<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02932
Morgan Stanley High Yield Securities Inc.
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: August 31, 2006
Date of reporting period: February 28, 2006
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY HIGH
YIELD SECURITIES INC. PERFORMED DURING THE SEMIANNUAL PERIOD. WE WILL PROVIDE AN
OVERVIEW OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
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 six months ended February 28, 2006
TOTAL RETURN FOR THE 6 MONTHS ENDED FEBRUARY 28, 2006
<Table>
<Caption>
CSFB LIPPER HIGH
HIGH CURRENT YIELD
YIELD BOND FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
1.06% 1.39% 1.37% 1.19% 1.89% 2.49%
</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
As the reporting period opened, investors confronted the possibility that Gulf
Coast hurricane damage could result in a slowdown in economic growth and
increased inflation. An unfavorable supply-demand outlook (large outflows from
high yield mutual funds and a robust high yield bond issuance calendar), a
high-profile default by auto parts manufacturer Delphi and an accounting scandal
at Refco added to investors' concerns. Against this backdrop, the prices of high
yield bonds moved lower in September and October. The market regained a degree
of traction in November and December, however. Although a declining appetite for
corporate credit risk and a rising federal funds target rate weighed on
sentiment, good economic growth and an improved equity market provided support.
Reflecting investors' heightened apprehension, single B rated bonds demonstrated
the greatest resiliency and the lower-rated segment of the high yield market
struggled most during the final months of 2005.
The high yield market started 2006 on a very positive note. Investors were
increasingly heartened by economic growth data and a briskly rising equity
market. In addition, investors' rekindled interest in moving further up the
risk/reward spectrum provided further support to the high yield market. This
improved sentiment offset less positive factors elsewhere, including a very
heavy new issue calendar, rising yields in the Treasury market, rising oil
prices and outflows from mutual funds. In a reversal of the trends of the final
months of 2005, the riskiest segment of the high-yield market garnered the most
favor with investors, as securities rated CCC and below led.
Industry returns varied across sectors, and were often influenced significantly
by individual companies. Within the CSFB High Yield Index, leading sectors
included telecommunications, wireless communications and services. The auto and
auto-related areas of the
2
<Page>
market struggled most, as an ongoing deterioration in fundamentals exacted an
extended toll. Other lagging sectors included cable and financials.
PERFORMANCE ANALYSIS
Morgan Stanley High Yield Securities Inc. underperformed the CSFB High Yield
Index and the Lipper High Current Yield Bond Funds Index for the six months
ended February 28, 2006, assuming no deduction of applicable sales charges.
The Fund's performance versus the CSFB High Yield Index benefited from its
underweighting to the transportation sector, particularly the troubled auto and
auto-related industries. In addition, good security selection in transportation,
cable, and food and drugs also added to relative performance. In contrast,
security selection in financials, forest products and building materials
detracted from relative returns. Additionally, as investors' appetite for risk
increased in 2006, the Fund's more defensive emphasis on the upper tiers of the
high yield market tempered performance.
As of the close of the reporting period, the Fund's portfolio included
overweightings relative to the CSFB High Yield Index in the chemicals, energy,
food/tobacco and wireless communications sectors. The Fund's major sector
underweights included utilities, information technology, metals, housing and
financials. In regards to overall credit risk, the Fund is positioned
defensively versus its CSFB benchmark. Also reflecting a defensive bias, we
reduced some of the riskier positions in the Fund throughout the period.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM AS
DISCUSSED HEREIN OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN
THE FUTURE.
3
<Page>
TOP FIVE INDUSTRIES
<Table>
Electric Utilities 6.1%
Chemicals: Specialty 5.0
Oil & Gas Production 4.6
Casinos/Gaming 4.0
Cable/Satellite TV 4.0
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
A/A+ 3.2%
Baa/BBB+ 1.8
Ba/BB- 20.4
B/B 54.0
Caa/CCC 17.8
NR/NA 2.8
</Table>
DATA AS OF FEBRUARY 28, 2006. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP
FIVE INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS AND ALL PERCENTAGES FOR
LONG-TERM CREDIT ANALYSIS ARE AS PERCENTAGE OF TOTAL LONG-TERM INVESTMENTS.
THESE DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED
A RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A
FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE
ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL
ADVISORY SERVICES.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN FIXED-INCOME
SECURITIES (INCLUDING ZERO COUPON SECURITIES) RATED BELOW Baa BY MOODY'S
INVESTORS SERVICE ("MOODY'S") OR BELOW BBB BY STANDARD & POOR'S RATING GROUP, A
DIVISION OF THE MCGRAW-HILL COMPANIES, INC. ("S&P"), OR IN NON-RATED SECURITIES
CONSIDERED BY THE FUND'S INVESTMENT ADVISER TO BE APPROPRIATE INVESTMENTS FOR
THE FUND. SUCH SECURITIES MAY ALSO INCLUDE "RULE 144A" SECURITIES, WHICH ARE
SUBJECT TO RESALE RESTRICTIONS. SHAREHOLDERS OF THE FUND WILL RECEIVE AT LEAST
60 DAYS' PRIOR NOTICE OF ANY CHANGES IN THIS POLICY. SECURITIES RATED BELOW Baa
OR BBB ARE COMMONLY KNOWN AS "JUNK BONDS." THERE ARE NO MINIMUM QUALITY RATINGS
FOR INVESTMENTS, AND AS SUCH THE FUND MAY INVEST IN SECURITIES WHICH NO LONGER
MAKE PAYMENTS OF INTEREST OR PRINCIPAL.
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,
4
<Page>
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.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE (800) 869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
http://www.sec.gov.
YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30
WITHOUT CHARGE BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT
www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND
EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov.
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.
