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: 811-07607
Morgan Stanley Variable Insurance Fund, Inc.
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York | 10036 |
(Address of principal executive offices) | (Zip code) |
John H. Gernon
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-296-0289
Date of fiscal year end: December 31,
Date of reporting period: December 31, 2020
Item 1 - Report to Shareholders
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Core Plus Fixed Income Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 5 | ||||||
Statement of Assets and Liabilities | 16 | ||||||
Statement of Operations | 17 | ||||||
Statements of Changes in Net Assets | 18 | ||||||
Financial Highlights | 19 | ||||||
Notes to Financial Statements | 21 | ||||||
Report of Independent Registered Public Accounting Firm | 32 | ||||||
Liquidity Risk Management Program | 33 | ||||||
Federal Tax Notice | 34 | ||||||
Director and Officer Information | 35 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Core Plus Fixed Income Portfolio
As a shareholder of the Core Plus Fixed Income Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Core Plus Fixed Income Portfolio Class I | $ | 1,000.00 | $ | 1,038.50 | $ | 1,021.72 | $ | 3.48 | $ | 3.46 | 0.68 | % | |||||||||||||||
Core Plus Fixed Income Portfolio Class II | 1,000.00 | 1,037.70 | 1,020.46 | 4.76 | 4.72 | 0.93 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Core Plus Fixed Income Portfolio
The Fund seeks above-average total return over a market cycle of three to five years by investing primarily in a diversified portfolio of fixed income securities.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 7.80%, net of fees, and 7.55%, net of fees, for Class II shares. The Fund's Class I and Class II shares outperformed the Fund's benchmark, the Bloomberg Barclays U.S. Aggregate Index (the "Index"), which returned 7.51%.
Factors Affecting Performance
• Over the 12-month period ending December 31, 2020, U.S. Treasury yields fell drastically across the curve as the market sharply sold off due to the coronavirus pandemic and its economic fallout. Over the year, 10-year U.S. Treasury yields fell 100 basis points, ending the year at 0.92%.(1) Yields fell outside the U.S. as well, in both the developed and emerging markets, as central banks cut interest rates in response to the coronavirus.
• Credit spreads on investment grade corporate bonds (represented by the Bloomberg Barclays U.S. Corporate Index) ended the year flat, but were very volatile throughout the year, particularly in the first and second quarters of 2020 when spreads widened. We added corporate bonds to the portfolio at wide credit spread levels, which helped contribute to the portfolio's outperformance as spreads subsequently tightened during the second half of the year.
• Overall positioning in securitized assets had a positive impact on relative performance, driven by the portfolio's exposure to non-agency residential mortgage-backed securities (RMBS). The portfolio's agency commercial mortgage-backed securities (CMBS) and RMBS positioning also marginally contributed to relative performance. The portfolio's exposure to non-agency CMBS and asset-backed securities (ABS) detracted from relative performance as they were disproportionally impacted by the market sell-off in the first quarter of 2020. However, both non-agency CMBS and ABS started to recover later in the year, and spreads had narrowed from their widest levels seen during March and April 2020.
• Out-of-Index holdings in high yield and convertible bonds added to performance, particularly in the second half of the year as these sectors rallied.
• The portfolio's Treasury inflation-protected securities (TIPS) position detracted from overall performance as inflation expectations collapsed at the beginning of 2020. The investment team subsequently closed out of the TIPS position in the first quarter of 2020.
Management Strategies
• Throughout the period, we maintained an overweight position to spread (non-government) sectors that we believed had strong or improving fundamentals, as well as areas that we think will be more resilient given market impacts caused by the coronavirus.
• The Fund was positioned with an overweight to investment grade credit and to financials, in particular, as we believe that these companies can continue to reduce risk in light of the regulatory environment.
• The Fund also had allocations to riskier segments of the market such as high yield corporates, non-agency mortgage-backed securities, ABS and convertible bonds. We also added to these areas at wide spread levels to capitalize on the spread tightening that was seen in the second half of 2020.
• With regard to interest rate strategy, the Fund ended the year with a flat overall duration, with a short duration position in the U.S. and a long duration position in emerging markets and non-U.S. developed markets.
(1) Source: Bloomberg L.P. Data as of December 31, 2020.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Core Plus Fixed Income Portfolio
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the Bloomberg Barclays U.S. Aggregate Index(1)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(2) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(5) | ||||||||||||||||
Fund – Class I(3) | 7.80 | % | 6.01 | % | 5.16 | % | 5.10 | % | |||||||||||
Bloomberg Barclays U.S. Aggregate Index | 7.51 | 4.44 | 3.84 | 5.24 | |||||||||||||||
Fund – Class II(4) | 7.55 | 5.73 | 4.90 | 4.10 | |||||||||||||||
Bloomberg Barclays U.S. Aggregate Index | 7.51 | 4.44 | 3.84 | 4.30 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The Bloomberg Barclays U.S. Aggregate Index tracks the performance of U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(3) Commenced operations on January 2, 1997.
(4) Commenced offering on May 1, 2003.
