-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AueT2wsjhBECbdNRRj5WXADOhVVJx+T5NOxePsS0QusT8RQq4G4qSgJYFj6eEYru s6JykVtDs3cO2Hwtd7WK8g== 0001047469-05-011034.txt : 20050422 0001047469-05-011034.hdr.sgml : 20050422 20050422134026 ACCESSION NUMBER: 0001047469-05-011034 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050228 FILED AS OF DATE: 20050422 DATE AS OF CHANGE: 20050422 EFFECTIVENESS DATE: 20050422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY HIGH YIELD SECURITIES INC CENTRAL INDEX KEY: 0000311847 IRS NUMBER: 132988937 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02932 FILM NUMBER: 05766865 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN HIGH YIELD SECURITIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INTERCAPITAL HIGH YIELD SECURITIES INC DATE OF NAME CHANGE: 19830308 N-CSRS 1 a2156100zn-csrs.txt N-CSRS 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, 2005 Date of reporting period: February 28, 2005 Item 1 - Report to Shareholders 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. FUND REPORT FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005 TOTAL RETURN FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005
LEHMAN CSFB BROTHERS LIPPER HIGH HIGH U.S. CORP. CURRENT YIELD YIELD HIGH YIELD BOND FUNDS CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) INDEX(3) 6.04% 5.82% 5.17% 6.18% 7.53% 7.51% 7.59%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com, OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE FUND'S TOTAL 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 The high yield market exhibited strong performance for the six months ended February 28, 2005. The market was supported by robust fundamentals, as economic growth continued and defaults remained very low. Although new issuance levels remained high for much of the period, demand from yield-seeking investors resulted in this issuance being absorbed with little difficulty. This demand led to a general decline in yield spreads (the extra yield over treasuries demanded by investors as compensation for assuming credit risk) over the period in spite of a steadily rising federal funds rate. The high yield market weakened in January due to outflows from mutual funds, a declining equity market and the continuing high level of new issuance, causing high yield spreads to widen slightly and the index's yield to maturity to rise. In February, the high yield market went on to rebound, showing strong performance despite a declining treasury market. High yield spreads tightened significantly for the month, and by the end of the period the high yield market reached near-record tightness in spreads. PERFORMANCE ANALYSIS Morgan Stanley High Yield Securities underperformed the CSFB High Yield Index, the Lehman Brothers U.S. Corporate High Yield Index and the Lipper High Current Yield Bond Funds Index for the six months ended February 28, 2005, assuming no deduction of applicable sales charges. The bulk of the Fund's underperformance was driven by its emphasis on less-risky securities. While the Fund's credit ratings exposures were broadly similar to those of the benchmark, its portfolio emphasized the less yield-driven names that did not rally as strongly as the more speculative areas of the market. One example of this was airline bonds, which the Fund has avoided since before the period due to concerns about these distressed companies' ability to pay interest on their debt. These were among the speculative parts of the market that enjoyed a brief rally during the period, and the Fund's strategy limited its participation in that rally. The Fund's positive return was driven by strong security selection in several key sectors. Within the cable industry, the Fund benefited from allocations to several European cable companies, which performed well. The Fund also profited from gains in holdings in the telecommunications and media sectors. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE FUND IN THE FUTURE. 2 LARGEST INDUSTRIES Electric Utilities 7.7% Chemicals: Specialty 6.0 Cable/Satellite TV 4.8 Building Products 3.9 Wireless Telecommunications 3.4
LONG-TERM CREDIT ANALYSIS A/A+ 1.1% Baa/BBB+ 0.3 Ba/BB- 19.3 B/B 50.2 Caa/CCC 28.0 NR/NR 1.1
DATA AS OF FEBRUARY 28, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR LARGEST INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS AND ALL PERCENTAGES FOR LONG-TERM CREDIT ANALYSIS ARE AS A PERCENTAGE OF TOTAL LONG-TERM INVESTMENTS. THESE DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY SERVICES. 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 CORPORATION ("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, 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 3 (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. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS. PROXY VOTING POLICIES AND PROCEDURES A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, 2004, IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS OR 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. 4 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 28, 2005
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 10.46%(4) 9.90%(4) 9.16%(4) 10.06%(4) 5.77(5) 4.90(5) 8.16(5) -- 5 YEARS (8.60)(4) (9.12)(4) (9.26)(4) (8.40)(4) (9.39)(5) (9.32)(5) (9.26)(5) -- 10 YEARS (0.70)(4) -- -- (0.48)(4) (1.13)(5) -- -- -- SINCE INCEPTION 5.10(4) (5.57)(4) (5.68)(4) 5.35(4) 4.92(5) (5.57)(5) (5.68)(5) --