5
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 28, 2006
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 09/26/79) (SINCE 07/28/97) (SINCE 07/28/97) (SINCE 09/26/79)
SYMBOL HYLAX HYLBX HYLCX HYLDX
1 YEAR 1.82%(3) 1.26%(3) 1.76%(3) 2.01%(3)
(2.51)(4) (3.46)(4) 0.81(4) --
5 YEARS (1.73)(3) (2.27)(3) (2.27)(3) (1.46)(3)
(2.58)(4) (2.51)(4) (2.27)(4) --
10 YEARS (1.95)(3) -- -- (1.74)(3)
(2.38)(4) -- -- --
SINCE INCEPTION 4.98(3) (4.80)(3) (4.85)(3) 5.22(3)
4.80(4) (4.80)(4) (4.85)(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 THE 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 TABLE DOES NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
PRIOR TO JULY 28, 1997 THE FUND OFFERED ONLY ONE CLASS OF SHARES. BECAUSE THE
DISTRIBUTION ARRANGEMENT FOR CLASS A MOST CLOSELY RESEMBLED THE DISTRIBUTION
ARRANGEMENT APPLICABLE PRIOR TO THE IMPLEMENTATION OF MULTIPLE CLASSES (I.E.,
CLASS A IS SOLD WITH A FRONT-END SALES CHARGE), HISTORICAL PERFORMANCE
INFORMATION HAS BEEN RESTATED TO REFLECT THE ACTUAL MAXIMUM SALES CHARGE
APPLICABLE TO CLASS A (I.E., 4.25%) AS COMPARED TO THE 5.50% SALES CHARGE IN
EFFECT PRIOR TO JULY 28, 1997. IN ADDITION, CLASS A SHARES ARE NOW SUBJECT TO AN
ONGOING 12b-1 FEE WHICH IS REFLECTED IN THE RESTATED PERFORMANCE FOR THAT CLASS.
BECAUSE ALL SHARES OF THE FUND HELD PRIOR TO JULY 28, 1997 WERE DESIGNATED CLASS
D SHARES, THE FUND'S HISTORICAL PERFORMANCE HAS BEEN RESTATED TO REFLECT THE
ABSENCE OF ANY SALES CHARGE.
* 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 CSFB HIGH YIELD INDEX IS DESIGNED TO MIRROR THE INVESTIBLE UNIVERSE OF
THE U.S. DOLLAR-DENOMINATED HIGH YIELD DEBT MARKET. INDEXES ARE UNMANAGED
AND THEIR RETURNS DO NOT INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS
WOULD LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER HIGH CURRENT YIELD BOND FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER HIGH CURRENT YIELD BOND FUNDS CLASSIFICATION. THE INDEX, WHICH
IS ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS
UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY
30 FUNDS REPRESENTED IN THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
6
<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 09/01/05 - 02/28/06.
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 *
------------- ------------- ---------------
09/01/05 -
09/01/05 02/28/06 02/28/06
------------- ------------- ---------------
CLASS A
Actual (1.06% return) $ 1,000.00 $ 1,010.60 $ 6.28
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.55 $ 6.31
CLASS B
Actual (1.39% return) $ 1,000.00 $ 1,013.90 $ 8.79
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.07 $ 8.80
CLASS C
Actual (1.37% return) $ 1,000.00 $ 1,013.70 $ 9.09
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,015.77 $ 9.10
CLASS D
Actual (1.19% return) $ 1,000.00 $ 1,011.90 $ 5.04
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.79 $ 5.06
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.26%, 1.76%,
1.82% AND 1.01% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
7
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (93.7%)
ADVERTISING/MARKETING SERVICES (0.3%)
$ 825 Advanstar Communications, Inc. 10.75% 08/15/10 $ 903,375
--------------
AEROSPACE & DEFENSE (1.1%)
3,765 K&F Acquisition Inc. 7.75 11/15/14 3,859,125
--------------
ALUMINUM (1.1%)
3,860 Novelis, Inc. - 144A* (Canada) 7.50** 02/15/15 3,763,500
--------------
APPAREL/FOOTWEAR (1.6%)
3,625 Levi Strauss & Co. 9.28** 04/01/12 3,760,937
1,525 Oxford Industries, Inc. 8.875 06/01/11 1,578,375
--------------
5,339,312
--------------
APPAREL/FOOTWEAR RETAIL (0.5%)
1,620 Brown Shoe Co., Inc. 8.75 05/01/12 1,717,200
--------------
AUTO PARTS: O.E.M. (2.2%)
945 ArvinMeritor, Inc. 8.75 03/01/12 930,825
3,445 Lear Corp. (Series B) 8.11 05/15/09 3,042,259
3,275 TRW Automotive, Inc. 9.375 02/15/13 3,569,750
--------------
7,542,834
--------------
BROADCASTING (0.8%)
1,730 LIN Television Corp. 6.50 05/15/13 1,649,987
1,005 LIN Television Corp. (Series B) 6.50 05/15/13 958,519
--------------
2,608,506
--------------
BUILDING PRODUCTS (1.9%)
865 Interface Inc. 7.30 04/01/08 886,625
2,750 Interface Inc. 9.50 02/01/14 2,832,500
2,745 Nortek Inc. 8.50 09/01/14 2,751,863
--------------
6,470,988
--------------
CABLE/SATELLITE TV (4.0%)
3,165 Cablevision Systems Corp. (Series B) 8.716** 04/01/09 3,287,644
2,098 CCH I LLC - 144A* 11.00 10/01/15 1,775,432
1,940 Echostar DBS Corp. 6.375 10/01/11 1,906,050
285 Intelsat Bermuda Ltd. - 144A* 8.25 01/15/13 292,837
2,555 Intelsat Bermuda Ltd. - 144A* 8.625 01/15/15 2,663,588
1,910 Intelsat Bermuda Ltd. - 144A* 9.614** 01/15/12 1,957,750
1,645 Renaissance Media Group LLC 10.00 04/15/08 1,651,169
--------------
13,534,470
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
CASINO/GAMING (4.0%)
$ 27,175 Aladdin Gaming Holdings/Capital Corp. LLC
(Series B) (a)(b)(f) 13.50% 03/01/10 $ 0
3,860 Isle of Capri Casinos 7.00 03/01/14 3,879,300
2,000 Las Vegas Sands Corp. 6.375 02/15/15 1,950,000