(5) For comparative purposes, average annual since inception returns listed for the Index refers to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Fixed Income Securities (98.3%) | |||||||||||
Agency Adjustable Rate Mortgages (0.1%) | |||||||||||
Federal Home Loan Mortgage Corporation, Conventional Pool: 12 Month USD LIBOR + 1.62%, 3.10%, 7/1/45 | $92 | $96 | |||||||||
Federal National Mortgage Association, Conventional Pool: | |||||||||||
12 Month USD LIBOR + 1.59%, 2.15%, 12/1/45 | 22 | 22 | |||||||||
118 | |||||||||||
Agency Fixed Rate Mortgages (18.8%) | |||||||||||
Federal Home Loan Mortgage Corporation, Gold Pools: 3.50%, 1/1/44 | 487 | 529 | |||||||||
4.00%, 12/1/41 - 10/1/44 | 567 | 622 | |||||||||
5.41%, 7/1/37 - 8/1/37 | 19 | 21 | |||||||||
5.44%, 1/1/37 - 2/1/38 | 50 | 55 | |||||||||
5.46%, 5/1/37 - 1/1/38 | 49 | 56 | |||||||||
5.48%, 8/1/37 | 11 | 12 | |||||||||
5.50%, 8/1/37 - 4/1/38 | 58 | 65 | |||||||||
5.52%, 10/1/37 | 5 | 6 | |||||||||
5.62%, 12/1/36 - 8/1/37 | 59 | 66 | |||||||||
6.00%, 8/1/37 - 5/1/38 | 16 | 19 | |||||||||
6.50%, 9/1/32 | 8 | 9 | |||||||||
7.50%, 5/1/35 | 26 | 30 | |||||||||
8.00%, 8/1/32 | 17 | 20 | |||||||||
8.50%, 8/1/31 | 21 | 25 | |||||||||
Federal National Mortgage Association, Conventional Pools: 2.50%, 2/1/50 | 382 | 402 | |||||||||
3.00%, 7/1/49 | 162 | 167 | |||||||||
3.50%, 7/1/46 - 7/1/49 | 1,720 | 1,842 | |||||||||
4.00%, 11/1/41 - 8/1/49 | 1,065 | 1,156 | |||||||||
4.50%, 8/1/40 - 9/1/48 | 1,113 | 1,238 | |||||||||
5.00%, 7/1/40 | 73 | 84 | |||||||||
5.62%, 12/1/36 | 19 | 20 | |||||||||
6.00%, 12/1/38 | 375 | 444 | |||||||||
6.50%, 11/1/27 - 10/1/38 | 14 | 15 | |||||||||
7.00%, 6/1/29 | 6 | 7 | |||||||||
7.50%, 8/1/37 | 44 | 54 | |||||||||
8.00%, 4/1/33 | 35 | 43 | |||||||||
8.50%, 10/1/32 | 35 | 43 | |||||||||
9.50%, 4/1/30 | 3 | 3 | |||||||||
February TBA: 2.00%, 2/1/51 (a) | 10,550 | 10,942 | |||||||||
January TBA: 1.50%, 1/1/51 (a) | 1,950 | 1,970 | |||||||||
2.50%, 1/1/51 (a) | 7,475 | 7,880 | |||||||||
3.00%, 1/1/51 (a) | 1,050 | 1,100 | |||||||||
3.50%, 1/1/51 (a) | 3,375 | 3,568 |
Face Amount (000) | Value (000) | ||||||||||
Government National Mortgage Association, Various Pools: 3.50%, 11/20/40 - 7/20/46 | $392 | $420 | |||||||||
4.00%, 7/15/44 - 5/20/49 | 986 | 1,057 | |||||||||
5.00%, 12/20/48 - 2/20/49 | 60 | 65 | |||||||||
34,055 | |||||||||||
Asset-Backed Securities (10.6%) | |||||||||||
Aaset Trust, 3.84%, 5/15/39 (b) | 219 | 208 | |||||||||
Accredited Mortgage Loan Trust, 1 Month USD LIBOR + 0.60%, 0.75%, 4/25/34 (c) | 457 | 452 | |||||||||
Ajax Mortgage Loan Trust, 1.70%, 5/25/59 (b) | 477 | 482 | |||||||||
American Homes 4 Rent Trust, 6.07%, 10/17/52 (b) | 490 | 554 | |||||||||
AMSR 2019-SFR1 Trust, 2.77%, 1/19/39 (b) | 600 | 637 | |||||||||
Aqua Finance Trust, 3.47%, 7/16/40 (b) | 300 | 313 | |||||||||
Avant Loans Funding Trust, 4.65%, 4/15/26 (b) | 400 | 398 | |||||||||
5.00%, 11/17/25 (b) | 150 | 151 | |||||||||
Blackbird Capital Aircraft Lease Securitization Ltd., 5.68%, 12/16/41 (b) | 380 | 337 | |||||||||
Cascade Funding Mortgage Trust, 5.60%, 4/25/30 (b)(c) | 200 | 212 | |||||||||
7.30%, 4/25/30 (b)(c) | 400 | 428 | |||||||||
Cascade MH Asset Trust, 4.00%, 11/25/44 (b)(c) | 371 | 392 | |||||||||
CFMT 2020-HB3 LLC, 6.28%, 5/25/30 (b)(c) | 250 | 252 | |||||||||
Conn's Receivables Funding LLC, 3.62%, 6/17/24 (b) | 250 | 251 | |||||||||
Fair Square Issuance Trust, 2.90%, 9/20/24 (b) | 200 | 202 | |||||||||
Fairstone Financial Issuance Trust I, 3.95%, 3/21/33 (b) | CAD | 250 | 198 | ||||||||
Falcon Aerospace Ltd., 3.60%, 9/15/39 (b) | $ | 228 | 219 | ||||||||
Foundation Finance Trust, 3.86%, 11/15/34 (b) | 222 | 230 | |||||||||
Freed ABS Trust, 4.52%, 6/18/27 (b) | 154 | 155 | |||||||||
FREED ABS Trust, 3.87%, 6/18/26 (b) | 261 | 264 | |||||||||
4.61%, 10/20/25 (b) | 520 | 527 | |||||||||
GAIA Aviation Ltd., 7.00%, 12/15/44 (b) | 304 | 186 | |||||||||
Goodgreen Trust, 5.53%, 4/15/55 (b) | 586 | 605 | |||||||||
JOL Air Ltd., 4.95%, 4/15/44 (b) | 227 | 186 | |||||||||
Lunar Aircraft Ltd., 3.38%, 2/15/45 (b) | 128 | 122 | |||||||||
MACH 1 Cayman Ltd., 3.47%, 10/15/39 (b) | 308 | 299 |
The accompanying notes are an integral part of the financial statements.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Asset-Backed Securities (cont'd) | |||||||||||
METAL LLC, 4.58%, 10/15/42 (b) | $ | 368 | $ | 295 | |||||||
MFA LLC, 4.16%, 7/25/48 (b) | 299 | 301 | |||||||||
