.
1221 Avenue of the Americas Investment Management; Managing Director (since
New York, NY 10020 July 2004) and Secretary (since February 2006) of
Morgan Stanley Investment Management Inc. and the
Investment Adviser, Managing Director and Secretary
of the Distributor (since February 2006); Managing
Director (since February 2005) and Secretary (since
February 2006) of the Administrator; Vice President
of the Institutional and Retail Funds (since July
2004); various positions with the Van Kampen Funds
and certain of their service providers; previously,
Managing Director and General Counsel - Americas,
UBS Global Asset Management (July 2000-July 2004).
Carsten Otto (42) Chief Compliance Officer Since October Managing Director and U.S. Director of Compliance
1221 Avenue of the Americas 2004 for Morgan Stanley Investment Management Inc.
New York, NY 10020 (since October 2004); Managing Director of the
Investment Adviser and Morgan Stanley Investment
Management Inc.; formerly Assistant Secretary and
Assistant General Counsel of the Morgan Stanley
Retail Funds.
</Table>
30
<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**
- --------------------------- ----------------------- ----------------- ---------------------------------------------------
Stefanie V. Chang (39) Vice President Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY 10020 Inc. and the Investment Adviser; Vice President of
the Institutional Funds (since December 1997) and
the Retail Funds (since July 2003); various
positions with the Van Kampen Funds; formerly
practiced law with the New York law firm of Rogers
& Wells (now Clifford Chance US LLP).
Francis J. Smith (40) Treasurer and Chief Treasurer since Executive Director of the Investment Adviser and
c/o Morgan Stanley Trust Financial Officer July 2003 and the Administration (since December 2001);
Harborside Financial Chief Financial previously, Vice President of the Retail Funds
Center, Officer since (September 2002-July 2003); Vice President of the
Plaza Two, September 2002 Investment Adviser and the Administrator (August
Jersey City, NJ 07311 2000-November 2001).
Thomas F. Caloia (59) Vice President Since July 2003 Executive Director (since December 2002) and
c/o Morgan Stanley Trust Assistant Treasurer of the Investment Adviser, the
Harborside Financial Distributor and the Administrator; previously
Center, Treasurer of the Retail Funds (April 1989-July
Plaza Two, 2003); formerly First Vice President of the
Jersey City, NJ 07311 Investment Adviser, the Distributor and the
Administrator.
Mary E. Mullin (38) Secretary Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY 10020 Inc. and the Investment Adviser; Secretary of the
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.
2005 FEDERAL TAX NOTICE (UNAUDITED)
Of the Fund's ordinary dividends paid during the fiscal year
ended December 31, 2005, 67.58% was attributable to
qualifying Federal obligations. Please consult your tax
advisor to determine if any portion of the dividends you
received is exempt from state income tax.
31
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Ronald E. Robison
PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
J. David Germany
VICE PRESIDENT
Dennis F. Shea
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
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 trustees. 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) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
37965RPT-RA06-00115P-Y12/05
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
U.S. GOVERNMENT
SECURITIES TRUST
ANNUAL REPORT
DECEMBER 31, 2005
[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 to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered
officer.
(d) Not applicable.
(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 Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: 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 Trustees
in the absence of such designation or identification.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 44,484 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 540(2) $ (2)
TAX FEES $ 4,563(3) $ (4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 5,103 $
TOTAL $ 49,587 $
</Table>
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 42,370 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 452(2) $ 3,746,495(2)
TAX FEES $ 4,694(3) $ 79,800(4)
ALL OTHER FEES $ - $ -(5)
TOTAL NON-AUDIT FEES $ 5,146 $ 3,826,295
TOTAL $ 47,516 $ 3,826,295
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control
with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically data
verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review
of the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit
Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy
and Procedures (the "POLICY"), adopted as of the date above,
supersedes and replaces all prior versions that may have been adopted
from time to time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
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not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
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rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
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MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after
May 6, 2003, the audit committee also is required to pre-approve services to
Covered Entities to the extent that the services are determined to have a direct
impact on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
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Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) 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.
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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 U.S. Government Securities Trust
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 9, 2006
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
February 9, 2006
/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 9, 2006