4,470 MGM Mirage Inc. 6.00 10/01/09 4,470,000
27,634 Resort At Summerlin LP/Ras Co. (Series B) (a)(b)(f) 13.00^ 12/15/07 0
2,980 Station Casinos, Inc. 6.00 04/01/12 2,994,900
265 Station Casinos, Inc. 6.875 03/01/16 270,963
--------------
13,565,163
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.4%)
1,445 Westlake Chemical Corp. 6.625 01/15/16 1,450,419
--------------
CHEMICALS: SPECIALTY (5.0%)
2,775 Equistar Chemical Funding 10.125 09/01/08 2,997,000
2,220 Innophos Inc. - 144A* 9.625 08/15/14 2,297,700
1,235 Innophos Inc. - 144A* 12.749**^ 02/15/15 1,192,090
1,050 Koppers Industry Inc. 9.875 10/15/13 1,139,250
2,190 Millennium America, Inc. 9.25 06/15/08 2,261,175
1,055 Nalco Co. 7.75 11/15/11 1,078,737
2,720 Nalco Co. 8.875 11/15/13 2,862,800
2,616 Rockwood Specialties, Inc. 10.625 05/15/11 2,890,680
--------------
16,719,432
--------------
COAL (1.2%)
860 Foundation PA Coal Co. 7.25 08/01/14 885,800
3,225 Massey Energy Co. - 144A* 6.875 12/15/13 3,233,063
--------------
4,118,863
--------------
CONTAINERS/PACKAGING (3.4%)
2,020 Graham Packaging Company Inc. 8.50 10/15/12 2,067,975
1,500 Graham Packaging Company Inc. 9.875 10/15/14 1,530,000
2,625 Graphic Packaging International Corp. 9.50 08/15/13 2,506,875
850 Owens-Brockway Glass Containers Corp. 8.75 11/15/12 918,000
1,765 Owens-Illinois, Inc. 7.35 05/15/08 1,795,887
1,825 Owens-Illinois, Inc. 7.50 05/15/10 1,856,938
455 Pliant Corp. (a)(b) 11.125 09/01/09 420,875
640 Pliant Corp. (Issued 04/10/02) (a)(b) 13.00 06/01/10 160,000
1,045 Pliant Corp. (Issued 05/31/00) (a)(b) 13.00 06/01/10 261,250
--------------
11,517,800
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
DATA PROCESSING SERVICES (0.7%)
$ 171 Sungard Data Systems Inc. - 144A* 9.431**% 08/15/13 $ 181,260
1,965 Sungard Data Systems Inc. - 144A* 9.125 08/15/13 2,100,094
--------------
2,281,354
--------------
DRUGSTORE CHAINS (1.3%)
930 Jean Coutu Group PJC Inc. (Canada) 7.625 08/01/12 934,650
1,995 Jean Coutu Group PJC Inc. (Canada) 8.50 08/01/14 1,915,200
1,495 Rite Aid Corp. 8.125 05/01/10 1,532,375
--------------
4,382,225
--------------
ELECTRIC UTILITIES (6.1%)
415 AES Corp. (The) 7.75 03/01/14 440,419
347 AES Corp. (The) 8.875 02/15/11 377,363
497 AES Corp. (The) 9.375 09/15/10 547,942
1,100 AES Corp. (The) - 144A* 9.00 05/15/15 1,204,500
2,420 CMS Energy Corp. 7.50 01/15/09 2,510,750
965 IPALCO Enterprises, Inc. 8.625** 11/14/11 1,073,562
2,925 Monongahela Power Co. 5.00 10/01/06 2,920,127
2,935 MSW Energy Holdings/Finance 7.375 09/01/10 3,052,400
695 MSW Energy Holdings/Finance 8.50 09/01/10 743,650
1,940 Nevada Power Co. 8.25 06/01/11 2,161,257
1,889 Nevada Power Co. 9.00 08/15/13 2,098,218
3,320 PSEG Energy Holdings Inc. 8.625 02/15/08 3,510,900
--------------
20,641,088
--------------
ELECTRICAL PRODUCTS (2.1%)
3,499 Ormat Funding Corp. 8.25 12/30/20 3,551,541
2,800 Rayovac Corp. 8.50 10/01/13 2,569,000
1,220 Spectrum Brands, Inc. 7.375 02/01/15 1,058,350
--------------
7,178,891
--------------
ELECTRONICS/APPLIANCES (0.7%)
2,225 Eastman Kodak Co. 7.25 11/15/13 2,197,701
--------------
ENVIRONMENTAL SERVICES (1.1%)
555 Allied Waste North America, Inc. 6.375 04/15/11 549,450
1,515 Allied Waste North America, Inc. 6.50 11/15/10 1,515,000
1,546 Allied Waste North America, Inc. 9.25 09/01/12 1,685,140
--------------
3,749,590
--------------
FINANCE/RENTAL/LEASING (1.1%)
2,080 Ford Motor Credit Corp. 5.625 10/01/08 1,890,098
1,810 Residential Capital Corp. 6.375 06/30/10 1,829,276
--------------
3,719,374
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL CONGLOMERATES (0.8%)
$ 2,345 General Motors Acceptance Corp. 4.375% 12/10/07 $ 2,158,521
685 General Motors Acceptance Corp. 6.875 09/15/11 614,011
--------------
2,772,532
--------------
FOOD RETAIL (1.2%)
585 Albertson's, Inc. 7.25 05/01/13 584,119
480 Albertson's, Inc. 7.50 02/15/11 488,368
1,329 CA FM Lease Trust - 144A* 8.50 07/15/17 1,443,341
1,400 Delhaize America, Inc. 8.125 04/15/11 1,528,516
--------------
4,044,344
--------------
FOOD: MEAT/FISH/DAIRY (3.5%)
1,845 Michael Foods Inc. (Series B) 8.00 11/15/13 1,891,125
2,525 Pilgrim's Pride Corp. 9.625 09/15/11 2,685,969
3,080 PPC Escrow Corp. 9.25 11/15/13 3,241,700
4,045 Smithfield Foods Inc. 7.00 08/01/11 4,115,787
--------------
11,934,581
--------------
FOREST PRODUCTS (1.3%)
2,395 Crown Americas Inc. - 144A* 7.625 11/15/13 2,508,762
1,865 Covalence Specialty Material - 144A* 10.25 03/01/16 1,941,931
--------------
4,450,693
--------------
GAS DISTRIBUTORS (0.2%)
675 Northwest Pipeline Corp. 8.125 03/01/10 718,031
--------------
HOME BUILDING (0.5%)
865 Tech Olympic USA, Inc. 10.375 07/01/12 882,084
865 Tech Olympic USA, Inc. 9.00 07/01/10 895,275
--------------
1,777,359
--------------
HOME FURNISHINGS (0.5%)
1,420 Tempur-Pedic Inc. 10.25 08/15/10 1,526,500
--------------
HOSPITAL/NURSING MANAGEMENT (2.6%)
1,900 Community Health System Inc. 6.50 12/15/12 1,890,500
1,740 HCA, Inc. 6.30 10/01/12 1,742,401
80 HCA, Inc. 8.75 09/01/10 88,391