Mosaic Solar Loan Trust, 2.10%, 4/20/46 (b) | 223 | 229 | |||||||||
New Residential Mortgage LLC, 5.44%, 6/25/25 - 7/25/25 (b) | 1,052 | 1,066 | |||||||||
NovaStar Mortgage Funding Trust, 1 Month USD LIBOR + 1.06%, 1.21%, 12/25/33 (c) | 317 | 315 | |||||||||
Oxford Finance Funding LLC, 3.10%, 2/15/28 (b) | 250 | 256 | |||||||||
5.44%, 2/15/27 (b) | 300 | 309 | |||||||||
PNMAC GMSR Issuer Trust, 1 Month USD LIBOR + 2.85%, 3.00%, 2/25/23 (b)(c) | 300 | 297 | |||||||||
Pretium Mortgage Credit Partners I LLC, 2.86%, 5/27/59 (b) | 439 | 441 | |||||||||
3.72%, 2/27/60 (b) | 365 | 368 | |||||||||
Prosper Marketplace Issuance Trust, 5.50%, 10/15/24 (b) | 543 | 542 | |||||||||
PRPM LLC, 3.35%, 11/25/24 (b) | 209 | 210 | |||||||||
Raptor Aircraft Finance I LLC, 4.21%, 8/23/44 (b) | 612 | 522 | |||||||||
S-Jets Ltd., 7.02%, 8/15/42 (b) | 684 | 376 | |||||||||
SFS Asset Securitization LLC, 4.24%, 6/10/25 (b) | 509 | 510 | |||||||||
SLM Student Loan Trust, 3 Month EURIBOR + 0.55%, 0.04%, 7/25/39 - 1/25/40 (c) | EUR | 1,100 | 1,261 | ||||||||
Small Business Lending Trust, 2.85%, 7/15/26 (b) | $ | 67 | 67 | ||||||||
Sprite Ltd., 4.25%, 12/15/37 (b) | 225 | 214 | |||||||||
START Ireland, 4.09%, 3/15/44 (b) | 157 | 154 | |||||||||
Tricon American Homes Trust, 5.10%, 1/17/36 (b) | 400 | 419 | |||||||||
5.15%, 9/17/34 (b) | 400 | 409 | |||||||||
Upstart Securitization Trust, 3.09%, 4/22/30 (b) | 580 | 589 | |||||||||
3.73%, 9/20/29 (b) | 550 | 562 | |||||||||
VCAT LLC, 3.67%, 8/25/50 (b) | 346 | 350 | |||||||||
VOLT LXXXV LLC, 3.23%, 1/25/50 (b) | 437 | 439 | |||||||||
VOLT LXXXVIII LLC, 2.98%, 3/25/50 (b) | 442 | 443 | |||||||||
19,204 |
Face Amount (000) | Value (000) | ||||||||||
Collateralized Mortgage Obligations — Agency Collateral Series (1.2%) | |||||||||||
Federal Home Loan Mortgage Corporation, 1 Month USD LIBOR + 4.35%, 4.50%, 12/25/26 (b)(c) | $ | 70 | $ | 70 | |||||||
1 Month USD LIBOR + 5.05%, 5.20%, 7/25/23 (c) | 92 | 95 | |||||||||
1 Month USD LIBOR + 5.25%, 5.40%, 7/25/26 (b)(c) | 43 | 44 | |||||||||
IO 0.33%, 11/25/27 (c) | 13,358 | 289 | |||||||||
0.43%, 8/25/27 (c) | 8,250 | 219 | |||||||||
2.63%, 1/25/49 (c) | 715 | 150 | |||||||||
2.73%, 9/25/48 (c) | 3,100 | 657 | |||||||||
3.46%, 10/25/38 (c) | 800 | 274 | |||||||||
IO REMIC 6.00% - 1 Month USD LIBOR, 5.84%, 11/15/43 - 6/15/44 (d) | 1,544 | 259 | |||||||||
6.05% - 1 Month USD LIBOR , 5.89%, 4/15/39 (d) | 75 | 1 | |||||||||
IO STRIPS 7.50%, 12/15/29 | 3 | — | @ | ||||||||
Federal National Mortgage Association, IO REMIC 6.00%, 5/25/33 - 7/25/33 | 141 | 30 | |||||||||
IO STRIPS 8.00%, 4/25/24 | — | @ | — | @ | |||||||
8.00%, 6/25/35 (c) | 10 | 2 | |||||||||
9.00%, 11/25/26 | 1 | — | @ | ||||||||
REMIC 7.00%, 9/25/32 | 24 | 30 | |||||||||
Government National Mortgage Association, IO 0.76%, 8/20/58 (c) | 3,612 | 79 | |||||||||
5.00%, 2/16/41 | 69 | 13 | |||||||||
IO PAC 6.15% - 1 Month USD LIBOR, 6.00%, 10/20/41 (d) | 422 | 16 | |||||||||
2,228 | |||||||||||
Commercial Mortgage-Backed Securities (6.3%) | |||||||||||
Bancorp Commercial Mortgage Trust, 1 Month USD LIBOR + 2.30%, 2.46%, 9/15/36 (b)(c) | 450 | 428 | |||||||||
BANK 2019-BNK21, IO 0.87%, 10/17/52 (c) | 3,985 | 250 | |||||||||
BANK 2020-BNK30, 2.92%, 12/10/53 (c) | 725 | 697 | |||||||||
Barclays Commercial Mortgage Trust, IO 1.34%, 5/15/52 (c) | 3,983 | 364 | |||||||||
BF 2019-NYT Mortgage Trust, 1 Month USD LIBOR + 1.70%, 1.86%, 12/15/35 (b)(c) | 600 | 598 | |||||||||
BXP Trust, 1 Month USD LIBOR + 3.00%, 3.16%, 11/15/34 (b)(c) | 650 | 454 |
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Commercial Mortgage-Backed Securities (cont'd) | |||||||||||
Citigroup Commercial Mortgage Trust, 3.62%, 12/10/41 (b)(c) | $ | 300 | $ | 236 | |||||||
IO 0.78%, 11/10/48 (c) | 2,439 | 70 | |||||||||
0.89%, 9/10/58 (c) | 4,441 | 156 | |||||||||
COMM Mortgage Trust, IO 0.10%, 7/10/45 (c) | 9,811 | 18 | |||||||||
0.72%, 10/10/47 (c) | 2,865 | 62 | |||||||||
1.01%, 7/15/47 (c) | 2,714 | 78 | |||||||||
CSWF 2018-TOP, 1 Month USD LIBOR + 1.45%, 1.61%, 8/15/35 (b)(c) | 480 | 469 | |||||||||
GS Mortgage Securities Trust, 4.74%, 8/10/46 (b)(c) | 500 | 408 | |||||||||
IO 0.73%, 9/10/47 (c) | 4,609 | 103 | |||||||||
1.22%, 10/10/48 (c) | 4,763 | 228 | |||||||||
InTown Hotel Portfolio Trust, 1 Month USD LIBOR + 2.05%, 2.21%, 1/15/33 (b)(c) | 346 | 337 | |||||||||
Jackson Park Trust LIC, 3.24%, 10/14/39 (b)(c) | 400 | 370 | |||||||||