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 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% 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 $US-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. THE FUND'S BENCHMARK IS BEING CHANGED FROM THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD INDEX TO THE CSFB HIGH YIELD INDEX TO MORE ACCURATELY REFLECT THE FUND'S INVESTABLE UNIVERSE. (2) THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD INDEX TRACKS THE PERFORMANCE OF ALL BELOW INVESTMENT-GRADE SECURITIES WHICH HAVE AT LEAST $100 MILLION IN OUTSTANDING ISSUANCE, A MATURITY GREATER THAN ONE YEAR, AND ARE ISSUED IN FIXED-RATE U.S. DOLLAR DENOMINATIONS. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX. (3) 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. (4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT THE DEDUCTION OF ANY SALES CHARGES. (5) 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. 5 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 management 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 09/01/04 - 02/28/05. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD * --------------- --------------- --------------- 09/01/04 - 09/01/04 02/28/05 02/28/05 --------------- --------------- --------------- CLASS A Actual (6.04% return) $ 1,000.00 $ 1,060.40 $ 5.87 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.09 $ 5.76 CLASS B Actual (5.82% return) $ 1,000.00 $ 1,058.20 $ 8.42 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.61 $ 8.25 CLASS C Actual (5.17% return) $ 1,000.00 $ 1,051.70 $ 8.90 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.12 $ 8.75 CLASS D Actual (6.18% return) $ 1,000.00 $ 1,061.80 $ 4.60 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.33 $ 4.51
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.15%, 1.65%, 1.75% AND 0.90% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (to reflect the one-half year period). 6 MORGAN STANLEY HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (94.8%) AEROSPACE & DEFENSE (0.8%) $ 4,070 K&F Acquisition Inc. - 144A* 7.75% 11/15/14 $ 4,141,225 -------------- ALTERNATIVE POWER GENERATION (0.8%) 4,114 Ormat Funding Corp. - 144A* 8.25 12/30/20 4,175,606 -------------- ALUMINUM (0.8%) 4,175 Novelis, Inc. - 144A* 7.25 02/15/15 4,342,000 -------------- APPAREL/FOOTWEAR (0.3%) 1,650 Oxford Industries, Inc. 8.875 06/01/11 1,773,750 -------------- AUTO PARTS - OEM (0.9%) 4,160 TRW Automotive, Inc. 9.375 02/15/13 4,721,600 -------------- AUTOMOTIVE AFTERMARKET (0.8%) 4,590 Cooper Standard Automotive - 144A* 8.375 12/15/14 4,360,500 -------------- BROADCASTING (0.9%) 4,391 Canwest Media Inc. - 144A* (Canada) 8.00 09/15/12 4,752,724 -------------- BUILDING PRODUCTS (3.9%) 2,985 ACIH Inc. - 144A* 11.50## 12/15/12 2,253,675 3,240 Brand Services Inc. 12.00 10/15/12 3,669,300 865 Interface Inc. 7.30 04/01/08 888,788 4,460 Interface Inc. 9.50 02/01/14 4,872,550 4,050 Nortek Inc. 8.50 09/01/14 4,151,250 3,150 NTK Holdings Inc. - 144A* 10.75## 03/01/14 1,953,000 3,250 Ply Gem Industries, Inc. 9.00 02/15/12 3,266,250 -------------- 21,054,813 -------------- CABLE/SATELLITE TV (4.8%) 1,002 Avalon Cable LLC 11.875 12/01/08 1,045,873 1,780 Charter Communications Holdings LLC 10.75 10/01/09 1,544,150 1,340 Charter Communications Holdings/Charter Capital 13.50## 01/15/11 1,095,450 4,465 Charter Communications Holdings/Charter Capital 11.75## 05/15/11 3,225,962 2,065 Intelsat Bermuda Ltd. - 144A* 7.794 01/15/12 2,132,113 285 Intelsat Bermuda Ltd. - 144A* 8.25 01/15/13 299,963 2,760 Intelsat Bermuda Ltd. - 144A* 8.625 01/15/15 2,960,100 4,515 Kabel Deutschland - 144A* (Germany) 10.625 07/01/14 5,214,825 1,780 Renaissance Media Group LLC 10.00 04/15/08 1,828,950 7,980 Telenet Group Holding NV - 144A* (Belgium) 11.50## 06/15/14 6,344,100 -------------- 25,691,486 --------------
SEE NOTES TO FINANCIAL STATEMENTS 7
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- CASINO/GAMING (2.4%) $ 27,175 Aladdin Gaming Holdings/Capital Corp. LLC (Series B) (b) (f) 13.50% 03/01/10 $ 0 3,755 Isle of Capri Casinos 7.00 03/01/14 3,914,588 5,255 MGM Mirage Inc. 6.00 10/01/09 5,412,650 27,634 Resort At Summerlin LP/Ras Co. (Series B) (a) (b) (f) 13.00 12/15/07 0 3,195 Station Casinos, Inc. 6.00 04/01/12 3,326,794 -------------- 12,654,032 -------------- CHEMICALS: MAJOR DIVERSIFIED (1.9%) 4,230 Equistar Chemical Funding 10.125 09/01/08 4,875,075 1,575 Huntsman Advanced Materials Corp. - 144A* 11.00 07/15/10 1,862,438 3,355 Huntsman ICI Chemicals 10.125 07/01/09 3,543,719 -------------- 10,281,232 -------------- CHEMICALS: SPECIALTY (6.0%) 1,785 FMC Corp. 10.25 11/01/09 2,030,437 2,400 Innophos Inc. - 144A* 8.875 08/15/14 2,592,000 1,140 Innophos Inc. - 144A* 10.771 02/15/15 1,152,825 945 ISP Chemco 10.25 07/01/11 1,063,125 4,065 ISP Holdings Inc. (Series B) 10.625 12/15/09 4,451,175 1,135 Koppers Industry Inc. 9.875 10/15/13 1,299,575 775 Millennium America, Inc. 7.00 11/15/06 802,125 4,185 Millennium America, Inc. 9.25 06/15/08 4,676,738 1,140 Nalco Co. 7.75 11/15/11 1,225,500 4,235 Nalco Co. 8.875 11/15/13 4,700,850 3,855 Rhodia SA (France) 8.875 06/01/11 4,018,838 3,815 Rockwood Specialties, Inc. 10.625 05/15/11 4,349,100 -------------- 32,362,288 -------------- COAL (0.2%) 930 Foundation PA Coal Co. 7.25 08/01/14 990,450 -------------- CONSTRUCTION MATERIALS (0.5%) 2,850 RMCC Acquisition Co. - 144A* 9.50 11/01/12 2,864,250 -------------- CONSUMER SUNDRIES (0.4%) 1,985 Amscan Holdings, Inc. 8.75 05/01/14 1,980,037 -------------- CONSUMER/BUSINESS SERVICES (0.5%) 2,545 Muzak LLC/Muzak Finance Corp. 9.875 03/15/09 1,539,725 1,500 Muzak LLC/Muzak Finance Corp. 10.00 02/15/09 1,350,000 -------------- 2,889,725 --------------
SEE NOTES TO FINANCIAL STATEMENTS 8
