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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-02349
Morgan Stanley Income Securities Inc.
(Exact name of registrant as specified in charter)
     
522 Fifth Avenue, New York, New York   10036
(Address of principal executive offices)   (Zip code)
Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: 212-296-6963
Date of fiscal year end: September 30, 2010
Date of reporting period: December 31, 2009
 
 
Item 1. Schedule of Investments.
The Fund’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited)
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
       
Corporate Bonds (94.2%)
                        
       
Advertising Agencies (0.2%)
                        
$ 290    
Omnicom Group, Inc.
     6.25 %     07/15/19     $ 313,432  
       
 
                      
       
Advertising Services (0.5%)
                        
  690    
WPP Finance (United Kingdom)
     8.00       09/15/14       785,489  
       
 
                      
       
Aerospace/Defense (0.2%)
                        
  379    
Systems 2001 Asset Trust (144A) (Cayman Islands) (a)
     6.664       09/15/13       388,008  
       
 
                      
       
Agricultural Chemicals (1.2%)
                        
  575    
Agrium, Inc. (Canada)
     6.75       01/15/19       622,692  
  545    
Mosaic Co. (The) (144A) (a)
     7.625       12/01/16       595,970  
  300    
Potash Corp. of Saskatchewan, Inc. (Canada)
     4.875       03/30/20       296,576  
  330    
Potash Corp. of Saskatchewan, Inc. (Canada)
     5.875       12/01/36       325,979  
       
 
                      
       
 
                     1,841,217  
       
 
                      
       
Agricultural Operations (0.5%)
                        
  680    
Bunge Ltd. Finance Corp.
     8.50       06/15/19       776,428  
       
 
                      
       
Airlines (0.2%)
                        
  318    
America West Airlines LLC (Series 011G) (AMBAC Insd)
     7.10       04/02/21       250,965  
       
 
                      
       
Appliances (0.2%)
                        
  250    
Whirlpool Corp.
     8.60       05/01/14       283,324  
       
 
                      
       
Auto-Cars/Light Trucks (0.4%)
                        
  540    
Daimler Finance North America LLC
     8.50       01/18/31       665,370  
       
 
                      
       
Beverages-Wine/Spirits (0.3%)
                        
  345    
Bacardi Ltd. (144A) (Bermuda) (a)
     8.20       04/01/19       408,461  
  95    
Constellation Brands, Inc.
     7.25       09/01/16       96,900  
       
 
                      
       
 
                     505,361  
       
 
                      
       
Brewery (1.4%)
                        
  210    
Anheuser-Busch Cos., Inc.
     5.50       01/15/18       213,193  
  1,020    
Anheuser-Busch InBev Worldwide, Inc. (144A) (a)
     5.375       11/15/14       1,081,086  
  60    
Anheuser-Busch InBev Worldwide, Inc. (144A) (a)
     8.20       01/15/39       76,112  
  780    
FBG Finance Ltd. (144A) (Australia) (a)
     5.125       06/15/15       808,302  
       
 
                      
       
 
                     2,178,693  
       
 
                      
       
Broadcast Service/Program (0.1%)
                        
  210    
Grupo Televisa SA (Mexico)
     6.00       05/15/18       212,360  
       
 
                      
       
Building Product-Cement/Aggregation (1.8%)
                        
  895    
CRH America, Inc.
     6.00       09/30/16       936,084  
  460    
CRH America, Inc.
     8.125       07/15/18       537,365  
  430    
Holcim US Finance Sarl & Cie SCS (144A) (Luxembourg) (a)
     6.00       12/30/19       448,424  
  260    
LAFARGE SA (France)
     6.50       07/15/16       276,017  
  530    
LAFARGE SA (France)
     7.125       07/15/36       556,665  
       
 
                      
       
 
                     2,754,555  
       
 
                      
       
Building-Residential/Commercial (0.5%)
                        
  760    
Toll Brothers Finance Corp.
     6.75       11/01/19       745,656  
       
 
                      
       
Cable/Satellite TV (7.4%)
                        
  1,250    
Comcast Corp.
     5.70       05/15/18       1,316,249  
  1,080    
Comcast Corp.
     6.40       05/15/38       1,115,031  
  685    
Comcast Corp.
     6.45       03/15/37       708,576  
  1,475    
Comcast Corp.
     6.50       01/15/15       1,654,311  
  1,010    
COX Communications, Inc. (144A) (a)
     8.375       03/01/39       1,261,560  
  175    
CSC Holdings, Inc.
     7.625       07/15/18       181,125  
  275    
DIRECTV Holdings LLC / Financing Co., Inc. (144A) (a)
     5.875       10/01/19       280,217  