JP Morgan Chase Commercial Mortgage Securities Trust, IO 0.51%, 4/15/46 (c) | 6,000 | 70 | |||||||||
0.68%, 12/15/49 (c) | 2,903 | 77 | |||||||||
0.94%, 7/15/47 (c) | 6,478 | 106 | |||||||||
JPMBB Commercial Mortgage Securities Trust, IO 1.00%, 8/15/47 (c) | 3,561 | 95 | |||||||||
MFT Trust, 3.48%, 2/10/42 (b)(c) | 200 | 189 | |||||||||
MKT 2020-525M Mortgage Trust, 2.94%, 2/12/40 (b)(c) | 200 | 185 | |||||||||
Multifamily Connecticut Avenue Securities Trust, 1 Month USD LIBOR + 1.95%, 2.10%, 3/25/50 (b)(c) | 651 | 646 | |||||||||
Natixis Commercial Mortgage Securities Trust, 1 Month USD LIBOR + 2.20%, 2.36%, 7/15/36 (b)(c) | 500 | 489 | |||||||||
4.13%, 5/15/39 (b)(c) | 450 | 462 | |||||||||
4.32%, 1/15/43 (b)(c) | 200 | 201 | |||||||||
4.41%, 2/15/39 (b)(c) | 807 | 778 | |||||||||
Olympic Tower 2017-OT Mortgage Trust, 3.57%, 5/10/39 (b) | 600 | 650 | |||||||||
SG Commercial Mortgage Securities Trust, 3.73%, 3/15/37 (b)(c) | 450 | 455 | |||||||||
4.51%, 2/15/41 (b)(c) | 550 | 507 | |||||||||
VMC Finance 2019-FL3 LLC, 1 Month USD LIBOR + 2.05%, 2.20%, 9/15/36 (b)(c) | 481 | 470 | |||||||||
Wells Fargo Commercial Mortgage Trust, 1 Month USD LIBOR + 1.74%, 1.90%, 2/15/37 (b)(c) | 250 | 232 |
Face Amount (000) | Value (000) | ||||||||||
1 Month USD LIBOR + 2.21%, 2.37%, 1/15/35 (b)(c) | $ | 200 | $ | 192 | |||||||
WFRBS Commercial Mortgage Trust, 4.14%, 5/15/45 (b)(c) | 385 | 371 | |||||||||
11,501 | |||||||||||
Corporate Bonds (38.6%) | |||||||||||
Energy (0.4%) | |||||||||||
BP Capital Markets America, Inc. 3.12%, 5/4/26 | 375 | 415 | |||||||||
Midwest Connector Capital Co. LLC 3.63%, 4/1/22 (b)(e) | 175 | 178 | |||||||||
Petrobras Global Finance BV 6.75%, 6/3/50 | 150 | 187 | |||||||||
780 | |||||||||||
Finance (16.7%) | |||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust 4.13%, 7/3/23 | 575 | 616 | |||||||||
Air Lease Corp. 2.30%, 2/1/25 | 325 | 337 | |||||||||
American International Group, Inc. 4.50%, 7/16/44 | 150 | 193 | |||||||||
Anthem, Inc. 2.25%, 5/15/30 | 150 | 160 | |||||||||
Australia & New Zealand Banking Group Ltd. 2.57%, 11/25/35 (b) | 200 | 204 | |||||||||
AvalonBay Communities, Inc. 2.95%, 5/11/26 | 175 | 194 | |||||||||
Avolon Holdings Funding Ltd. 2.88%, 2/15/25 (b) | 475 | 485 | |||||||||
Banco Bradesco SA 3.20%, 1/27/25 (b) | 700 | 734 | |||||||||
Banco Santander Chile 2.70%, 1/10/25 (b) | 300 | 318 | |||||||||
Bank of America Corp., 1.90%, 7/23/31 | 75 | 76 | |||||||||
2.68%, 6/19/41 | 391 | 409 | |||||||||
4.24%, 4/24/38 | 106 | 131 | |||||||||
MTN 4.00%, 1/22/25 | 1,085 | 1,220 | |||||||||
Bank of Montreal 3.80%, 12/15/32 | 450 | 510 | |||||||||
BBVA USA 3.50%, 6/11/21 | 425 | 430 | |||||||||
Belrose Funding Trust 2.33%, 8/15/30 (b) | 575 | 593 | |||||||||
BNP Paribas SA 4.40%, 8/14/28 (b) | 300 | 356 | |||||||||
Boston Properties LP 3.80%, 2/1/24 | 145 | 158 | |||||||||
BPCE SA 5.15%, 7/21/24 (b) | 550 | 627 | |||||||||
Brookfield Finance LLC 3.45%, 4/15/50 | 250 | 266 | |||||||||
Brookfield Finance, Inc. 4.00%, 4/1/24 | 525 | 577 |
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Finance (cont'd) | |||||||||||
Brown & Brown, Inc., 2.38%, 3/15/31 | $ | 175 | $ | 184 | |||||||
4.20%, 9/15/24 | 275 | 306 | |||||||||
Canadian Imperial Bank of Commerce 2.25%, 1/28/25 | 600 | 638 | |||||||||
Capital One Financial Corp. 3.30%, 10/30/24 | 725 | 797 | |||||||||
Chubb INA Holdings, Inc. 1.38%, 9/15/30 | 450 | 450 | |||||||||
Citigroup, Inc., 2.67%, 1/29/31 | 647 | 695 | |||||||||
4.41%, 3/31/31 | 123 | 149 | |||||||||
4.45%, 9/29/27 | 175 | 207 | |||||||||
5.50%, 9/13/25 | 250 | 301 | |||||||||
CNO Financial Group, Inc. 5.25%, 5/30/29 | 170 | 206 | |||||||||
Cooperatieve Rabobank UA 3.95%, 11/9/22 | 625 | 664 | |||||||||
Credit Agricole SA 3.75%, 4/24/23 (b) | 400 | 430 | |||||||||
Credit Suisse Group AG 2.59%, 9/11/25 (b) | 700 | 737 | |||||||||
Crown Castle International Corp. 3.30%, 7/1/30 | 250 | 280 | |||||||||
Danske Bank A/S 5.00%, 1/12/23 (b) | 200 | 208 | |||||||||
Deutsche Bank AG 3.95%, 2/27/23 | 425 | 452 | |||||||||
GE Capital International Funding Co., Unlimited Co. 4.42%, 11/15/35 | 350 | 418 | |||||||||
GLP Capital LP/GLP Financing II, Inc. 3.35%, 9/1/24 | 300 | 316 | |||||||||
Goldman Sachs Group, Inc. (The), 6.75%, 10/1/37 | 285 | 437 | |||||||||
MTN 4.80%, 7/8/44 | 175 | 242 | |||||||||
Grupo Aval Ltd. 4.38%, 2/4/30 (b) | 200 | 213 | |||||||||
HSBC Holdings PLC 4.25%, 3/14/24 | 750 | 828 | |||||||||