2,285 Medcath Holdings Corp. 9.875 07/15/12 2,384,969
740 Tenet Healthcare Corp. 7.375 02/01/13 682,650
1,815 Tenet Healthcare Corp. 9.875 07/01/14 1,855,837
--------------
8,644,748
--------------
HOTELS/RESORTS/CRUISELINES (0.3%)
980 Starwood Hotels & Resorts Worldwide, Inc. 7.875 05/01/12 1,080,450
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (0.2%)
$ 810 Goodman Global Holding Company, Inc. 7.491**% 06/15/12 $ 828,225
--------------
INDUSTRIAL SPECIALTIES (1.9%)
3,710 Johnsondiversy, Inc. 9.625 05/15/12 3,821,300
2,255 UCAR Finance, Inc. 10.25 02/15/12 2,412,850
--------------
6,234,150
--------------
MEDIA CONGLOMERATES (0.9%)
3,061 Canwest Media Inc. (Canada) 8.00 09/15/12 3,152,322
--------------
MEDICAL SPECIALTIES (0.5%)
1,800 Fisher Scientific International, Inc. 6.125 07/01/15 1,811,250
--------------
MEDICAL/NURSING SERVICES (1.8%)
1,370 DaVita Inc. 6.625 03/15/13 1,397,400
3,700 Fresenius Medical Care Capital Trust 7.875 06/15/11 3,940,500
615 National Nephrology Assoc. Inc. - 144A* 9.00 11/01/11 685,288
--------------
6,023,188
--------------
METAL FABRICATIONS (1.2%)
1,555 General Cable Corp. 9.50 11/15/10 1,679,400
2,210 Hexcell Corp. 6.75 02/01/15 2,226,575
--------------
3,905,975
--------------
MISCELLANEOUS COMMERCIAL SERVICES (1.1%)
920 Iron Mountain Inc. 7.75 01/15/15 936,100
2,590 Iron Mountain Inc. 8.625 04/01/13 2,713,025
--------------
3,649,125
--------------
MISCELLANEOUS MANUFACTURING (0.6%)
735 Associated Materials Inc. 11.25^^ 03/01/14 393,225
1,960 Propex Fabrics Inc. 10.00 12/01/12 1,754,200
--------------
2,147,425
--------------
MOTOR VEHICLES (1.5%)
2,330 Ford Motor Co. 7.45 07/16/31 1,665,950
860 General Motors Corp. 7.125 07/15/13 614,900
4,130 General Motors Corp. 8.375 07/15/33 2,932,300
--------------
5,213,150
--------------
MOVIES/ENTERTAINMENT (0.5%)
1,650 AMC Entertainment Inc. 8.999** 08/15/10 1,716,000
--------------
OIL & GAS PIPELINES (3.5%)
1,520 Colorado Interstate Gas Co. - 144A* 6.80 11/15/15 1,599,131
2,625 El Paso Production Holdings 7.75 06/01/13 2,782,500
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
$ 2,335 Pacific Energy Partners/Finance 7.125% 06/15/14 $ 2,422,563
1,330 Southern Natural Gas 8.875 03/15/10 1,429,246
3,100 Williams Companies, Inc. (The) 7.875 09/01/21 3,479,750
--------------
11,713,190
--------------
OIL & GAS PRODUCTION (4.6%)
2,625 Chaparral Energy Inc. - 144A* 8.50 12/01/15 2,789,062
400 Chesapeake Energy Corp. 6.375 06/15/15 402,000
2,865 Chesapeake Energy Corp. 7.50 09/15/13 3,061,969
1,700 Hilcorp Energy/Finance - 144A* 7.75 11/01/15 1,729,750
1,671 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 1,863,165
1,295 Magnum Hunter Resources, Inc. 9.60 03/15/12 1,405,075
1,950 Pogo Producing Co. 6.875 10/01/17 1,974,375
2,220 Vintage Petroleum, Inc. 7.875 05/15/11 2,316,641
--------------
15,542,037
--------------
OIL REFINING/MARKETING (0.9%)
2,775 Husky Oil Ltd. 8.90 08/15/28 2,959,715
--------------
OILFIELD SERVICES/EQUIPMENT (1.4%)
965 CIE Generale de Geophysique S.A. (France) 7.50 05/15/15 1,013,250
580 Hanover Compressor Co. 8.625 12/15/10 615,525
530 Hanover Compressor Co. 9.00 06/01/14 580,350
591 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 613,162
1,655 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 1,754,300
--------------
4,576,587
--------------
OTHER METALS/MINERALS (0.0%)
3,750 Murrin Holdings Property Ltd. (Australia) (b)(f) 9.375 08/31/07 0
--------------
OTHER TRANSPORTATION (1.1%)
3,700 CHC Helicopter Corp. (Canada) 7.375 05/01/14 3,797,125
--------------
PHARMACEUTICALS: MAJOR (1.2%)
1,730 VWR International Inc. 6.875 04/15/12 1,730,000
2,335 Warner Chilcott Corp. - 144A* 8.75 02/01/15 2,305,813
--------------
4,035,813
--------------
PUBLISHING: BOOKS/MAGAZINES (2.5%)
1,255 Dex Media East/Finance 12.125 11/15/12 1,454,231
1,536 Dex Media West/Finance 9.875 08/15/13 1,708,800
985 Houghton Mifflin Co. 8.25 02/01/11 1,034,250
2,350 Houghton Mifflin Co. 9.875 02/01/13 2,573,250
1,880 PRIMEDIA, Inc. 8.875 05/15/11 1,818,900
--------------
8,589,431
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
PULP & PAPER (0.8%)
$ 3,005 Abitibi-Consolidated Inc. (Canada) 6.00% 06/20/13 $ 2,524,200
--------------
REAL ESTATE INVESTMENT TRUSTS (0.8%)
380 HMH Properties, Inc. (Series B) 7.875 08/01/08 384,275
2,200 Host Marriott LP 6.375 03/15/15 2,205,500
--------------
2,589,775
--------------
SERVICES TO THE HEALTH INDUSTRY (0.5%)
1,720 Omnicare Inc. 6.75 12/15/13 1,758,700
--------------
SPECIALTY STORES (2.4%)
2,435 Linens' n Things, Inc. - 144A* 10.366 01/15/14 2,459,350
2,425 Petro Stopping Centers LP/Petro Financial Corp. 9.00 02/15/12 2,467,438
3,250 Sonic Automotive, Inc. 8.625 08/15/13 3,274,375
--------------
8,201,163
--------------
SPECIALTY TELECOMMUNICATIONS (3.3%)
1,920 American Tower Corp. 7.125 10/15/12 2,020,800
1,920 American Tower Corp. 7.50 05/01/12 2,035,200
432 Panamsat Corp. 9.00 08/15/14 457,920
4,340 Panamsat Holding Corp. 10.375^^ 11/01/14 3,108,525