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
$ 125    
DIRECTV Holdings LLC / Financing Co., Inc.
     6.375       06/15/15     $ 130,469  
  895    
DIRECTV Holdings LLC / Financing Co., Inc.
     7.625       05/15/16       979,036  
  2,300    
Time Warner Cable, Inc.
     6.75       07/01/18       2,530,821  
  390    
Time Warner Cable, Inc.
     6.75       06/15/39       409,786  
  300    
Time Warner Cable, Inc.
     8.25       04/01/19       357,927  
520    
Time Warner Cable, Inc.
     8.75 %     02/14/19     634,802  
       
 
                      
       
 
                     11,559,910  
       
 
                      
       
Commercial Banks Non-U.S. (1.4%)
                        
  245    
Barclays Bank PLC (144A) (United Kingdom) (a)
     6.05       12/04/17       249,726  
  275    
Barclays Bank PLC (United Kingdom)
     6.75       05/22/19       307,285  
  795    
HBOS PLC (144A) (United Kingdom) (a)
     6.75       05/21/18       738,831  
  150    
Rabobank Nederland (144A) (Netherlands) (a)
     11.00 (b)     06/29/49 (c)     183,396  
  765    
Royal Bank of Scotland PLC (The) (144A) (United Kingdom) (a)
     4.875       08/25/14       776,268  
       
 
                      
       
 
                     2,255,506  
       
 
                      
       
Commercial Banks-Eastern U.S. (0.5%)
                        
  420    
Discover Bank/Greenwood
     8.70       11/18/19       450,721  
  255    
UBS AG/Stamford Branch (Switzerland)
     5.875       12/20/17       262,476  
       
 
                      
       
 
                     713,197  
       
 
                      
       
Commercial Banks-Southern U.S. (0.3%)
                        
  475    
Regions Financial Corp.
     7.75       11/10/14       468,920  
       
 
                      
       
Consumer Products-Miscellaneous (0.3%)
                        
  500    
Fortune Brands, Inc.
     6.375       06/15/14       535,996  
       
 
                      
       
Containers-Paper/Plastic (0.2%)
                        
  260    
Sealed Air Corp. (144A) (a)
     7.875       06/15/17       277,333  
       
 
                      
       
Data Processing Services (0.2%)
                        
  290    
Fiserv, Inc.
     6.80       11/20/17       320,493  
       
 
                      
       
Diversified Financial Services (3.7%)
                        
  890    
Bank of America Corp. (Series L)
     5.65       05/01/18       905,386  
  125    
Bank of America Corp.
     7.625       06/01/19       144,855  
  170    
Citigroup, Inc. (d)
     5.875       05/29/37       150,277  
  30    
Citigroup, Inc. (d)
     8.125       07/15/39       33,962  
  1,190    
Citigroup, Inc. (d)
     8.50       05/22/19       1,376,443  
  465    
Credit Agricole SA (144A) (France) (a)
     8.375 (b)     10/31/49 (c)     494,463  
  1,450    
General Electric Capital Corp.
     5.625       05/01/18       1,488,332  
  405    
Goldman Sachs Group, Inc. (The)
     6.15       04/01/18       434,256  
  180    
Goldman Sachs Group, Inc. (The)
     6.75       10/01/37       185,607  
  545    
Royal Bank of Scotland Group PLC (United Kingdom)
     6.40       10/21/19       544,228  
       
 
                      
       
 
                     5,757,809  
       
 
                      
       
Diversified Manufactured Operation (0.3%)
                        
  480    
Tyco Electronics Group SA (Luxembourg)
     5.95       01/15/14       502,516  
       
 
                      
       
Diversified Minerals (2.0%)
                        
  1,065    
Rio Tinto Finance USA Ltd. (Australia)
     9.00       05/01/19       1,350,101  
  275    
Teck Resources Ltd. (Canada)
     10.25       05/15/16       321,750  
  395    
Vale Overseas Ltd. (Cayman Islands)
     5.625       09/15/19       400,818  
  1,090    
Vale Overseas Ltd. (Cayman Islands)
     6.875       11/21/36       1,091,810  
       
 
                      
       
 
                     3,164,479  
       
 
                      
       
Electric-Generation (0.5%)
                        
  760    
AES Corp. (The)
     8.00       06/01/20       777,100  
       
 
                      
       
Electric-Integrated (7.5%)
                        