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- CONTAINERS/PACKAGING (2.5%) $ 1,415 Graham Packaging Company Inc. - 144A* 8.50% 10/15/12 $ 1,517,587 2,850 Graphic Packaging International Corp. 9.50 08/15/13 3,241,875 850 Owens-Brockway Glass Containers Corp. 8.75 11/15/12 954,125 1,765 Owens-Illinois Inc. 7.35 05/15/08 1,862,075 3,005 Owens-Illinois Inc. 7.50 05/15/10 3,200,325 1,155 Pliant Corp. (Issued 04/10/02) 13.00 06/01/10 1,134,788 1,530 Pliant Corp. (Issued 08/29/00) 13.00 06/01/10 1,503,225 -------------- 13,414,000 -------------- DRUGSTORE CHAINS (1.6%) 1,005 Jean Coutu Group PJC Inc. - 144A* (Canada) 7.625 08/01/12 1,060,275 4,065 Jean Coutu Group PJC Inc. - 144A* (Canada) 8.50 08/01/14 4,186,950 2,235 Rite Aid Corp. 7.125 01/15/07 2,279,700 810 Rite Aid Corp. 8.125 05/01/10 850,500 -------------- 8,377,425 -------------- ELECTRIC UTILITIES (6.7%) 1,330 AES Corp. (The) 7.75 03/01/14 1,477,962 377 AES Corp. (The) 8.875 02/15/11 433,550 537 AES Corp. (The) 9.375 09/15/10 628,290 3,020 AES Corp. (The) - 144A* 9.00 05/15/15 3,476,775 2,405 Allegheny Energy, Inc. 7.75 08/01/05 2,447,087 460 CMS Energy Corp. 7.50 01/15/09 494,500 3,010 CMS Energy Corp. 8.50 04/15/11 3,446,450 1,040 IPALCO Enterprises, Inc. 8.625** 11/14/11 1,227,200 3,160 Monongahela Power Co. 5.00 10/01/06 3,209,087 3,235 MSW Energy Holdings/Finance 7.375 09/01/10 3,396,750 695 MSW Energy Holdings/Finance 8.50 09/01/10 761,025 1,940 Nevada Power Co. 8.25 06/01/11 2,226,150 3,130 Nevada Power Co. 9.00 08/15/13 3,630,800 3,320 PSEG Energy Holdings Inc. 8.625 02/15/08 3,627,100 5,355 Reliant Energy, Inc. 6.75 12/15/14 5,341,613 -------------- 35,824,339 -------------- ELECTRICAL PRODUCTS (0.2%) 860 Rayovac Corp. - 144A* 7.375 02/01/15 883,650 -------------- ELECTRONIC COMPONENTS (0.3%) 1,630 Sanmina-SCI Corp. - 144A* 6.75 03/01/13 1,644,262 --------------
SEE NOTES TO FINANCIAL STATEMENTS 9
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT/INSTRUMENTS (0.8%) $ 4,070 Xerox Corp. 7.125% 06/15/10 $ 4,415,950 -------------- ENVIRONMENTAL SERVICES (1.0%) 1,515 Allied Waste North America, Inc. 6.375 04/15/11 1,480,912 1,515 Allied Waste North America, Inc. 6.50 11/15/10 1,503,637 2,310 Allied Waste North America, Inc. 9.25 09/01/12 2,564,100 -------------- 5,548,649 -------------- FINANCE/RENTAL/LEASING (0.6%) 3,105 United Rentals NA, Inc. 6.50 02/15/12 3,143,812 -------------- FOOD RETAIL (0.8%) 1,448 CA FM Lease Trust - 144A* 8.50 07/15/17 1,647,900 2,290 Delhaize America, Inc. 8.125 04/15/11 2,645,131 -------------- 4,293,031 -------------- FOOD: MEAT/FISH/DAIRY (2.9%) 2,735 Michael Foods Inc. (Series B) 8.00 11/15/13 2,905,938 4,370 Pilgrim's Pride Corp. 9.625 09/15/11 4,872,550 1,770 PPC Escrow Corp. 9.25 11/15/13 2,017,800 4,775 Smithfield Foods Inc. 7.00 08/01/11 5,157,000 410 Smithfield Foods Inc. (Series B) 8.00 10/15/09 456,125 -------------- 15,409,413 -------------- FOREST PRODUCTS (1.0%) EUR 1,240 Crown Euro Holdings - 144A* (France) 6.25 09/01/11 1,780,502 $ 1,115 Tembec Industries Inc. (Canada) 7.75 03/15/12 1,081,550 2,600 Tembec Industries Inc. (Canada) 8.50 02/01/11 2,613,000 -------------- 5,475,052 -------------- GAS DISTRIBUTORS (1.6%) 4,080 Dynegy Holdings, Inc. 6.875 04/01/11 3,819,900 3,390 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 3,813,750 730 Northwest Pipeline Corp. 8.125 03/01/10 805,738 -------------- 8,439,388 -------------- HOME BUILDING (1.0%) 2,100 Tech Olympic USA, Inc. 10.375 07/01/12 2,362,500 290 Tech Olympic USA, Inc. - 144A* 7.50 01/15/15 288,550 1,850 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 2,011,875 815 Tech Olympic USA, Inc. (Issued 11/27/02) 9.00 07/01/10 886,313 -------------- 5,549,238 -------------- HOME FURNISHINGS (0.3%) 1,235 Tempur-Pedic Inc. 10.25 08/15/10 1,414,075 --------------
SEE NOTES TO FINANCIAL STATEMENTS 10
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- HOSPITAL/NURSING MANAGEMENT (1.9%) $ 2,055 Community Health Systems Inc. - 144A* 6.50% 12/15/12 $ 2,078,119 1,430 HCA, Inc. 6.375 01/15/15 1,458,546 625 HCA, Inc. 7.19 11/15/15 662,945 1,145 HCA, Inc. 7.58 09/15/25 1,196,089 2,680 Medcath Holdings Corp. 9.875 07/15/12 2,961,400 920 Tenet Healthcare Corp. 6.50 06/01/12 853,300 1,150 Tenet Healthcare Corp. - 144A* 9.875 07/01/14 1,230,500 -------------- 10,440,899 -------------- HOTELS/RESORTS/CRUISELINES (0.4%) 2,025 Gaylord Entertainment Co. - 144A* 6.75 11/15/14 2,055,375 -------------- HOUSEHOLD/PERSONAL CARE (0.4%) 2,250 Del Laboratories, Inc. - 144A* 8.00 02/01/12 2,233,125 -------------- INDUSTRIAL MACHINERY (0.8%) 1,111 Flowserve Corp. 12.25 08/15/10 1,216,545 875 Goodman Global Holding Company, Inc. - 144A* 5.76 06/15/12 901,250 2,450 Goodman Global Holding Company, Inc. - 144A* 7.875 12/15/12 2,407,125 -------------- 4,524,920 -------------- INDUSTRIAL SPECIALTIES (2.3%) 4,010 Johnsondiversy, Inc. 9.625 05/15/12 4,511,250 3,785 Rayovac Corp. 8.50 10/01/13 4,158,769 3,070 UCAR Finance, Inc. 10.25 02/15/12 3,430,725 -------------- 12,100,744 -------------- INVESTMENT BANKS/BROKERS (0.9%) 4,535 Refco Finance Holdings - 144A* 9.00 08/01/12 4,965,825 -------------- INVESTMENT MANAGERS (0.8%) 3,695 JSG Funding PLC (Ireland) 9.625 10/01/12 4,110,688 -------------- MEDICAL DISTRIBUTORS (0.5%) 220 AmerisourceBergen Corp. 7.25 11/15/12 245,300 2,185 AmerisourceBergen Corp. 8.125 09/01/08 2,414,425 -------------- 2,659,725 -------------- MEDICAL SPECIALTIES (0.8%) 1,300 Fisher Scientific International, Inc. 8.00 09/01/13 1,452,750 1,675 Fisher Scientific International, Inc. 8.125 05/01/12 1,846,687 715 Fisher Scientific International, Inc. - 144A* 6.75 08/15/14 757,900 -------------- 4,057,337 --------------
SEE NOTES TO FINANCIAL STATEMENTS 11
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- MEDICAL/NURSING SERVICES (1.9%) $ 5,140 Fresenius Medical Care Capital Trust 7.875% 06/15/11 $ 5,743,950 795 Fresenius Medical Care Capital Trust II (Units)^ 7.875 02/01/08 852,637 665 National Nephrology Assoc. Inc. - 144A* 9.00 11/01/11 756,438 2,830 Team Health Inc. - 144A* 9.00 04/01/12 2,830,000 -------------- 10,183,025 -------------- METAL FABRICATIONS (1.6%) 1,680 General Cable Corp. 9.50 11/15/10 1,898,400 2,385 Hexcel Corp. - 144A* 6.75 02/01/15 2,405,869 4,010 Trimas Corp. 9.875 06/15/12 4,170,400 -------------- 8,474,669 -------------- MISCELLANEOUS COMMERCIAL SERVICES (2.5%) 1,945 Advanstar Communications, Inc. 10.294** 08/15/08 2,062,097 2,225 Advanstar Communications, Inc. 10.75 08/15/10 2,530,937 495 Advanstar Communications, Inc. (Series B) 12.00 02/15/11 539,550 2,471 Iron Mountain Inc. 7.75 01/15/15 2,526,598 2,800 Iron