HSBC USA, Inc. 3.50%, 6/23/24 | 250 | 274 | |||||||||
Intercontinental Exchange, Inc. 1.85%, 9/15/32 | 550 | 555 | |||||||||
Intesa Sanpaolo SpA 5.25%, 1/12/24 | 300 | 336 | |||||||||
Itau Unibanco Holding SA 2.90%, 1/24/23 (b) | 800 | 820 | |||||||||
Jefferies Finance LLC/JFIN Co-Issuer Corp. 6.25%, 6/3/26 (b) | 300 | 312 | |||||||||
JPMorgan Chase & Co., 2.74%, 10/15/30 | 625 | 680 | |||||||||
4.13%, 12/15/26 | 550 | 644 | |||||||||
Lloyds Banking Group PLC 4.38%, 3/22/28 | 525 | 625 |
Face Amount (000) | Value (000) | ||||||||||
Macquarie Bank Ltd. 2.30%, 1/22/25 (b) | $ | 450 | $ | 478 | |||||||
Marsh & McLennan Cos., Inc. 2.25%, 11/15/30 | 350 | 371 | |||||||||
MassMutual Global Funding II 3.40%, 3/8/26 (b) | 400 | 450 | |||||||||
Metropolitan Life Global Funding I 2.95%, 4/9/30 (b) | 150 | 169 | |||||||||
MPT Operating Partnership LP/ MPT Finance Corp. 5.00%, 10/15/27 | 175 | 186 | |||||||||
Nationwide Building Society, 4.30%, 3/8/29 (b) | 375 | 436 | |||||||||
4.36%, 8/1/24 (b) | 200 | 217 | |||||||||
Oversea-Chinese Banking Corp. Ltd. 1.83%, 9/10/30 (b) | 200 | 203 | |||||||||
Pine Street Trust I 4.57%, 2/15/29 (b) | 250 | 297 | |||||||||
Progressive Corp. (The), 3.20%, 3/26/30 | 150 | 173 | |||||||||
4.00%, 3/1/29 | 100 | 120 | |||||||||
Quicken Loans LLC/ Quicken Loans Co-Issuer, Inc. 3.88%, 3/1/31 (b) | 270 | 281 | |||||||||
Realty Income Corp. 0.75%, 3/15/26 | 277 | 277 | |||||||||
Royal Bank of Scotland Group PLC 3.88%, 9/12/23 | 250 | 271 | |||||||||
Santander UK Group Holdings PLC 3.57%, 1/10/23 | 900 | 928 | |||||||||
Societe Generale SA 2.63%, 1/22/25 (b) | 425 | 450 | |||||||||
Standard Chartered PLC, 3.05%, 1/15/21 (b) | 375 | 375 | |||||||||
4.64%, 4/1/31 (b) | 200 | 242 | |||||||||
Syngenta Finance N.V. 4.89%, 4/24/25 (b) | 550 | 591 | |||||||||
TD Ameritrade Holding Corp. 3.63%, 4/1/25 | 475 | 529 | |||||||||
Travelers Cos., Inc. (The) 3.75%, 5/15/46 | 200 | 251 | |||||||||
University of Chicago (The), Series C 2.55%, 4/1/50 | 120 | 121 | |||||||||
Wells Fargo & Co., 2.57%, 2/11/31 | 175 | 186 | |||||||||
2.88%, 10/30/30 | 225 | 246 | |||||||||
5.01%, 4/4/51 | 125 | 178 | |||||||||
Westpac Banking Corp. 2.67%, 11/15/35 | 150 | 155 | |||||||||
30,179 | |||||||||||
Industrials (18.9%) | |||||||||||
AbbVie, Inc. 4.25%, 11/21/49 | 200 | 252 | |||||||||
Adobe, Inc. 2.30%, 2/1/30 | 325 | 352 | |||||||||
Akamai Technologies, Inc. 0.38%, 9/1/27 | 181 | 203 |
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Industrials (cont'd) | |||||||||||
Albertsons Cos., Inc./Safeway, Inc./ New Albertsons LP/Albertsons LLC 3.50%, 2/15/23 (b) | $ | 175 | $ | 180 | |||||||
Amazon.com, Inc., 2.50%, 6/3/50 | 225 | 234 | |||||||||
4.25%, 8/22/57 | 100 | 143 | |||||||||
Amgen, Inc. 3.15%, 2/21/40 | 175 | 193 | |||||||||
Anheuser-Busch InBev Worldwide, Inc., 4.50%, 6/1/50 | 250 | 316 | |||||||||
4.60%, 4/15/48 | 225 | 285 | |||||||||
4.75%, 1/23/29 | 150 | 185 | |||||||||
Apple, Inc. 2.95%, 9/11/49 | 250 | 281 | |||||||||
Arches Buyer, Inc. 4.25%, 6/1/28 (b) | 270 | 274 | |||||||||
AT&T, Inc., 2.25%, 2/1/32 | 450 | 457 | |||||||||
3.55%, 9/15/55 (b) | 250 | 250 | |||||||||
3.65%, 9/15/59 (b) | 50 | 51 | |||||||||
Automatic Data Processing, Inc. 1.25%, 9/1/30 | 450 | 450 | |||||||||
Baidu, Inc. 1.72%, 4/9/26 | 275 | 279 | |||||||||
Baptist Healthcare System Obligated Group, Series 20B 3.54%, 8/15/50 | 180 | 202 | |||||||||
BAT Capital Corp. 3.56%, 8/15/27 | 550 | 613 | |||||||||
Boeing Co. (The), 3.25%, 2/1/35 | 75 | 77 | |||||||||
3.95%, 8/1/59 | 200 | 214 | |||||||||
Booking Holdings, Inc. 0.90%, 9/15/21 | 105 | 122 | |||||||||
BP Capital Markets PLC, 4.38%, 6/22/25 (f) | 150 | 161 | |||||||||
4.88%, 3/22/30 (f) | 150 | 168 | |||||||||
Braskem Netherlands Finance BV 4.50%, 1/31/30 (b) | 310 | 319 | |||||||||
Campbell Soup Co. 3.13%, 4/24/50 | 300 | 318 | |||||||||
Canadian National Railway Co. 2.45%, 5/1/50 | 200 | 208 | |||||||||
Charter Communications Operating LLC/ Charter Communications Operating Capital, 2.80%, 4/1/31 | 250 | 265 | |||||||||
3.85%, 4/1/61 | 350 | 354 | |||||||||
Children's Health System of Texas 2.51%, 8/15/50 | 175 | 171 | |||||||||
Cigna Corp., 2.40%, 3/15/30 | 75 | 80 | |||||||||
3.05%, 10/15/27 | 100 | 112 | |||||||||
CNOOC Finance 2013 Ltd. 3.00%, 5/9/23 | 220 | 229 |
Face Amount (000) | Value (000) | ||||||||||
Coca-Cola Femsa SAB de CV 2.75%, 1/22/30 | $ | 400 | $ | 431 | |||||||