  280    
Ameren Energy Generating Co.
     6.30       04/01/20       275,457  
  1,000    
Consumers Energy Co.
     5.80       09/15/35       965,492  
  530    
DTE Energy Co.
     7.625       05/15/14       592,222  
  300    
Entergy Gulf States Louisiana LLC
     5.59       10/01/24       300,574  
  300    
Entergy Gulf States Louisiana LLC
     6.00       05/01/18       314,671  
  2,275    
Exelon Generation Co. LLC
     6.25       10/01/39       2,325,730  
  405    
FirstEnergy Solutions Corp.
     6.05       08/15/21       409,413  

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
$ 1,060    
FirstEnergy Solutions Corp.
     6.80       08/15/39     $ 1,074,021  
  215    
Indianapolis Power & Light Co. (144A) (a)
     6.30       07/01/13       231,899  
  840    
Nevada Power Co. (Series V)
     7.125       03/15/19       939,421  
  425    
NiSource Finance Corp.
     6.125       03/01/22       434,660  
  460    
NiSource Finance Corp.
     6.80       01/15/19       492,780  
  380    
Oncor Electric Delivery Co.
     6.80       09/01/18       422,796  
  1,170    
PPL Energy Supply LLC
     6.50       05/01/18       1,221,913  
640    
PSEG Power LLC
     8.625 %     04/15/31     829,572  
  635    
Southwestern Public Service Co. (Series G)
     8.75       12/01/18       775,276  
  140    
Toledo Edison Co. (The)
     7.25       05/01/20       160,056  
       
 
                      
       
 
                     11,765,953  
       
 
                      
       
Electronic Connectors (0.2%)
                        
  330    
Amphenol Corp.
     4.75       11/15/14       330,471  
       
 
                      
       
Electronic Measuring Instrument (0.3%)
                        
  395    
Agilent Technologies, Inc.
     5.50       09/14/15       414,545  
       
 
                      
       
Enterprise Software/Service (0.2%)
                        
  320    
CA, Inc.
     5.375       12/01/19       322,409  
       
 
                      
       
Finance-Consumer Loans (0.8%)
                        
  1,280    
SLM Corp. (Series A)
     5.00       10/01/13       1,178,496  
       
 
                      
       
Finance-Credit Card (1.0%)
                        
  360    
American Express Credit Corp. (Series C)
     7.30       08/20/13       404,923  
  1,000    
Capital One Bank USA NA
     8.80       07/15/19       1,183,645  
       
 
                      
       
 
                     1,588,568  
       
 
                      
       
Finance-Investment Banker/Broker (2.3%)
                        
  1,535    
JPMorgan Chase Capital XXVII (Series AA)
     7.00       11/01/39       1,552,924  
  705    
Macquarie Group Ltd. (144A) (Australia) (a)
     7.625       08/13/19       786,661  
  555    
Merrill Lynch & Co., Inc. (MTN)
     6.875       04/25/18       598,931  
  660    
TD Ameritrade Holding Corp.
     5.60       12/01/19       656,853  
       
 
                      
       
 
                     3,595,369  
       
 
                      
       
Finance-Mortgage Loan/Banker (0.4%)
                        
  600    
Countrywide Financial Corp.
     6.25       05/15/16       611,094  
       
 
                      
       
Food-Miscellaneous/Diversified (2.7%)
                        
  730    
ConAgra Foods, Inc.
     7.00       10/01/28       784,384  
  585    
ConAgra Foods, Inc.
     8.25       09/15/30       703,132  
  1,695    
Kraft Foods, Inc.
     6.125       08/23/18       1,790,123  
  80    
Kraft Foods, Inc.
     6.875       02/01/38       84,218  
  505    
Kraft Foods, Inc.
     6.875       01/26/39       531,957  
  235    
Kraft Foods, Inc.
     7.00       08/11/37       251,067  
       
 
                      
       
 
                     4,144,881  
       
 
                      
       
Food-Retail (0.4%)
                        
  546    
Delhaize America, Inc.
     9.00       04/15/31       700,921  
       
 
                      
       
Gas-Distribution (0.3%)
                        
  465    
Florida Gas Transmission Co. LLC (144A) (a)
     7.90       05/15/19       545,181  
       
 
                      
       
Gold Mining (0.9%)
                        
  1,440    
Newmont Mining Corp.
     6.25       10/01/39       1,446,581  
       
 
                      
       
Independent Power Producer (0.1%)
                        
  170    
NRG Energy, Inc.
     8.50       06/15/19       175,100  
       
 
                      
       
Instruments-Scientific (0.4%)
                        
  605    
Fisher Scientific International, Inc.
     6.125       07/01/15       623,982  
       
 
                      
       
Investment Management/Advisor Services (0.7%)
                        
  495    
Ameriprise Financial, Inc.
     7.30       06/28/19       551,427  
  500    
Blackstone Holdings Finance Co. LLC (144A) (a)
     6.625       08/15/19       490,241  
       