3,005 Qwest Communications International 8.249** 02/15/09 3,083,881
370 U.S. West Communications Corp. 5.625 11/15/08 368,150
--------------
11,074,476
--------------
STEEL (1.2%)
3,595 Amsted Industries Inc. - 144A* 10.25 10/15/11 3,918,550
--------------
TELECOMMUNICATIONS (0.7%)
2,044 Axtel SA (Mexico) 11.00 12/15/13 2,371,040
6,416 Exodus Communications, Inc. (a)(b)(f) 11.625 07/15/10 0
28,549 Rhythms Netconnections, Inc. (a)(b)(f) 12.75 04/15/09 0
4,309 Rhythms Netconnections, Inc. (a)(b)(f) 14.00 02/15/10 0
13,439 Rhythms Netconnections, Inc. (Series B) (a)(b)(f) 13.50 05/15/08 0
--------------
2,371,040
--------------
TOBACCO (0.9%)
2,830 RJ Raynolds Tobacco Holdings 6.50 07/15/10 2,858,300
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (2.0%)
2,939 Manitowoc Inc. (The) 10.50 08/01/12 3,269,637
3,360 NMHG Holding Co. 10.00 05/15/09 3,561,600
--------------
6,831,237
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
WHOLESALE DISTRIBUTORS (1.1%)
$ 920 Buhrmann US, Inc. 7.875% 03/01/15 $ 922,300
1,845 Buhrmann US, Inc. 8.25 07/01/14 1,904,963
765 Nebraska Book Company, Inc. 8.625 03/15/12 722,925
--------------
3,550,188
--------------
WIRELESS TELECOMMUNICATIONS (3.1%)
1,775 Rural Cellular Corp. 8.991** 03/15/10 1,819,375
1,313 SBA Comminications Corp. 8.50 12/01/12 1,450,865
2,222 SBA Communications Corp. 9.75^^ 12/15/11 2,116,455
2,505 Ubiquitel Operating Co. 9.875 03/01/11 2,768,025
2,175 Wind Acquisition Finance SA - 144A* (Luxembourg) 10.75 12/01/15 2,338,125
--------------
10,492,845
--------------
Total Corporate Bonds
(COST $413,428,054) 316,275,630
--------------
<Caption>
NUMBER OF
SHARES
- ---------
Common Stocks (d) (1.0%)
CASINO/GAMING (0.0%)
212,312 Fitzgeralds Gaming Corp. +(f) 0
--------------
ELECTRIC UTILITIES (0.0%)
197 PNM Resources Inc. 4,876
1 SW Acquisition (0.03% Ownership Interest, Acquired 09/22/05) (c)(f)(g 19
--------------
4,895
--------------
FOOD: SPECIALTY/CANDY (0.0%)
13,317 SFAC New Holdings Inc. ++(c)(f) 0
2,447 SFFB New Holdings Inc. (c)(f) 0
1,069,725 Specialty Foods Acquisition Corp. - 144A* (f) 0
--------------
0
--------------
MEDICAL/NURSING SERVICES (0.0%)
1,754,896 Raintree Healthcare Corp. (c)(f) 0
--------------
RESTAURANTS (1.0%)
64,807 American Restaurant Group Holdings, Inc. - 144A* (f) 0
111,558 American Restaurant Group Holdings, Inc. (c)(f) 0
13,107 American Restaurant Group Holdings, Inc. (c)(f) 0
787,160 Catalina Restaurant Group (c)(f) (Note 4) 3,439,889
--------------
3,439,889
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
34,159 Birch Telecom Inc. +++(c)(f) $ 342
1,448,200 PFB Telecom NV (Series B) (c)(f) 0
--------------
342
--------------
TELECOMMUNICATIONS (0.0%)
49,597 Viatel Holdings Bermuda Ltd. (c) 1,612
--------------
TEXTILES (0.0%)
2,389,334 U.S. Leather, Inc. (c)(f) 0
--------------
WIRELESS TELECOMMUNICATIONS (0.0%)
5,199 USA Mobility, Inc. (c) 149,835
315,021 Vast Solutions, Inc. (Class B1) (c)(f) 0
315,021 Vast Solutions, Inc. (Class B2) (c)(f) 0
315,021 Vast Solutions, Inc. (Class B3) (c)(f) 0
--------------
149,835
--------------
Total Common Stocks
(COST $246,855,045) 3,596,573
--------------
Non-Convertible Preferred Stock (0.5%)
RESTAURANTS
1,792 Catalina Restaurant Group (Units) ^^^++++(f)
(COST $1,772,032) 1,792,382
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------
Convertible Bond (0.5%)
TELECOMMUNICATION EQUIPMENT
$ 1,840 Nortel Networks Corp. (Canada)
(COST $1,750,300) 4.25% 09/01/08 1,745,700
--------------
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ----------
Warrants (d)(f) (0.1%)
CASINO/GAMING (0.0%)
319,500 Aladdin Gaming Enterprises, Inc. - 144A* 03/01/10 0
23,000 Resort At Summerlin LP - 144A* 12/15/07 0
--------------
0
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
RESTAURANTS (0.1%)
4,500 American Restaurant Group Holdings, Inc. - 144A* 08/15/08 $ 0
334,250 Catalina Restaurant Group +++++(c) 07/10/12 230,633
--------------
230,633
--------------
Total Warrants
(COST $3,470) 230,633
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------
Short-Term Investment (2.4%)
Repurchase Agreement
$ 8,014 Joint repurchase agreement account
(dated 02/28/06; proceeds $8,015,014) (e)
(COST $8,014,000) 4.555% 03/01/06 8,014,000
--------------
Total Investments
(COST $671,822,901) (h) 98.2% 331,654,918
Other Assets in Excess of Liabilities 1.8 6,025,176
----- --------------
Net Assets 100.0% $ 337,680,094
===== ==============
</Table>
- ----------
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
** FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT FEBRUARY
28, 2006.
+ RESALE IS RESTRICTED, ACQUIRED (12/22/98) AT A COST BASIS OF $957,527.
++ RESALE IS RESTRICTED, ACQUIRED (06/10/99) AT A COST BASIS OF $133.
+++ RESALE IS RESTRICTED, ACQUIRED ( BETWEEN 06/18/98 AND 05/11/99) AT A
COST BASIC OF $17,257,340.
++++ RESALE IS RESTRICTED, ACQUIRED (05/30/02) AT A COST BASIC OF
$1,337,000.
+++++ RESALE IS RESTRICTED, ACQUIRED (08/27/02) AT A COST BASIS OF $0.
^ PAYMENT-IN-KIND SECURITY.