Comcast Corp., 1.95%, 1/15/31 | 425 | 437 | |||||||||
2.45%, 8/15/52 | 350 | 340 | |||||||||
4.25%, 1/15/33 | 200 | 251 | |||||||||
Conagra Brands, Inc. 1.38%, 11/1/27 | 225 | 227 | |||||||||
Concho Resources, Inc. 4.88%, 10/1/47 | 150 | 204 | |||||||||
CVS Health Corp., 1.75%, 8/21/30 | 150 | 151 | |||||||||
3.75%, 4/1/30 | 373 | 435 | |||||||||
5.05%, 3/25/48 | 200 | 271 | |||||||||
5.13%, 7/20/45 | 75 | 101 | |||||||||
Deere & Co. 3.10%, 4/15/30 | 125 | 143 | |||||||||
Dell International LLC/EMC Corp., 4.90%, 10/1/26 (b) | 200 | 236 | |||||||||
6.02%, 6/15/26 (b) | 175 | 214 | |||||||||
Delta Air Lines, Inc., Series AA 3.20%, 10/25/25 | 250 | 257 | |||||||||
Diageo Capital PLC 2.13%, 10/24/24 | 450 | 475 | |||||||||
Diamond Sports Group LLC/Diamond Sports Finance Co. 6.63%, 8/15/27 (b)(e) | 250 | 152 | |||||||||
Diamondback Energy, Inc. 3.25%, 12/1/26 | 425 | 454 | |||||||||
Enbridge, Inc. 2.50%, 1/15/25 | 250 | 268 | |||||||||
Energy Transfer Operating LP 2.90%, 5/15/25 | 250 | 265 | |||||||||
Enterprise Products Operating LLC 4.20%, 1/31/50 | 350 | 413 | |||||||||
Equinix, Inc. 1.55%, 3/15/28 | 350 | 356 | |||||||||
Ford Motor Credit Co., LLC, 3.10%, 5/4/23 | 200 | 202 | |||||||||
4.39%, 1/8/26 | 200 | 210 | |||||||||
Fortune Brands Home & Security, Inc. 4.00%, 9/21/23 | 350 | 382 | |||||||||
Fox Corp. 5.58%, 1/25/49 | 200 | 293 | |||||||||
Galaxy Pipeline Assets Bidco Ltd. 1.75%, 9/30/27 (b) | 575 | 585 | |||||||||
General Motors Co. 6.60%, 4/1/36 | 125 | 169 | |||||||||
General Motors Financial Co., Inc., 3.85%, 1/5/28 | 150 | 167 | |||||||||
4.35%, 1/17/27 | 375 | 427 | |||||||||
Georgia-Pacific LLC 2.30%, 4/30/30 (b) | 325 | 348 | |||||||||
Gilead Sciences, Inc. 2.80%, 10/1/50 | 175 | 174 |
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Industrials (cont'd) | |||||||||||
Glencore Funding LLC 4.13%, 3/12/24 (b) | $ | 450 | $ | 496 | |||||||
Grifols SA 2.25%, 11/15/27 (b) | EUR | 200 | 248 | ||||||||
GSK Finance No 3 PLC 0.00%, 6/22/23 (b) | $ | 250 | 259 | ||||||||
HCA, Inc. 5.50%, 6/15/47 | 300 | 401 | |||||||||
Heathrow Funding Ltd. 4.88%, 7/15/23 (b) | 435 | 444 | |||||||||
Imperial Brands Finance PLC 3.13%, 7/26/24 (b) | 350 | 375 | |||||||||
International Business Machines Corp. 2.95%, 5/15/50 | 200 | 214 | |||||||||
J2 Global, Inc. 4.63%, 10/15/30 (b) | 250 | 264 | |||||||||
Johns Hopkins University, Series A 2.81%, 1/1/60 | 270 | 286 | |||||||||
Kimberly-Clark de Mexico SAB de CV 2.43%, 7/1/31 (b) | 300 | 310 | |||||||||
Las Vegas Sands Corp. 3.20%, 8/8/24 | 175 | 185 | |||||||||
Level 3 Financing, Inc. 3.40%, 3/1/27 (b) | 325 | 355 | |||||||||
Lowe's Cos., Inc. 1.70%, 10/15/30 | 325 | 330 | |||||||||
LYB International Finance III LLC 4.20%, 5/1/50 | 175 | 205 | |||||||||
McLaren Health Care Corp., Series A 4.39%, 5/15/48 | 250 | 330 | |||||||||
Meituan 2.13%, 10/28/25 (b) | 200 | 203 | |||||||||
Methodist Hospital (The), Series 20A 2.71%, 12/1/50 | 300 | 307 | |||||||||
Newcastle Coal Infrastructure Group Pty Ltd. 4.40%, 9/29/27 (b) | 475 | 488 | |||||||||
Newmont Corp. 2.25%, 10/1/30 | 250 | 264 | |||||||||
NIKE, Inc. 2.85%, 3/27/30 | 300 | 340 | |||||||||
Nissan Motor Co. Ltd. 3.04%, 9/15/23 (b) | 275 | 288 | |||||||||
NVIDIA Corp. 2.85%, 4/1/30 | 300 | 338 | |||||||||
Occidental Petroleum Corp., 3.20%, 8/15/26 | 45 | 42 | |||||||||
5.55%, 3/15/26 | 325 | 340 | |||||||||
Palo Alto Networks, Inc. 0.75%, 7/1/23 | 159 | 225 | |||||||||
Pioneer Natural Resources Co. 0.25%, 5/15/25 (b) | 225 | 300 | |||||||||
Procter & Gamble Co. (The) 1.20%, 10/29/30 | 250 | 251 | |||||||||
Raytheon Technologies Corp. 4.50%, 6/1/42 | 150 | 196 |
Face Amount (000) | Value (000) | ||||||||||
Resort at Summerlin LP, Series B 13.00%, 12/15/07 (g)(h)(i)(j) | $ | 299 | $ | — | |||||||
Resorts World Las Vegas LLC/ RWLV Capital, Inc. 4.63%, 4/16/29 (b) | 400 | 412 | |||||||||
Rockies Express Pipeline LLC 3.60%, 5/15/25 (b) | 475 | 491 | |||||||||
Royalty Pharma PLC 2.20%, 9/2/30 (b) | 175 | 180 | |||||||||
Saudi Arabian Oil Co. 3.25%, 11/24/50 (b) | 200 | 203 | |||||||||
Shell International Finance BV 3.13%, 11/7/49 | 250 | 277 | |||||||||
Sherwin-Williams Co. (The) 2.30%, 5/15/30 | 450 | 471 | |||||||||
Siemens Financieringsmaatschappij N.V. 2.35%, 10/15/26 (b) | 525 | 567 | |||||||||
Sprint Spectrum Co., LLC/Sprint Spectrum Co., II LLC/Sprint Spectrum Co., III LLC 3.36%, 3/20/23 (b) | 199 | 201 | |||||||||