 
                      
       
 
                     1,041,668  
       
 
                      
       
Life/Health Insurance (2.8%)
                        
  375    
Aflac, Inc.
     8.50       05/15/19       432,714  
  430    
Lincoln National Corp.
     8.75       07/01/19       492,133  
  410    
Principal Financial Group, Inc.
     8.875       05/15/19       473,718  

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
$ 550    
Protective Life Corp.
     7.375       10/15/19     $ 552,138  
  895    
Prudential Financial, Inc. (MTN)
     4.75       09/17/15       908,668  
  285    
Prudential Financial, Inc. (MTN)
     6.625       12/01/37       293,080  
  1,070    
Prudential Financial, Inc. (Series D)
     7.375       06/15/19       1,201,727  
       
 
                      
       
 
                     4,354,178  
       
 
                      
       
Medical Instruments (0.2%)
                        
  355    
Boston Scientific Corp.
     6.00       01/15/20       363,411  
       
 
                      
       
Medical-Biomedical/Genetics (0.4%)
                        
560    
Biogen Idec, Inc.
     6.875 %     03/01/18     603,700  
       
 
                      
       
Medical-Generic Drugs (0.2%)
                        
  330    
Watson Pharmaceuticals, Inc.
     6.125       08/15/19       341,109  
       
 
                      
       
Medical-HMO (0.4%)
                        
  368    
UnitedHealth Group, Inc.
     5.80       03/15/36       330,865  
  320    
UnitedHealth Group, Inc.
     6.00       02/15/18       331,072  
       
 
                      
       
 
                     661,937  
       
 
                      
       
Medical-Hospitals (0.3%)
                        
  175    
HCA, Inc. (144A) (a)
     8.50       04/15/19       189,438  
  245    
Tenet Healthcare Corp.
     7.375       02/01/13       246,837  
       
 
                      
       
 
                     436,275  
       
 
                      
       
Metal-Aluminum (0.5%)
                        
  200    
Alcoa, Inc.
     5.87       02/23/22       186,109  
  610    
Alcoa, Inc.
     6.75       07/15/18       623,244  
       
 
                      
       
 
                     809,353  
       
 
                      
       
Multi-Line Insurance (3.3%)
                        
  475    
Aegon (Netherlands)
     4.625       12/01/15       464,268  
  740    
American Financial Group, Inc.
     9.875       06/15/19       831,024  
  720    
Catlin Insurance Co. Ltd. (144A) (Bermuda) (a)
     7.249 (b)     12/31/49 (c)     532,800  
  785    
CNA Financial Corp.
     7.35       11/15/19       787,280  
  830    
Farmers Insurance Exchange (144A) (a)
     8.625       05/01/24       804,005  
  560    
MetLife, Inc.
     10.75       08/01/39       691,305  
  365    
MetLife, Inc.
     6.75       06/01/16       409,279  
  130    
MetLife, Inc.
     7.717       02/15/19       153,025  
  500    
XL Capital Ltd. (Cayman Islands)
     5.25       09/15/14       490,163  
       
 
                      
       
 
                     5,163,149  
       
 
                      
       
Multimedia (3.8%)
                        
  920    
News America, Inc.
     6.40       12/15/35       947,709  
  810    
News America, Inc.
     6.65       11/15/37       858,395  
  210    
News America, Inc.
     7.85       03/01/39       246,415  
  85    
Time Warner, Inc.
     6.50       11/15/36       89,039  
  1,660    
Time Warner, Inc.
     7.70       05/01/32       1,954,999  
  135    
Viacom, Inc.
     5.625       09/15/19       141,218  
  1,185    
Viacom, Inc.
     6.875       04/30/36       1,285,397  
  440    
Vivendi (144A) (France) (a)
     6.625       04/04/18       477,631  
       
 
                      
       
 
                     6,000,803  
       
 
                      
       
Non-Hazardous Waste Disposal (1.0%)
                        
  500    
Republic Services, Inc. (144A) (a)
     5.50       09/15/19       508,674  
  1,050    
Waste Management, Inc.
     6.125       11/30/39       1,047,009  
       
 
                      
       
 
                     1,555,683  
       
 
                      
       
Office Automation & Equipment (0.9%)
                        
  200    
Xerox Corp.
     5.625       12/15/19       200,098  
  1,060    
Xerox Corp.
     6.35       05/15/18       1,107,507  
  75    
Xerox Corp.
     8.25       05/15/14       86,114  
       
 
                      
       
 
                     1,393,719  
       
 
                      