^^ CURRENTLY A ZERO COUPON BOND AND IS SCHEDULED TO PAY INTEREST AT THE
RATE SHOWN AT A FUTURE SPECIFIED DATE.
^^^ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
CORPORATE BONDS OR PREFERRED STOCKS WITH ATTACHED WARRANTS.
(a) ISSUER IN BANKRUPTCY.
(b) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT.
(c) ACQUIRED THROUGH EXCHANGE OFFER.
(d) NON-INCOME PRODUCING SECURITIES.
(e) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(f) SECURITIES WITH TOTAL MARKET VALUE EQUAL TO $5,463,265 HAVE BEEN VALUED
AT THEIR FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES
ESTABLISHED BY AND UNDER THE GENERAL SUPERVISION OF THE FUND'S
DIRECTORS.
(g) RESALE IS RESTRICTED. NO TRANSACTION ACTIVITY DURING THE YEAR.
(h) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $9,457,646 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $349,625,629, RESULTING IN NET UNREALIZED DEPRECIATION
OF $340,167,983.
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2006 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $666,902,228) $ 326,192,014
Investments in affiliates, at value (cost $4,920,673) 5,462,904
Receivable for:
Interest 6,317,628
Investments sold 556,500
Capital stock sold 315,556
Prepaid expenses and other assets 297,499
----------------
TOTAL ASSETS 339,142,101
----------------
LIABILITIES:
Payable for:
Capital stock redeemed 693,085
Investments purchased 221,968
Distribution fee 122,529
Investment advisory fee 109,658
Transfer agent fee 59,921
Administration fee 20,887
Accrued expenses and other payables 233,959
----------------
TOTAL LIABILITIES 1,462,007
----------------
NET ASSETS $ 337,680,094
================
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 2,677,812,703
Net unrealized depreciation (340,167,983)
Accumulated undistributed net investment income 1,603,235
Accumulated net realized loss (2,001,567,861)
----------------
NET ASSETS $ 337,680,094
================
CLASS A SHARES:
Net Assets $ 75,207,076
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 43,123,130
NET ASSET VALUE PER SHARE $ 1.74
================
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 1.82
================
Class B Shares:
Net Assets $ 157,983,050
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 91,352,469
NET ASSET VALUE PER SHARE $ 1.73
================
CLASS C SHARES:
Net Assets $ 23,363,498
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 13,465,846
NET ASSET VALUE PER SHARE $ 1.74
================
CLASS D SHARES:
Net Assets $ 81,126,470
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 46,612,542
Net Asset Value Per Share $ 1.74
================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2006 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INCOME
Interest $ 14,778,420
Dividends 7,838
Dividends from affiliates 183,142
-------------
TOTAL INCOME 14,969,400
-------------
EXPENSES
Investment advisory fee 789,136
Distribution fee (Class A shares) 91,595
Distribution fee (Class B shares) 671,398
Distribution fee (Class C shares) 99,831
Transfer agent fees and expenses 489,352
Professional fees 352,241
Administration fee 150,312
Shareholder reports and notices 50,500
Registration fees 28,541
Custodian fees 12,503
Directors' fees and expenses 10,028
Other 23,379
-------------
TOTAL EXPENSES 2,768,816
-------------
NET INVESTMENT INCOME 12,200,584
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss (4,147,241)
Net change in unrealized depreciation (5,041,839)
-------------
NET LOSS (9,189,080)
-------------
NET INCREASE $ 3,011,504
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------- ---------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 12,200,584 $ 35,751,826
Net realized loss (4,147,241) (42,347,309)
Net change in unrealized depreciation (5,041,839) 37,567,982
----------------- ---------------
Net Increase 3,011,504 30,972,499
----------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (2,861,010) (2,711,458)
Class B shares (6,552,182) (20,033,058)
Class C shares (891,046) (2,208,231)
Class D shares (3,762,825) (10,309,554)
----------------- ---------------
TOTAL DIVIDENDS (14,067,063) (35,262,301)
----------------- ---------------
Net decrease from capital stock transactions (86,798,611) (134,830,856)
----------------- ---------------
NET DECREASE (97,854,170) (139,120,658)
NET ASSETS:
Beginning of period 435,534,264 574,654,922
----------------- ---------------
End of Period
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$1,603,235 AND $3,469,714, RESPECTIVELY) $ 337,680,094 $ 435,534,264
================= ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, (the "Act") as a diversified,
open-end management investment company. The Fund's investment objective is to
earn a high level of current income. The Fund was incorporated in Maryland on
June 14, 1979 and commenced operations on September 26, 1979. On July 28, 1997,
the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within 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.