Mountain Inc. 8.625 04/01/13 2,947,000 2,725 Vertis Inc. - 144A* 13.50 12/07/09 2,711,375 -------------- 13,317,557 -------------- MISCELLANEOUS MANUFACTURING (1.5%) 8,350 Associated Materials Inc. 11.25## 03/01/14 6,095,500 2,120 Propex Fabrics Inc. - 144A* 10.00 12/01/12 2,151,800 -------------- 8,247,300 -------------- MOVIES/ENTERTAINMENT (0.4%) 1,800 Marquee Inc. - 144A* 7.044** 08/15/10 1,899,000 -------------- OIL & GAS PIPELINES (2.9%) 5,275 El Paso Production Holdings 7.75 06/01/13 5,683,812 2,525 Pacific Energy Partners/Finance 7.125 06/15/14 2,695,438 1,435 Southern Natural Gas 8.875 03/15/10 1,596,437 4,700 Williams Companies, Inc. (The) 7.875 09/01/21 5,546,000 -------------- 15,521,687 -------------- OIL & GAS PRODUCTION (2.8%) 4,210 Chesapeake Energy Corp. 7.50 09/15/13 4,694,150 3,710 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 4,238,675 1,400 Magnum Hunter Resources, Inc. 9.60 03/15/12 1,603,000 1,830 Plains E & P Corp. 7.125 06/15/14 2,031,300 2,400 Vintage Petroleum, Inc. 7.875 05/15/11 2,586,000 -------------- 15,153,125 --------------
SEE NOTES TO FINANCIAL STATEMENTS 12
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- OIL REFINING/MARKETING (1.3%) $ 1,730 CITGO Petroleum Corp. - 144A* 6.00% 10/15/11 $ 1,790,550 3,000 Husky Oil Ltd. 8.90 08/15/28 3,369,039 1,815 Tesoro Petroleum Corp. 9.625 04/01/12 2,069,100 -------------- 7,228,689 -------------- OILFIELD SERVICES/EQUIPMENT (0.9%) 625 Hanover Compressor Co. 8.625 12/15/10 681,250 575 Hanover Compressor Co. 9.00 06/01/14 642,562 1,715 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 1,830,763 1,655 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 1,803,950 -------------- 4,958,525 -------------- OTHER METALS/MINERALS (0.0%) 3,750 Murrin Holdings Property Ltd. (Australia) (b) (f) 9.375 08/31/07 375 -------------- OTHER TRANSPORTATION (1.6%) 3,345 CHC Helicopter Corp. 7.375 05/01/14 3,503,887 4,305 Laidlaw International Inc. 10.75 06/15/11 4,956,131 -------------- 8,460,018 -------------- PHARMACEUTICALS: MAJOR (1.1%) 1,370 VWR International Inc. 6.875 04/15/12 1,417,950 1,795 VWR International Inc. 8.00 04/15/14 1,875,775 2,525 Warner Chilcott Corp. - 144A* 8.75 02/01/15 2,638,625 -------------- 5,932,350 -------------- PUBLISHING: BOOKS/MAGAZINES (3.0%) 1,756 Dex Media East/Finance 12.125 11/15/12 2,133,540 2,741 Dex Media West/Finance 9.875 08/15/13 3,159,002 1,310 Houghton Mifflin Co. 11.50## 10/15/13 930,100 3,895 Houghton Mifflin Co. 9.875 02/01/13 4,138,438 1,097 PEI Holdings, Inc. 11.00 03/15/10 1,304,059 4,050 PRIMEDIA, Inc. 8.875 05/15/11 4,394,250 -------------- 16,059,389 -------------- PULP & PAPER (2.1%) 4,390 Abitibi-Consolidated Inc. (Canada) 6.00 06/20/13 4,115,625 4,350 Georgia-Pacific Corp. 8.875 02/01/10 5,089,500 1,900 Norampac, Inc. (Canada) 6.75 06/01/13 2,004,500 -------------- 11,209,625 --------------
SEE NOTES TO FINANCIAL STATEMENTS 13
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (0.2%) $ 887 HMH Properties, Inc. (Series B) 7.875% 08/01/08 $ 915,827 -------------- SPECIALTY STORES (2.7%) 3,600 Autonation, Inc. 9.00 08/01/08 4,086,000 2,980 General Nutrition Centers Inc. 8.50 12/01/10 2,540,450 3,720 Petro Stopping Centers LP/Petro Financial Corp. 9.00 02/15/12 3,943,200 3,515 Sonic Automotive, Inc. 8.625 08/15/13 3,804,987 -------------- 14,374,637 -------------- SPECIALTY TELECOMMUNICATIONS (2.9%) 2,070 American Tower Corp. 7.125 10/15/12 2,163,150 2,070 American Tower Corp. 7.50 05/01/12 2,189,025 730 Panamsat Corp. 9.00 08/15/14 806,650 4,690 Panamsat Holding Corp. - 144A* 10.375## 11/01/14 3,271,275 3,250 Qwest Communications International - 144A* 6.294** 02/15/09 3,331,250 2,590 Qwest Services Corp. - 144A* 13.50 12/15/07 2,933,175 400 U.S. West Communications Corp. 5.625 11/15/08 404,000 585 U.S. West Communications Corp. 6.625 09/15/05 594,506 -------------- 15,693,031 -------------- STEEL (1.0%) 3,315 Amsted Industries Inc. - 144A* 10.25 10/15/11 3,762,525 1,356 United States Steel Corp. 9.75 05/15/10 1,552,620 -------------- 5,315,145 -------------- TELECOMMUNICATION EQUIPMENT (0.4%) 2,170 Nortel Networks Ltd. 6.125 02/15/06 2,213,400 -------------- TELECOMMUNICATIONS (1.9%) 3,440 Axtel SA (Mexico) 11.00 12/15/13 3,745,300 6,501 Exodus Communications, Inc. (a) (b) (f) 11.625 07/15/10 0 4,740 Primus Telecommunication Group, Inc. 8.00 01/15/14 3,649,800 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 2,740 Valor Telecom Enterprise LLC - 144A* 7.75 02/15/15 2,856,450 -------------- 10,251,550 --------------
SEE NOTES TO FINANCIAL STATEMENTS 14
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (1.3%) $ 2,939 Manitowoc Inc. (The) 10.50% 08/01/12 $ 3,416,588 3,370 NMHG Holding Co. 10.00 05/15/09 3,740,700 -------------- 7,157,288 -------------- WHOLESALE DISTRIBUTORS (1.4%) 3,450 Buhrmann US, Inc. 8.25 07/01/14 3,596,625 995 Buhrmann US, Inc. - 144A* 7.875 03/01/15 1,007,437 3,070 Nebraska Book Company, Inc. 8.625 03/15/12 3,100,700 -------------- 7,704,762 -------------- WIRELESS TELECOMMUNICATIONS (3.4%) 3,845 MetroPCS, Inc. 10.75 10/01/11 4,152,600 1,850 Rogers Wireless Communications Inc. 7.50 03/15/15 2,035,000 1,295 Rogers Wireless Communications Inc. - 144A* 8.00 12/15/12 1,409,931 1,920 Rural Cellular Corp. 6.99** 03/15/10 2,025,600 3,865 SBA Communications Corp. 9.75## 12/15/11 3,401,200 2,015 SBA Communications Corp. - 144A* 8.50 12/01/12 2,186,275 380 Ubiquitel Operating Co. 9.875 03/01/11 431,300 2,330 Ubiquitel Operating Co. - 144A* 9.875 03/01/11 2,644,550 -------------- 18,286,456 -------------- TOTAL CORPORATE BONDS (COST $582,442,583) 508,574,070 -------------- CONVERTIBLE BONDS (0.6%) HOTELS/RESORTS/CRUISELINES (0.0%) 1,643 Premier Cruises Ltd. - 144A* (a) (b) (f) 10.00# 08/15/05 0 -------------- TELECOMMUNICATION EQUIPMENT (0.6%) 3,115 Nortel Networks Corp. (Canada) 4.25 09/01/08 2,994,294 -------------- TOTAL CONVERTIBLE BONDS (COST $4,603,575) 2,994,294 --------------