       
Oil & Gas Drilling (0.5%)
                        
  800    
Transocean, Inc. (Cayman Islands)
     6.00       03/15/18       854,939  
       
 
                      
       
Oil Companies-Exploration & Production (4.3%)
                        
  950    
Canadian Natural Resources Ltd. (Canada)
     6.25       03/15/38       986,498  
  385    
Chesapeake Energy Corp.
     7.625       07/15/13       405,213  

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
$ 1,570    
EnCana Corp. (Canada)
     6.50       02/01/38     $ 1,715,303  
  190    
Gaz Capital SA (144A) (Luxembourg) (a)
     6.51       03/07/22       175,275  
  210    
Newfield Exploration Co.
     7.125       05/15/18       213,150  
  825    
Nexen, Inc. (Canada)
     7.50       07/30/39       948,863  
  105    
Pioneer Natural Resources Co.
     6.65       03/15/17       104,083  
  700    
Questar Market Resources, Inc.
     6.80       04/01/18       730,622  
  500    
XTO Energy, Inc.
     5.50       06/15/18       534,238  
850    
XTO Energy, Inc.
     6.50 %     12/15/18     972,975  
       
 
                      
       
 
                     6,786,220  
       
 
                      
       
Oil Company-Integrated (3.1%)
                        
  590    
Cenovus Energy, Inc. (144A) (Canada) (a)
     5.70       10/15/19       616,563  
  200    
Hess Corp.
     6.00       01/15/40       198,733  
  490    
Hess Corp.
     7.125       03/15/33       550,194  
  525    
Hess Corp.
     8.125       02/15/19       634,186  
  405    
Husky Energy, Inc. (Canada)
     7.25       12/15/19       468,870  
  1,125    
Marathon Oil Corp.
     6.00       10/01/17       1,191,871  
  1,030    
Petro-Canada (Canada)
     5.95       05/15/35       1,019,800  
  200    
Petrobras International Finance Co. (Cayman Islands)
     5.75       01/20/20       204,457  
       
 
                      
       
 
                     4,884,674  
       
 
                      
       
Oil Refining & Marketing (0.5%)
                        
  900    
Valero Energy Corp.
     6.625       06/15/37       847,065  
       
 
                      
       
Oil-Field Services (0.6%)
                        
  850    
Weatherford International, Inc.
     6.35       06/15/17       890,395  
       
 
                      
       
Paper & Related Products (1.5%)
                        
  75    
Georgia-Pacific LLC (144A) (a)
     8.25       05/01/16       79,875  
  520    
International Paper Co.
     7.50       08/15/21       583,802  
  660    
International Paper Co.
     9.375       05/15/19       812,581  
  775    
MeadWestvaco Corp.
     7.375       09/01/19       852,826  
       
 
                      
       
 
                     2,329,084  
       
 
                      
       
Pharmacy Services (0.7%)
                        
  935    
Medco Health Solutions, Inc.
     7.125       03/15/18       1,052,728  
       
 
                      
       
Pipelines (7.1%)
                        
  285    
CenterPoint Energy Resources Corp.
     6.25       02/01/37       277,163  
  305    
CenterPoint Energy Resources Corp. (Series B)
     7.875       04/01/13       343,792  
  443    
Colorado Interstate Gas Co.
     6.80       11/15/15       491,316  
  740    
Energy Transfer Partners LP
     8.50       04/15/14       854,957  
  570    
Energy Transfer Partners LP
     9.00       04/15/19       680,540  
  1,615    
Enterprise Products Operating LLC (Series G)
     5.60       10/15/14       1,721,503  
  415    
Kinder Morgan Energy Partners LP
     5.85       09/15/12       446,892  
  610    
Kinder Morgan Energy Partners LP
     5.95       02/15/18       647,162  
  355    
Kinder Morgan Energy Partners LP
     6.85       02/15/20       394,523  
  980    
Kinder Morgan Finance Co. ULC (Canada)
     5.70       01/05/16       945,700  
  450    
Midcontinent Express Pipeline LLC (144A) (a)
     6.70       09/15/19       462,362  
  1,090    
Plains All American Pipeline LP / PAA Finance Corp.
     6.70       05/15/36       1,115,121  
  1,025    
Texas Eastern Transmission LP
     7.00       07/15/32       1,155,503  
  470    
Transcontinental Gas Pipe Line Co. LLC (Series B)
     8.875       07/15/12       539,009  
  800    
Williams Cos., Inc. (The)
     8.75       01/15/20       956,038  
       
 
                      
       
 
                     11,031,581  
       
 
                      
       
Property Trust (0.5%)
                        