The fund will assess 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 thirty 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) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Adviser") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Directors. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are expected to materially affect
21
<Page>
the value of such securities, such valuations may be adjusted to reflect the
estimated fair value of such securities as of the close of the NYSE, as
determined in good faith by the Fund's Directors or by the Investment Adviser
using a pricing service and/or procedures approved by the Directors of the Fund;
(6) certain portfolio securities may be valued by an outside pricing service
approved by the Fund's Directors; and (7) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Adviser, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency
22
<Page>
gain or loss. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
F. 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.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. 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, the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.42% to the portion of the daily net assets not exceeding
$500 million; 0.345% to the portion of the daily net assets exceeding $500
million but not exceeding $750 million; 0.295% to the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; 0.27% to the portion
of the daily net assets exceeding $1 billion but not exceeding $2 billion;
0.245% to the portion of the daily net assets exceeding $2 billion but not
exceeding $3 billion; and 0.22% to the portion of the daily net assets exceeding
$3 billion.
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.
Effective November 18, 2005, the Investment Adviser has agreed to cap Fund's
operating expenses (except for brokerage and 12b-1 fees) for one year by
assuming the Fund's "other expenses" and/or waiving the Fund's advisory fees,
and the Administrator has agreed to waive the Fund's administrative fees, to the
extent such operating expenses on an annualized basis exceed 1.02% of the
average daily net assets of the Fund.
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
23
<Page>
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% of the average daily net assets of Class B; and (iii) Class C -- up to
0.85% of the average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Directors will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$58,576,695 at February 28, 2006.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended February 28, 2006, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 0.81%,
respectively.
The Distributor has informed the Fund that for six months ended February 28,
2006, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $390, $243,674
and $1,988, respectively and received $15,498 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended February 28, 2006, aggregated
$64,023,092 and $151,145,009, 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 Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Directors voted to close the plan to new participants and eliminate the future
24
<Page>
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the six months ended February 28, 2006, included in Directors'
fees and expenses in the Statement of Operations amounted to $8,161. At February
28, 2006, the Fund had an accrued pension liability of $129,826 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 Director to defer payment of all, or a portion, of
the fees he receives for serving on the Board of Directors. Each eligible
Director generally may elect to have the deferred amounts credited with a return
equal to the total return on one or more of the Morgan Stanley funds that are
offered as investment options under the Compensation Plan.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund.
An affiliated company is a company in which the Fund has ownership of at least
5% of the voting securities. Transactions with such companies during the six
months ended February 28, 2006 were as follows:
<Table>
<Caption>
REALIZED
ISSUER PURCHASES SALES GAIN INCOME VALUE
- ------ --------- ----- -------- ---------- ------------
Catalina Restaurant Group (Common Stock) -- -- -- -- $ 3,439,889
Catalina Restaurant Group (Non-Convertible Preferred Stock) (Units) -- -- -- $ 183,142 1,792,382
Catalina Restaurant Group (Warrants) -- -- -- -- 230,633
</Table>
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency for
many purposes, including exposure associated with foreign currency denominated
securities.
Forward contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
25
<Page>
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
-------------------------------- --------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 2,226,485 $ 3,867,072 2,420,086 $ 4,384,430
Conversion from Class B 8,120,273 14,102,001 39,485,771 69,553,274
Reinvestment of dividends 691,884 1,198,112 650,643 1,160,278
Redeemed (11,463,337) (19,962,661) (10,998,888) (19,613,632)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class A (424,695) (795,476) 31,557,612 55,484,350
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 1,769,173 3,072,178 12,758,363 23,071,062
Conversion to Class A (8,190,435) (14,102,001) (39,731,082) (69,553,274)
Reinvestment of dividends 1,527,497 2,626,286 4,583,006 8,219,932
Redeemed (19,763,678) (34,127,370) (62,941,319) (112,821,636)
-------------- -------------- -------------- --------------
Net decrease -- Class B (24,657,443) (42,530,907) (85,331,032) (151,083,916)
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 295,156 511,901 1,927,189 3,489,545
Reinvestment of dividends 224,452 386,819 553,599 993,637
Redeemed (2,443,182) (4,236,836) (8,208,423) (14,684,654)
-------------- -------------- -------------- --------------
Net decrease -- Class C (1,923,574) (3,338,116) (5,727,635) (10,201,472)
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 379,776 661,311 1,933,695 3,515,756
Reinvestment of dividends 1,233,281 2,137,919 3,348,157 6,024,152
Redeemed (24,759,542) (42,933,342) (21,377,185) (38,569,726)
-------------- -------------- -------------- --------------
Net decrease -- Class D (23,146,485) (40,134,112) (16,095,333) (29,029,818)
-------------- -------------- -------------- --------------
Net decrease in Fund (50,152,197) $ (86,798,611) (75,596,388) $ (134,830,856)
============== ============== ============== ==============
</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.