SEE NOTES TO FINANCIAL STATEMENTS 15
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (d) (0.5%) AEROSPACE & DEFENSE (0.2%) 75,021 Orbital Sciences Corp. (c) $ 785,470 -------------- APPAREL/FOOTWEAR RETAIL (0.0%) 5,421,101 County Seat Stores Corp. (c) (f) 0 -------------- CASINO/GAMING (0.0%) 212,312 Fitzgeralds Gaming Corp.+ (f) 0 -------------- FOOD: SPECIALTY/CANDY (0.0%) 13,317 SFAC New Holdings Inc.++ (c) (f) 0 2,447 SFAC New Holdings Inc. (c) (f) 0 1,069,725 Specialty Foods Acquisition Corp. - 144A* (f) 0 -------------- 0 -------------- HOTELS/RESORTS/CRUISELINES (0.0%) 981,277 Premier Holdings Inc.+++ (c) (f) 0 -------------- MEDICAL/NURSING SERVICES (0.0%) 1,754,896 Raintree Healthcare Corp. (c) (f) 0 -------------- RESTAURANTS (0.3%) 111,558 American Restaurant Group Holdings, Inc. (c) (f) 0 64,807 American Restaurant Group Holdings, Inc. - 144A* (f) 0 13,107 American Restaurant Group Holdings, Inc. (c) (f) 0 787,160 Catalina Restaurant Group (c) (f) (Note 4) 1,574,320 -------------- 1,574,320 -------------- SPECIALTY TELECOMMUNICATIONS (0.0%) 34,159 Birch Telecom Inc. (c) (f) 0 1,448,200 PFB Telecom NV (Series B) (c) (f) 0 1 XO Communications Inc. (c) 3 -------------- 3 -------------- TELECOMMUNICATIONS (0.0%) 49,597 Viatel Holdings Bermuda Ltd. (c) 47,117 -------------- TEXTILES (0.0%) 2,389,334 U.S. Leather, Inc. (c) (f) 0 -------------- WIRELESS TELECOMMUNICATIONS (0.0%) 5,199 USA Mobility, Inc. (c) 204,009 315,021 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 -------------- 204,009 -------------- TOTAL COMMON STOCKS (COST $296,750,122) 2,610,919 --------------
SEE NOTES TO FINANCIAL STATEMENTS 16
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE PREFERRED STOCKS (1.5%) BROADCASTING (0.3%) 237 Paxson Communications Corp.+ $ 1,917,214 -------------- ELECTRIC UTILITIES (1.0%) 4,400 TNP Enterprises, Inc. (Series D)+ 5,159,000 -------------- RESTAURANTS (0.2%) 1,337 Catalina Restaurant Group (Units)^(f) 1,203,300 -------------- TOTAL NON-CONVERTIBLE PREFERRED STOCKS (COST $8,415,237) 8,279,514 -------------- NUMBER OF EXPIRATION WARRANTS DATE - ------------ ---------- WARRANTS (d) (0.0%) CASINO/GAMING (0.0%) 319,500 Aladdin Gaming Enterprises, Inc. - 144A* (f) 03/01/10 0 23,000 Resort At Summerlin LP - 144A* (f) 12/15/07 0 -------------- 0 -------------- ELECTRIC UTILITIES (0.0%) 1,850 TNP Enterprises, Inc. - 144A* 04/01/11 55,500 -------------- RESTAURANTS (0.0%) 4,500 American Restaurant Group Holdings, Inc. - 144A* (f) 08/15/08 0 334,250 Catalina Restaurant Group (c) (f) 07/10/12 0 -------------- 0 -------------- TOTAL WARRANTS (COST $58,970) 55,500 --------------
SEE NOTES TO FINANCIAL STATEMENTS 17
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (1.1%) REPURCHASE AGREEMENT $ 6,145 Joint repurchase agreement account (dated 02/28/05; proceeds $6,145,447) (e) (COST $6,145,000) 2.62% 03/01/05 $ 6,145,000 -------------- TOTAL INVESTMENTS (COST $898,415,487) (g) 98.5% 528,659,297 OTHER ASSETS IN EXCESS OF LIABILITIES 1.5 8,061,924 ----- -------------- NET ASSETS 100.0% $ 536,721,221 ===== ==============
- ---------- * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. + 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 03/06/98 AND 07/12/99 AT A COST BASIS OF $13,231,546. ** FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT FEBRUARY 28, 2005. # PAYMENT-IN-KIND SECURITY. ## CURRENTLY A ZERO COUPON BOND AND IS SCHEDULED TO PAY INTEREST AT THE RATE SHOWN AT A FUTURE SPECIFIED DATE. ^ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; PREFERRED STOCKS WITH ATTACHED WARRANTS. (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 $2,777,995 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) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $35,491,221 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $405,247,411, RESULTING IN NET UNREALIZED DEPRECIATION OF $369,756,190. FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT FEBRUARY 28, 2005:
UNREALIZED CONTRACTS TO DELIVER IN EXCHANGE FOR DELIVERY DATE DEPRECIATION - ---------------------------------------------------------------------------------------------------------- EUR 1,375,000 $ 1,793,656 04/26/05 $ (27,972)
CURRENCY ABBREVIATION: EUR Euro. SEE NOTES TO FINANCIAL STATEMENTS 18 MORGAN STANLEY HIGH YIELD SECURITIES INC. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 2005 (UNAUDITED) ASSETS: Investments in securities, at value (cost $898,415,487) $ 528,659,297 Receivable for: Interest 9,514,148 Investments sold 1,906,732 Capital stock sold 510,889 Prepaid expenses and other assets 130,125 ----------------- TOTAL ASSETS 540,721,191 ----------------- LIABILITIES: Unrealized depreciation on open forward foreign currency contracts 27,972 Payable for: Investments purchased 2,009,614 Capital stock redeemed 944,445 Distribution fee 222,710 Investment advisory fee 171,945 Administration fee 33,201 Accrued expenses and other payables 590,083 ----------------- TOTAL LIABILITIES 3,999,970 ----------------- NET ASSETS $ 536,721,221 ================= COMPOSITION OF NET ASSETS: Paid-in-capital $ 2,889,168,099 Net unrealized depreciation (369,783,410) Accumulated undistributed net investment income 2,884,545 Accumulated net realized loss (1,985,548,013) ----------------- NET ASSETS $ 536,721,221 ================= CLASS A SHARES: Net Assets $ 20,190,941 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 10,983,004 NET ASSET VALUE PER SHARE $ 1.84 ================= MAXIMUM OFFERING PRICE PER SHARE, (NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 1.92 ================= CLASS B SHARES: Net Assets $ 336,076,724 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 183,940,782 NET ASSET VALUE PER SHARE $ 1.83 ================= CLASS C SHARES: Net Assets $ 36,363,428 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 19,850,982 NET ASSET VALUE PER SHARE $ 1.83 ================= CLASS D SHARES: Net Assets $ 144,090,128 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 78,381,897 NET ASSET VALUE PER SHARE $ 1.84 =================