  750    
WEA Finance LLC / WT Finance Aust Pty Ltd. (144A) (a)
     6.75       09/02/19       806,747  
       
 
                      
       
Real Estate Operation/Development (0.4%)
                        
  510    
Brookfield Asset Management, Inc. (Canada)
     5.80       04/25/17       465,388  
  125    
Brookfield Asset Management, Inc. (Canada)
     7.125       06/15/12       131,293  
       
 
                      
       
 
                     596,681  
       
 
                      
       
Reinsurance (0.6%)
                        
  500    
Platinum Underwriters Finance, Inc. (Series B)
     7.50       06/01/17       512,078  
  450    
Reinsurance Group of America, Inc.
     6.45       11/15/19       449,333  
       
 
                      

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
     
 
                   $ 961,411  
       
 
                      
       
REITS-Apartments (0.6%)
                        
$ 382    
AvalonBay Communities, Inc. (MTN)
     5.50       01/15/12       399,275  
  470    
AvalonBay Communities, Inc. (MTN)
     6.10       03/15/20       480,851  
       
 
                      
       
 
                     880,126  
       
 
                      
       
REITS-Office Property (0.7%)
                        
675    
Boston Properties LP
     5.875 %     10/15/19     678,361  
  370    
Mack-Cali Realty Corp.
     7.75       08/15/19       383,507  
       
 
                      
       
 
                     1,061,868  
       
 
                      
       
REITS-Regional Malls (0.3%)
                        
  420    
Simon Property Group LP
     6.75       05/15/14       448,008  
       
 
                      
       
Retail-Building Products (0.7%)
                        
  1,050    
Home Depot, Inc. (The)
     5.875       12/16/36       1,016,876  
       
 
                      
       
Retail-Drug Store (1.4%)
                        
  375    
CVS Caremark Corp.
     6.60       03/15/19       411,074  
       
 
                      
  928    
CVS Pass-Through Trust
     6.036       12/10/28       880,695  
  819    
CVS Pass-Through Trust (144A) (a)
     8.353       07/10/31       903,886  
       
 
                      
       
 
                     2,195,655  
       
 
                      
       
Retail-Regional Department Store (0.5%)
                        
  65    
Kohl’s Corp.
     6.00       01/15/33       66,100  
  565    
Kohl’s Corp.
     6.875       12/15/37       642,921  
       
 
                      
       
 
                     709,021  
       
 
                      
       
Retail-Restaurants (0.7%)
                        
  130    
Yum! Brands, Inc.
     6.25       03/15/18       142,034  
  825    
Yum! Brands, Inc.
     6.875       11/15/37       894,285  
       
 
                      
       
 
                     1,036,319  
       
 
                      
       
Satellite Telecommunication (0.1%)
                        
  180    
Intelsat Subsidiary Holding Co. Ltd. (Bermuda)
     8.50       01/15/13       184,500  
       
 
                      
       
Semiconductor Equipment (0.4%)
                        
  550    
KLA-Tencor Corp.
     6.90       05/01/18       579,594  
       
 
                      
       
Special Purpose Entity (1.2%)
                        
  645    
AIG SunAmerica Global Financing (144A) (a)
     6.30       05/10/11       641,777  
  600    
Capital One Capital
     8.875       05/15/40       643,500  
  205    
Farmers Exchange Capital (144A) (a)
     7.05       07/15/28       179,022  
  440    
Harley-Davidson Funding Corp. (144A) (a)
     6.80       06/15/18       439,473  
       
 
                      
       
 
                     1,903,772  
       
 
                      
       
Steel-Producers (1.4%)
                        
  1,635    
ArcelorMittal (Luxembourg)
     9.85       06/01/19       2,118,182  
       
 
                      
       
Super-Regional Banks-U.S. (0.1%)
                        
  220    
Wells Fargo & Co.
     5.625       12/11/17       229,200  
       
 
                      
       
Telecom Equipment Fiber Optics (0.3%)
                        
  325    
Corning, Inc.
     6.625       05/15/19       354,793  
  135    
Corning, Inc.
     7.25       08/15/36       137,963  
       
 
                      
       
 
                     492,756  
       
 
                      
       
Telecommunication Services (0.5%)
                        
  525    
Qwest Corp.
     6.50       06/01/17       518,437  
  150    
Qwest Corp.
     6.875       09/15/33       132,750  
  180    
SBA Telecommunications, Inc. (144A) (a)
     8.25       08/15/19       191,700  
       
 
                      
       
 
                     842,887  
       
 
                      
       
Telephone-Integrated (6.5%)
                        