Standard Industries, Inc. 2.25%, 11/21/26 (b) | EUR | 125 | 155 | ||||||||
Sunoco Logistics Partners Operations LP 3.90%, 7/15/26 | $ | 200 | 219 | ||||||||
T-Mobile USA, Inc., 2.25%, 11/15/31 (b) | 350 | 360 | |||||||||
3.60%, 11/15/60 (b) | 100 | 106 | |||||||||
Telefonica Emisiones SA 4.10%, 3/8/27 | 550 | 637 | |||||||||
Teva Pharmaceutical Finance Netherlands III BV 2.20%, 7/21/21 | 46 | 46 | |||||||||
Trimble, Inc. 4.15%, 6/15/23 | 625 | 677 | |||||||||
TSMC Global Ltd. 0.75%, 9/28/25 (b) | 250 | 249 | |||||||||
Twitter, Inc. 1.00%, 9/15/21 | 344 | 351 | |||||||||
Upjohn, Inc. 4.00%, 6/22/50 (b) | 150 | 172 | |||||||||
Verint Systems, Inc. 1.50%, 6/1/21 | 200 | 220 | |||||||||
Verizon Communications, Inc., 2.65%, 11/20/40 | 300 | 303 | |||||||||
2.99%, 10/30/56 (b) | 125 | 126 | |||||||||
4.67%, 3/15/55 | 268 | 361 | |||||||||
Volkswagen Group of America Finance LLC 4.75%, 11/13/28 (b) | 275 | 336 | |||||||||
VTR Finance 6.38%, 7/15/28 (b) | 200 | 219 | |||||||||
Walmart, Inc., 2.95%, 9/24/49 | 52 | 60 | |||||||||
4.05%, 6/29/48 | 44 | 60 | |||||||||
Walt Disney Co. (The), 2.75%, 9/1/49 | 397 | 421 | |||||||||
3.60%, 1/13/51 | 61 | 74 |
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Industrials (cont'd) | |||||||||||
Western Digital Corp. 1.50%, 2/1/24 | $ | 225 | $ | 225 | |||||||
Western Midstream Operating LP 4.10%, 2/1/25 | 300 | 310 | |||||||||
Williams Cos., Inc. (The) 4.85%, 3/1/48 | 350 | 431 | |||||||||
34,240 | |||||||||||
Utilities (2.6%) | |||||||||||
Boston Gas Co. 3.00%, 8/1/29 (b) | 225 | 249 | |||||||||
Calpine Corp. 4.50%, 2/15/28 (b) | 350 | 365 | |||||||||
DTE Electric Co. 2.95%, 3/1/50 | 100 | 112 | |||||||||
Duke Energy Indiana LLC, Series YYY 3.25%, 10/1/49 | 150 | 170 | |||||||||
Enel Finance International N.V. 3.63%, 5/25/27 (b) | 275 | 313 | |||||||||
Entergy Louisiana LLC 1.60%, 12/15/30 | 200 | 202 | |||||||||
FirstEnergy Corp., Series C 3.40%, 3/1/50 (e) | 250 | 241 | |||||||||
Korea Hydro & Nuclear Power Co., Ltd. 3.75%, 7/25/23 (b) | 710 | 768 | |||||||||
Mississippi Power Co. 3.95%, 3/30/28 | 500 | 583 | |||||||||
Northern States Power Co. 2.90%, 3/1/50 | 250 | 283 | |||||||||
NRG Energy, Inc. 3.63%, 2/15/31 (b) | 190 | 196 | |||||||||
Oglethorpe Power Corp. 5.05%, 10/1/48 | 250 | 318 | |||||||||
ONEOK, Inc. 3.10%, 3/15/30 | 375 | 400 | |||||||||
Pacific Gas and Electric Co. 3.30%, 8/1/40 | 175 | 175 | |||||||||
Xcel Energy, Inc. 2.60%, 12/1/29 | 325 | 352 | |||||||||
4,727 | |||||||||||
69,926 | |||||||||||
Mortgages — Other (13.4%) | |||||||||||
Alternative Loan Trust, 1 Month USD LIBOR + 0.18%, 0.33%, 5/25/47 (c) | 108 | 101 | |||||||||
5.50%, 2/25/36 | 6 | 5 | |||||||||
6.00%, 7/25/37 | 49 | 42 | |||||||||
PAC 5.50%, 2/25/36 | 3 | 3 | |||||||||
6.00%, 4/25/36 | 14 | 10 |
Face Amount (000) | Value (000) | ||||||||||
Banc of America Alternative Loan Trust, 1 Month USD LIBOR + 0.65%, 0.80%, 7/25/46 (c) | $ | 131 | $ | 97 | |||||||
5.86%, 10/25/36 | 297 | 129 | |||||||||
6.00%, 4/25/36 | 2 | 2 | |||||||||
Banc of America Funding Trust, 5.25%, 7/25/37 | 71 | 70 | |||||||||
6.00%, 7/25/37 | 17 | 17 | |||||||||
Bunker Hill Loan Depositary Trust, 1.72%, 2/25/55 (b)(c) | 526 | 533 | |||||||||
ChaseFlex Trust, 6.00%, 2/25/37 | 342 | 206 | |||||||||
Classic RMBS Trust, 3.06%, 8/16/49 (b) | CAD | 532 | 419 | ||||||||
CSFB Mortgage-Backed Pass-Through Certificates, 6.50%, 11/25/35 | $ | 748 | 238 | ||||||||
Eurosail BV, 3 Month EURIBOR + 1.80%, 1.29%, 10/17/40 (c) | EUR | 300 | 349 | ||||||||
Eurosail PLC, 3 Month GBP LIBOR + 0.95%, 0.99%, 6/13/45 (c) | GBP | 421 | 564 | ||||||||
Farringdon Mortgages No. 2 PLC, 3 Month GBP LIBOR + 1.50%, 1.55%, 7/15/47 (c) | GBP | 209 | 283 | ||||||||
Federal Home Loan Mortgage Corporation, 1 Month USD LIBOR + 2.35%, 2.50%, 4/25/30 (c) | $ | 511 | 520 | ||||||||
3.00%, 9/25/45 - 5/25/47 | 1,277 | 1,294 | |||||||||
3.50%, 5/25/45 - 5/25/47 | 890 | 913 | |||||||||
3.88%, 5/25/45 (b)(c) | 21 | 21 | |||||||||
4.00%, 5/25/45 | 38 | 39 | |||||||||
Grifonas Finance PLC, 6 Month EURIBOR + 0.28%, 0.00%, 8/28/39 (c) | EUR | 329 | 392 | ||||||||
GSR Mortgage Loan Trust, 5.75%, 1/25/37 | $ | 113 | 99 | ||||||||
HarborView Mortgage Loan Trust, 1 Month USD LIBOR + 0.19%, 0.34%, 1/19/38 (c) | 285 | 267 | |||||||||
Headlands Residential LLC, 3.97%, 6/25/24 (b) | 150 | 151 | |||||||||
IM Pastor 3 FTH, 3 Month EURIBOR + 0.14%, 0.00%, 3/22/43 (c) | EUR | 376 | 415 | ||||||||
JP Morgan Alternative Loan Trust, 6.00%, 12/25/35 | $ | 48 | 43 | ||||||||