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005 (UNAUDITED) NET INVESTMENT INCOME: INCOME Interest $ 23,062,298 Dividends 305,000 --------------- TOTAL INCOME 23,367,298 --------------- EXPENSES Distribution fee (Class A shares) 26,091 Distribution fee (Class B shares) 1,312,662 Distribution fee (Class C shares) 158,677 Investment advisory fee 1,224,255 Transfer agent fees and expenses 677,896 Professional fees 268,280 Administration fee 146,566 Shareholder reports and notices 64,359 Registration fees 38,751 Custodian fees 17,941 Directors' fees and expenses 11,819 Other 68,683 --------------- TOTAL EXPENSES 4,015,980 --------------- NET INVESTMENT INCOME 19,351,318 --------------- NET REALIZED AND UNREALIZED GAIN: Net realized gain 9,239,021 --------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments 2,937,936 Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies (27,220) --------------- NET APPRECIATION 2,910,716 --------------- NET GAIN 12,149,737 --------------- NET INCREASE $ 31,501,055 ===============
SEE NOTES TO FINANCIAL STATEMENTS 19 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 ----------------- ----------------- (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 19,351,318 $ 56,764,871 Net realized gain (loss) 9,239,021 (197,600,458) Net change in unrealized appreciation 2,910,716 231,685,708 ----------------- ----------------- NET INCREASE 31,501,055 90,850,121 ----------------- ----------------- DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A shares (765,618) (2,072,654) Class B shares (12,117,121) (25,815,474) Class C shares (1,270,677) (2,708,149) Class D shares (5,687,906) (11,764,739) ----------------- ----------------- TOTAL DIVIDENDS (19,841,322) (42,361,016) ----------------- ----------------- Net decrease from capital stock transactions (49,593,434) (154,957,959) ----------------- ----------------- NET DECREASE (37,933,701) (106,468,854) NET ASSETS: Beginning of period 574,654,922 681,123,776 ----------------- ----------------- END OF PERIOD (Including accumulated undistributed net investment income of $2,884,545 and $3,374,549, respectively) $ 536,721,221 $ 574,654,922 ================= =================
SEE NOTES TO FINANCIAL STATEMENTS 20 MORGAN STANLEY HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (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 one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) when market quotations are not readily available or Morgan Stanley Investment Advisors Inc. (the "Investment 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 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 21 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 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. 22 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 Effective November 1, 2004, 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 daily net assets not exceeding $500 million; 0.345% to the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.295% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.27% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion; 0.245% to the portion of daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.22% to the portion of daily net assets exceeding $3 billion. Effective November 1, 2004 pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund's daily net assets. Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement pursuant to which the Fund paid the Investment Adviser a monthly management fee accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion; 0.325% to the portion of daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.30% to the portion of daily net assets exceeding $3 billion. 23 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% 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 $57,882,315 at February 28, 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 0.85% 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, 2005, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 0.85%, respectively. The Distributor has informed the Fund that for the six months ended February 28, 2005, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of $340,105 and $3,668, respectively and received $19,149 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, 2005, aggregated $125,335,247 and $163,326,246, respectively. 24 Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. At February 28, 2005, the Fund had transfer agent fees and expenses payable of approximately $17,000. The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Directors of the Fund who will have served as independent Directors for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. Aggregate pension costs for the six months ended February 28, 2005 included in Directors' fees and expenses in the Statement of Operations amounted to $8,161. At February 28, 2005, the Fund had an accrued pension liability of $131,151 which is included in accrued expenses in the Statement of Assets and Liabilities. On December 2, 2003, the Directors voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Effective April 1, 2004, the Fund began 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, 2005 were as follows:
REALIZED ISSUER PURCHASES SALES GAIN INCOME VALUE - ------ --------- ----- -------- ------ ----------- Catalina Restaurant Group -- -- -- -- $ 1,574,320