  1,525    
AT&T, Inc.
     6.15       09/15/34       1,512,210  
  420    
CenturyTel, Inc.
     6.00       04/01/17       431,901  
  210    
CenturyTel, Inc. (Series Q)
     6.15       09/15/19       215,088  
  435    
Citizens Communications Co.
     7.125       03/15/19       413,250  
  335    
Deutsche Telekom International Finance BV (Netherlands)
     6.75       08/20/18       375,682  

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
 
$ 1,505    
Deutsche Telekom International Finance BV (Netherlands)
     8.75 (b)     06/15/30     $ 1,940,789  
  240    
Telecom Italia Capital SA (Luxembourg)
     6.999       06/04/18       264,494  
  1,585    
Telecom Italia Capital SA (Luxembourg)
     7.175       06/18/19       1,770,141  
  1,835    
Telefonica Europe BV (Netherlands)
     8.25       09/15/30       2,290,924  
  840    
Verizon Communications, Inc.
     5.50       02/15/18       878,032  
100    
Verizon Communications, Inc.
     8.95 %     03/01/39     135,730  
       
 
                      
       
 
                     10,228,241  
       
 
                      
       
Television (0.5%)
                        
  680    
CBS Corp.
     8.875       05/15/19       814,847  
       
 
                      
       
Tobacco (2.2%)
                        
  895    
Altria Group, Inc.
     9.25       08/06/19       1,092,491  
  390    
Altria Group, Inc.
     9.70       11/10/18       482,858  
  685    
Altria Group, Inc.
     10.20       02/06/39       916,411  
  245    
BAT International Finance PLC (144A) (United Kingdom) (a)
     9.50       11/15/18       311,616  
  565    
Lorillard Tobacco Co.
     8.125       06/23/19       622,194  
       
 
                      
       
 
                     3,425,570  
       
 
                      
       
Total Corporate Bonds (Cost $137,216,998)
                     147,411,600  
       
 
                      
       
Commercial Mortgage-Backed Securities (1.1%)
                        
  375    
Bear Stearns Commercial Mortgage Securities 2007-T26 A4
     5.471       01/12/45       355,634  
  630    
LB-UBS Commercial Mortgage Trust 2005-C3 A5
     4.739       07/15/30       610,393  
  490    
LB-UBS Commercial Mortgage Trust 2006-C1 A4
     5.156       02/15/31       475,167  
  250    
LB-UBS Commercial Mortgage Trust 2006-C6 A4
     5.372       09/15/39       238,777  
       
 
                      
       
Total Commercial Mortgage-Backed Securities (Cost $1,505,025)
                     1,679,971  
       
 
                      
       
Municipal Bond (0.1%)
                        
       
Transportation
                        
  190    
Illinois State Toll Highway Authority (The) 2009 (Series A) (Cost $190,000)
     6.184       01/01/34       193,445  
       
 
                      
       
Short-Term Investment (0.5%)
                        
       
U.S. Government Obligation (e)(f)
                        
  802    
U.S. Treasury Bill (Cost $801,578)
     0.152       05/06/10       801,588  
       
 
                      
       
Total Investments (Cost $139,713,601) (g)(h)
             95.9 %     150,086,604  
       
Other Assets in Excess of Liabilities
             4.1       6,353,046  
       
 
                    
       
Net Assets
             100.0 %   $ 156,439,650  
       
 
                    
 
MTN   Medium Term Note.
 
(a)   Resale is restricted to qualified institutional investors.
 
(b)   Floating rate security. Rate shown is the rate in effect at December 31, 2009.
 
(c)   Security issued with perpetual maturity.
 
(d)   For the three months ended December 31, 2009, there were no transactions in Citigroup, Inc., corporate bond, an affiliate of the Investment Adviser, Administrator and Distributor.
 
(e)   Purchased on a discount basis. The interest rates shown have been adjusted to reflect a money market equivalent yield.
 
(f)   A portion of this security has been physically segregated in connection with open futures contracts.
 
(g)   Securities have been designated as collateral in connection with open futures and open swap contracts.
 
(h)   The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes.
Bond Insurance:
     
AMBAC   AMBAC Assurance Corporation.