26
<Page>
As of August 31, 2005, the Fund had a net capital loss carryforward of
$1,953,052,602 of which $12,603,314 will expire on August 31, 2006, $24,9198,181
will expire on August 31, 2007, $69,856,779 will expire on August 31, 2008,
$89,299,249 will expire on August 31, 2009, $245,944,739 will expire con August
31, 2010, $568,502,378 will expire on August 31, 2011, $758,434,573 will expire
on August 31, 2012 and $183,492,389 will expire on August 31, 2013 to offset
future capital gains to the extent provided by regulations.
As of August 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), interest on bonds in default and book
amortization of discounts on debt securities.
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 afiliates, 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 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, which motion defendants opposed. While the Fund and Adviser
believe that each has meritorious defenses, the ultimate outcome of this matter
is not presently determinable and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.
27
<Page>
MORGAN STANLEY HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -----------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.79 $ 1.80 $ 1.67 $ 1.55 $ 2.32 $ 4.35
--------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.06 0.13 0.16 0.19 0.26 0.47
Net realized and unrealized gain (loss) (0.04) (0.01) 0.09 0.10 (0.73) (1.99)
--------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.02 0.12 0.25 0.29 (0.47) (1.52)
--------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.07) (0.13) (0.12) (0.17) (0.27) (0.51)
Paid-in-capital - - - - (0.03) -
--------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.07) (0.13) (0.12) (0.17) (0.30) (0.51)
--------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.74 $ 1.79 $ 1.80 $ 1.67 $ 1.55 $ 2.32
========= ========== ========== ========== ========== ==========
TOTAL RETURN+ 1.06%(1) 6.84% 15.40% 19.88% (21.70)% (37.05)%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.26%(2) 1.12% 1.03% 1.06% 0.99% 0.77%
Net investment income 6.71%(2) 7.24% 8.98% 11.96% 13.76% 15.17%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 75,207 $ 77,861 $ 21,595 $ 38,072 $ 23,879 $ 36,762
Portfolio turnover rate 18%(1) 43% 51% 66% 39% 49%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -----------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.77 $ 1.79 $ 1.67 $ 1.55 $ 2.32 $ 4.34
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.05 0.12 0.15 0.18 0.25 0.46
Net realized and unrealized gain (loss) (0.03) (0.02) 0.08 0.10 (0.73) (1.99)
---------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.02 0.10 0.23 0.28 (0.48) (1.53)
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.06) (0.12) (0.11) (0.16) (0.26) (0.49)
Paid-in-capital - - - - (0.03) -
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.06) (0.12) (0.11) (0.16) (0.29) (0.49)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.73 $ 1.77 $ 1.79 $ 1.67 $ 1.55 $ 2.32
========== ========== ========== ========== ========== ==========
TOTAL RETURN+ 1.39%(1) 5.68% 14.15% 19.27% (22.00)% (37.27)%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.76%(2) 1.66% 1.60% 1.61% 1.56% 1.37%
Net investment income 6.21%(2) 6.70% 8.41% 11.41% 13.19% 14.57%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 157,983 $ 205,739 $ 360,513 $ 422,468 $ 371,399 $ 664,706
Portfolio turnover rate 18%(1) 43% 51% 66% 39% 49%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -----------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.78 $ 1.80 $ 1.67 $ 1.55 $ 2.32 $ 4.34
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.05 0.12 0.15 0.18 0.25 0.45
Net realized and unrealized gain (loss) (0.03) (0.02) 0.09 0.10 (0.73) (1.98)
---------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.02 0.10 0.24 0.28 (0.48) (1.53)
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.06) (0.12) (0.11) (0.16) (0.26) (0.49)
Paid-in-capital - - - - (0.03) -
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.06) (0.12) (0.11) (0.16) (0.29) (0.49)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.74 $ 1.78 $ 1.80 $ 1.67 $ 1.55 $ 2.32
========== ========== ========== ========== ========== ==========
TOTAL RETURN+ 1.37%(1) 5.58% 14.65% 19.14% (22.11)% (37.24)%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.82%(2) 1.74% 1.70% 1.71% 1.66% 1.47%
Net investment income 6.15%(2) 6.62% 8.31% 11.31% 13.09% 14.47%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 23,363 $ 27,378 $ 37,907 $ 45,114 $ 33,978 $ 49,818
Portfolio turnover rate 18%(1) 43% 51% 66% 39% 49%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -----------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.79 $ 1.80 $ 1.68 $ 1.55 $ 2.32 $ 4.35
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.06 0.13 0.16 0.19 0.26 0.48
Net realized and unrealized gain (loss) (0.04) (0.01) 0.08 0.11 (0.73) (1.99)
---------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.02 0.12 0.24 0.30 (0.47) (1.51)
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.07) (0.13) (0.12) (0.17) (0.27) (0.52)
Paid-in-capital - - - - (0.03) -
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.07) (0.13) (0.12) (0.17) (0.30) (0.52)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.74 $ 1.79 $ 1.80 $ 1.68 $ 1.55 $ 2.32
========== ========== ========== ========== ========== ==========
TOTAL RETURN+ 1.19%(1) 7.04% 14.93% 20.82% (21.45)% (36.95)%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.01%(2) 0.91% 0.85% 0.86% 0.81% 0.62%
Net investment income 6.96%(2) 7.45% 9.16% 12.16% 13.94% 15.32%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 81,126 $ 124,556 $ 154,639 $ 175,471 $ 86,436 $ 137,319
Portfolio turnover rate 18%(1) 43% 51% 66% 39% 49%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
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 Yu
VICE PRESIDENT
Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its directors. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD
(C) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
37915RPT-RA06-00322P-YO2/06
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
HIGH YIELD SECURITIES
SEMIANNUAL REPORT
FEBRUARY 28, 2006
[MORGAN STANLEY LOGO]
<Page>
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
<Page>
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) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley High Yield Securities Inc.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 19, 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
April 19, 2006
/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 19, 2006