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 exposure associated with foreign currency denominated securities. Forward 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 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 6. CAPITAL STOCK Transactions in capital stock were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 --------------------------------- --------------------------------- (UNAUDITED) SHARES AMOUNT SHARES AMOUNT --------------- --------------- --------------- --------------- CLASS A SHARES Sold 1,391,525 $ 2,557,476 13,165,136 $ 23,468,524 Reinvestment of dividends 178,146 325,812 551,791 979,557 Redeemed (2,576,880) (4,728,330) (24,480,351) (43,554,741) --------------- --------------- --------------- --------------- Net decrease -- Class A (1,007,209) (1,845,042) (10,763,424) (19,106,660) --------------- --------------- --------------- --------------- CLASS B SHARES Sold 9,367,229 17,056,043 23,754,798 41,770,580 Reinvestment of dividends 2,747,577 4,997,749 6,066,686 10,706,332 Redeemed (29,514,968) (53,773,902) (81,860,251) (144,576,386) --------------- --------------- --------------- --------------- Net decrease -- Class B (17,400,162) (31,720,110) (52,038,767) (92,099,474) --------------- --------------- --------------- --------------- CLASS C SHARES Sold 1,531,266 2,790,449 4,446,414 7,876,921 Reinvestment of dividends 317,159 577,901 718,053 1,269,771 Redeemed (3,114,498) (5,691,420) (11,044,600) (19,548,258) --------------- --------------- --------------- --------------- Net decrease -- Class C (1,266,073) (2,323,070) (5,880,133) (10,401,566) --------------- --------------- --------------- --------------- CLASS D SHARES Sold 1,293,335 2,372,200 5,564,553 9,841,550 Reinvestment of dividends 1,799,762 3,291,587 3,657,711 6,488,162 Redeemed (10,565,560) (19,368,999) (28,019,698) (49,679,971) --------------- --------------- --------------- --------------- Net decrease -- Class D (7,472,463) (13,705,212) (18,797,434) (33,350,259) --------------- --------------- --------------- --------------- Net decrease in Fund (27,145,907) $ (49,593,434) (87,479,758) $ (154,957,959) =============== =============== =============== ===============
7. FEDERAL INCOME TAX STATUS The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital. As of August 31, 2004, the Fund had a net capital loss carryforward of $1,808,879,576 of which $39,319,363 will expire on August 31, 2005, $12,603,314 will expire on August 31, 2006, 26 $24,919,181 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 on August 31, 2010, $568,502,378 will expire on August 31, 2011 and $758,434,573 will expire on August 31, 2012 to offset future capital gains to the extent provided by regulations. As of August 31, 2004, 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 affiliates, including the Fund, are named as defendants in a consolidated class action. This consolidated action also names as defendants certain individual Directors and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment 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 10, 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 early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter. 27 MORGAN STANLEY HIGH YIELD SECURITIES INC. FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of capital stock outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED --------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ----------------- --------- --------- --------- --------- ----------- (UNAUDITED) CLASS A SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 1.80 $ 1.67 $ 1.55 $ 2.32 $ 4.35 $ 5.51 ----------- --------- --------- --------- --------- ----------- Income (loss) from investment operations: Net investment income++ 0.07 0.16 0.19 0.26 0.47 0.69 Net realized and unrealized gain (loss) 0.03 0.09 0.10 (0.73) (1.99) (1.13) ----------- --------- --------- --------- --------- ----------- Total income (loss) from investment operations 0.10 0.25 0.29 (0.47) (1.52) (0.44) ----------- --------- --------- --------- --------- ----------- Less dividends and distributions from: Net investment income (0.06) (0.12) (0.17) (0.27) (0.51) (0.72) Paid-in-capital - - - (0.03) - - ----------- --------- --------- --------- --------- ----------- Total dividends and distributions (0.06) (0.12) (0.17) (0.30) (0.51) (0.72) ----------- --------- --------- --------- --------- ----------- Net asset value, end of period $ 1.84 $ 1.80 $ 1.67 $ 1.55 $ 2.32 $ 4.35 =========== ========= ========= ========= ========= =========== TOTAL RETURN+ 6.04%(1) 15.40% 19.88% (21.70)% (37.05)% (8.88)% RATIOS TO AVERAGE NET ASSETS(3): Expenses 1.15%(2)(3) 1.03% 1.06% 0.99% 0.77% 0.70% Net investment income 7.23%(2)(3) 8.98% 11.96% 13.76% 15.17% 13.62% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 20,191 $ 21,595 $ 38,072 $ 23,879 $ 36,762 $ 57,273 Portfolio turnover rate 23%(1) 51% 66% 39% 49% 20%
- ---------- ++ 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
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED --------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ------------------ --------- --------- --------- --------- ----------- (UNAUDITED) CLASS B SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 1.79 $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.50 ----------- --------- --------- --------- --------- ----------- Income (loss) from investment operations: Net investment income++ 0.06 0.15 0.18 0.25 0.46 0.66 Net realized and unrealized gain (loss) 0.04 0.08 0.10 (0.73) (1.99) (1.13) ----------- --------- --------- --------- --------- ----------- Total income (loss) from investment operations 0.10 0.23 0.28 (0.48) (1.53) (0.47) ----------- --------- --------- --------- --------- ----------- Less dividends and distributions from: Net investment income (0.06) (0.11) (0.16) (0.26) (0.49) (0.69) Paid-in-capital - - - (0.03) - - ----------- --------- --------- --------- --------- ----------- Total dividends and distributions (0.06) (0.11) (0.16) (0.29) (0.49) (0.69) ----------- --------- --------- --------- --------- ----------- Net asset value, end of period $ 1.83 $ 1.79 $ 1.67 $ 1.55 $ 2.32 $ 4.34 =========== ========= ========= ========= ========= =========== TOTAL RETURN+ 5.82%(1) 14.15% 19.27% (22.00)% (37.27)% (9.39)% RATIOS TO AVERAGE NET ASSETS(3): Expenses 1.65%(2)(3) 1.60% 1.61% 1.56% 1.37% 1.25% Net investment income 6.73%(2)(3) 8.41% 11.41% 13.19% 14.57% 13.07% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 336,077 $ 360,513 $ 422,468 $ 371,399 $ 664,706 $ 1,381,008 Portfolio turnover rate 23%(1) 51% 66% 39% 49% 20%