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
Futures Contracts Open at December 31, 2009:
                         
        DESCRIPTION,   UNDERLYING     UNREALIZED  
NUMBER OF   LONG/   DELIVERY MONTH   FACE AMOUNT     APPRECIATION  
CONTRACTS   SHORT   AND YEAR   AT VALUE     (DEPRECIATION)  
 
124   Long  
U.S. Treasury Notes 5 Year,
March 2010
   $ 14,183,469     $ (268,636 )
65   Long  
U.S. Treasury Notes 2 Year,
March 2010
     14,057,265       (77,168 )
119   Short  
U.S. Treasury Bonds 30 Year,
March 2010
     (13,729,625 )     574,259  
191   Short  
U.S. Treasury Notes 10 Year,
March 2010
     (22,051,548 )     530,775  
       
 
              
       
Net Unrealized Appreciation
           $ 759,230  
       
 
              

 

 

Morgan Stanley Income Securities Inc.
Portfolio of Investments § December 31, 2009 (unaudited) continued
Credit Default Swaps Contracts Open at December 31, 2009:
                                                                 
                                                            CREDIT  
SWAP                                                           RATING OF  
COUNTERPARTY &           NOTIONAL                     UNREALIZED                     REFERENCE  
REFERENCE   BUY/SELL     AMOUNT     INTEREST     TERMINATION     APPRECIATION     UPFRONT             OBLIGATION+  
OBLIGATION   PROTECTION     (000’s)     RATE     DATE     (DEPRECIATION)     PAYMENTS     VALUE     (unaudited)  
 
Bank of America, N.A Carnival Corp.
   Buy   $ 605       1.57 %   March 20, 2018   $ (28,898 )   $ —     $ (28,898 )   BBB+
Bank of America, N.A. Centurytel, Inc.
   Buy     395       0.88     September 20, 2017     4,958       —       4,958     BBB-
Goldman Sachs International Sealed Air Corp.
   Buy     250       1.08     March 20, 2018     1,638       —       1,638     BB+
Bank of America, N.A.
Toll Brothers Inc.
   Buy     770       2.90     March 20, 2013     (41,584 )     —       (41,584 )   BBB-
Bank of America, N.A.
Tyco Electronics Ltd.
   Buy     385       5.00     June 20, 2014     (55,528 )     (16,174 )     (71,702 )   BBB-
Barclays Capital
Whirlpool Corp.
   Buy     250       0.251     June 20, 2014     (13,097 )     13,480       383     BBB-
 
                                                        
Total Credit Default Swaps
           $ 2,655                     $ (132,511 )   $ (2,694 )   $ (135,205 )        
 
                                                        
 
+   Credit Rating as issued by Standard and Poors.

 

 

Morgan Stanley Income Securities Inc.
Notes to the Portfolio of Investments (unaudited)
12/31/2009
Fair Valuation Measurements
Fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP utilizes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
• Level 1 — unadjusted quoted prices in active markets for identical investments
• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
• Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is the summary of the inputs used as of December 31, 2009 in valuing the Fund’s investments carried at fair value:
                                 
    Fair Value Measurements at December 31, 2009 Using
            Unadjusted            
            Quoted Prices In   Significant   Significant
            Active Market for   Other Observable   Unobservable
            Identical Investments   Inputs   Inputs
Investment Type   Total   (Level 1)   (Level 2)   (Level 3)
 
Assets:
                                
Commercial Mortgage-Backed Securities
   $ 1,679,971       —     $ 1,679,971       —  
Corporate Bonds
     147,411,600       —       147,411,600       —  
Municipal Bonds
     193,445       —       193,445       —  
Short-Term Investment — U.S. Government Obligation
     801,588       —       801,588       —  
Futures
     1,105,034     $ 1,105,034       —       —  
Credit Default Swaps
     6,596       —       6,596       —  
 
Total Assets
   $ 151,198,234     $ 1,105,034     $ 150,093,200       —  
 
Liabilities:
                                
Futures
   $ (345,804 )   $ (345,804 )     —       —  
Credit Default Swaps
     (139,107 )     —     $ (139,107 )     —  
 
Total Liabilities
   $ (484,911 )   $ (345,804 )   $ (139,107 )     —  
 
Valuation of Investments — (1) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Directors. The prices provided by a pricing service take into account broker dealer market price quotations for trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities; (2) portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and ask price; (3) futures are valued at the latest price published by the commodities exchange on which they trade; (4) credit default/interest rate swaps are marked-to-market daily based upon quotations from market makers; (5) when market quotations are not readily available including circumstances under which Morgan Stanley Investment Advisors Inc. (the “Investment Adviser”) determines that the market quotations are not reflective of a security’s market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Directors; (6) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; 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, which approximates market value.

 

 

Item 2. 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-Q 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 Fund’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
Item 3. Exhibits.
(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.

 

 

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 Income Securities Inc.
 		  
/s/ Randy Takian    
Randy Takian   
Principal Executive Officer   
February 18, 2010   
 
     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/ Randy Takian    
Randy Takian   
Principal Executive Officer   
February 18, 2010   
 
/s/ Francis Smith    
Francis Smith   
Principal Financial Officer   
February 18, 2010