- ---------- ++ 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
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED --------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ------------------ --------- --------- --------- --------- ----------- (UNAUDITED) CLASS C SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 1.80 $ 1.67 $ 1.55 $ 2.32 $ 4.34 $ 5.51 ----------- --------- --------- --------- --------- ----------- Income (loss) from investment operations: Net investment income++ 0.06 0.15 0.18 0.25 0.45 0.66 Net realized and unrealized gain (loss) 0.03 0.09 0.10 (0.73) (1.98) (1.14) ----------- --------- --------- --------- --------- ----------- Total income (loss) from investment operations 0.09 0.24 0.28 (0.48) (1.53) (0.48) ----------- --------- --------- --------- --------- ----------- Less dividends and distributions from: Net investment income (0.06) (0.11) (0.16) (0.26) (0.49) (0.69) Paid-in-capital - - - (0.03) - - ----------- --------- --------- --------- --------- ----------- Total dividends and distributions (0.06) (0.11) (0.16) (0.29) (0.49) (0.69) ----------- --------- --------- --------- --------- ----------- Net asset value, end of period $ 1.83 $ 1.80 $ 1.67 $ 1.55 $ 2.32 $ 4.34 =========== ========= ========= ========= ========= =========== TOTAL RETURN+ 5.17%(1) 14.65% 19.14% (22.11)% (37.24)% (9.66)% RATIOS TO AVERAGE NET ASSETS(3): Expenses 1.75%(2)(3) 1.70% 1.71% 1.66% 1.47% 1.35% Net investment income 6.63%(2)(3) 8.31% 11.31% 13.09% 14.47% 12.97% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 36,363 $ 37,907 $ 45,114 $ 33,978 $ 49,818 $ 86,951 Portfolio turnover rate 23%(1) 51% 66% 39% 49% 20%
- ---------- ++ 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
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED --------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ------------------ --------- --------- --------- --------- ----------- (UNAUDITED) CLASS D SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 1.80 $ 1.68 $ 1.55 $ 2.32 $ 4.35 $ 5.51 ----------- --------- --------- --------- --------- ----------- Income (loss) from investment operations: Net investment income++ 0.07 0.16 0.19 0.26 0.48 0.70 Net realized and unrealized gain (loss) 0.03 0.08 0.11 (0.73) (1.99) (1.13) ----------- --------- --------- --------- --------- ----------- Total income (loss) from investment operations 0.10 0.24 0.30 (0.47) (1.51) (0.43) ----------- --------- --------- --------- --------- ----------- Less dividends and distributions from: Net investment income (0.06) (0.12) (0.17) (0.27) (0.52) (0.73) Paid-in-capital - - - (0.03) - - ----------- --------- --------- --------- --------- ----------- Total dividends and distributions (0.06) (0.12) (0.17) (0.30) (0.52) (0.73) ----------- --------- --------- --------- --------- ----------- Net asset value, end of period $ 1.84 $ 1.80 $ 1.68 $ 1.55 $ 2.32 $ 4.35 =========== ========= ========= ========= ========= =========== TOTAL RETURN+ 6.18%(1) 14.93% 20.82% (21.45)% (36.95)% (8.69)% RATIOS TO AVERAGE NET ASSETS(3): Expenses 0.90%(2)(3) 0.85% 0.86% 0.81% 0.62% 0.50% Net investment income 7.48%(2)(3) 9.16% 12.16% 13.94% 15.32% 13.82% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 144,090 $ 154,639 $ 175,471 $ 86,436 $ 137,319 $ 246,941 Portfolio turnover rate 23%(1) 51% 66% 39% 49% 20%
- ---------- ++ 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 DIRECTORS Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid OFFICERS Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER Joseph J. McAlinden VICE PRESIDENT Barry Fink VICE PRESIDENT Amy R. Doberman VICE PRESIDENT Carsten Otto CHIEF COMPLIANCE OFFICER Stefanie V. Chang VICE PRESIDENT Francis J. Smith TREASURER and CHIEF FINANCIAL OFFICER Thomas F. Caloia VICE PRESIDENT Mary E. Mullin SECRETARY TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. 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) 2005 Morgan Stanley [MORGAN STANLEY LOGO] 37915RPT-RA05-00301P-Y02/05 [GRAPHIC] MORGAN STANLEY FUNDS MORGAN STANLEY HIGH YIELD SECURITIES SEMIANNUAL REPORT FEBRUARY 28, 2005 [MORGAN STANLEY LOGO] 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. 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. 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, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer April 19, 2005 EX-99.CERT 2 a2156100zex-99_cert.txt EX 99.CERT EXHIBIT 12 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley High Yield Securities Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 19, 2005 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer EXHIBIT 12 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley High Yield Securities Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 19, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer EX-99.906CERT 3 a2156100zex-99_906cert.txt EX 99.906CERT SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley High Yield Securities Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2005 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: April 19, 2005 /s/ Ronald E. Robison --------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley High Yield Securities Inc. and will be retained by Morgan Stanley High Yield Securities Inc. and furnished to the Securities and Exchange Commission or its staff upon request. SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley High Yield Securities Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2005 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: April 19, 2005 /s/ Francis Smith ----------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley High Yield Securities Inc. and will be retained by Morgan Stanley High Yield Securities Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----