JP Morgan Mortgage Trust, 3.77%, 6/25/37 (c) | 43 | 38 | |||||||||
6.00%, 6/25/37 | 26 | 29 | |||||||||
L1C 2020-1 LLC, 5.29%, 8/25/51 (b) | 400 | 401 | |||||||||
Landmark Mortgage Securities No. 1 PLC, 3 Month EURIBOR + 0.60%, 0.06%, 6/17/38 (c) | EUR | 384 | 442 | ||||||||
Legacy Mortgage Asset Trust, 3.25%, 2/25/60 (b) | $ | 568 | 579 |
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Mortgages — Other (cont'd) | |||||||||||
Lehman Mortgage Trust, 6.50%, 9/25/37 | $ | 665 | $ | 335 | |||||||
LHOME Mortgage Trust, 3.23%, 10/25/24 (b) | 170 | 171 | |||||||||
4.58%, 10/25/23 (b) | 400 | 405 | |||||||||
New Residential Mortgage Loan Trust, 3.23%, 8/25/60 (b) | 108 | 109 | |||||||||
New Residential Mortgage Loan Trust, 4.00%, 9/25/57 (b)(c) | 327 | 354 | |||||||||
NRPL Trust, 4.25%, 7/25/67 (b) | 457 | 462 | |||||||||
OBX Trust, 3.50%, 2/25/60 (b)(c) | 211 | 218 | |||||||||
Paragon Mortgages No. 13 PLC, 3 Month GBP LIBOR + 0.40%, 0.45%, 1/15/39 (c) | GBP | 264 | 353 | ||||||||
RALI Trust, 6.00%, 4/25/36 - 1/25/37 | $ | 34 | 32 | ||||||||
PAC 6.00%, 4/25/36 | 12 | 12 | |||||||||
Residential Asset Securitization Trust, 6.00%, 7/25/36 | 24 | 20 | |||||||||
RMF Buyout Issuance Trust, 1.71%, 6/25/30 (b)(c) | 382 | 383 | |||||||||
2.15%, 6/25/30 (b)(c) | 150 | 151 | |||||||||
Rochester Financing No. 2 PLC, 3 Month GBP LIBOR + 2.75%, 2.79%, 6/18/45 (c) | GBP | 350 | 478 | ||||||||
Seasoned Credit Risk Transfer Trust, 3.00%, 7/25/56 - 5/25/60 | $ | 5,523 | 5,929 | ||||||||
4.00%, 7/25/56 (c) | 300 | 302 | |||||||||
4.00%, 8/25/56 (b)(c) | 400 | 404 | |||||||||
4.00%, 8/25/58 - 2/25/59 | 520 | 576 | |||||||||
4.25%, 8/25/59 - 5/25/60(b)(c) | 1,250 | 1,254 | |||||||||
4.50%, 6/25/57 | 1,011 | 1,113 | |||||||||
4.75%, 7/25/56 - 6/25/57(b)(c) | 700 | 709 | |||||||||
4.75%, 10/25/58 (c) | 300 | 312 | |||||||||
Structured Asset Securities Corp. Reverse Mortgage Loan Trust, 1 Month USD LIBOR + 1.85%, 2.00%, 5/25/47 (b)(c) | 840 | 734 | |||||||||
TDA 27 FTA, 3 Month EURIBOR + 0.19%, 0.00%, 12/28/50 (c) | EUR | 500 | 496 | ||||||||
TVC Mortgage Trust, 3.47%, 9/25/24 (b) | $ | 200 | 202 | ||||||||
24,225 | |||||||||||
Municipal Bonds (1.2%) | |||||||||||
Chicago O'Hare International Airport, IL, O'Hare International Airport Revenue Series 2010B 6.40%, 1/1/40 | 115 | 171 | |||||||||
City of New York, NY, Series G-1 5.97%, 3/1/36 | 245 | 357 |
Face Amount (000) | Value (000) | ||||||||||
Illinois State Toll Highway Authority, IL, Highway Revenue, Build America Bonds Series A 6.18%, 1/1/34 | $ | 705 | $ | 1,019 | |||||||
Pennsylvania State University/The, PA, Series D 2.84%, 9/1/50 | 325 | 340 | |||||||||
University of Virginia, VA 2.26%, 9/1/50 | 325 | 320 | |||||||||
2,207 | |||||||||||
Sovereign (7.9%) | |||||||||||
Australia Government Bond, 2.75%, 11/21/28 | AUD | 850 | 756 | ||||||||
3.25%, 4/21/25 | 1,100 | 957 | |||||||||
Brazil Notas do Tesouro Nacional, Series F, 10.00%, 1/1/25 | BRL | 3,800 | 846 | ||||||||
Croatia Government International Bond, 1.50%, 6/17/31 | EUR | 275 | 368 | ||||||||
Dominican Republic International Bond, 5.88%, 1/30/60 (b) | $ | 400 | 442 | ||||||||
Ecuador Government International Bond, 0.50%, 7/31/30 - 7/31/40 (b)(k) | 250 | 140 | |||||||||
Egypt Government International Bond, 6.38%, 4/11/31 (b) | EUR | 400 | 527 | ||||||||
8.15%, 11/20/59 (b) | $ | 200 | 221 | ||||||||
Export-Import Bank of India, 3.25%, 1/15/30 (b) | 200 | 214 | |||||||||
Honduras Government International Bond, 5.63%, 6/24/30 (b) | 150 | 172 | |||||||||
Indonesia Treasury Bond, 8.25%, 5/15/29 | IDR | 5,325,000 | 437 | ||||||||
8.38%, 3/15/34 | 4,816,000 | 400 | |||||||||
Italy Buoni Poliennali Del Tesoro, 1.65%, 12/1/30 (b) | EUR | 450 | 610 | ||||||||
1.80%, 3/1/41 (b) | 600 | 811 | |||||||||
Mexican Bonos, 7.75%, 5/29/31 | MXN | 21,500 | 1,271 | ||||||||
Mexico Government International Bond, 3.25%, 4/16/30 (e) | $ | 300 | 325 | ||||||||
Morocco Government International Bond, 4.00%, 12/15/50 (b) | 200 | 207 | |||||||||
New Zealand Government Bond, 2.75%, 4/15/37 | NZD | 800 | 678 | ||||||||
Nigeria Government International Bond, 9.25%, 1/21/49 (b) | $ | 400 | 471 | ||||||||
Pertamina Persero PT, 6.50%, 11/7/48 (b) | 350 | 494 | |||||||||
Petroleos Mexicanos, 6.50%, 1/23/29 | 210 | 218 | |||||||||
6.84%, 1/23/30 | 180 | 189 | |||||||||
6.88%, 10/16/25 (b) | 170 | 187 | |||||||||
6.95%, 1/28/60 | 55 | 52 | |||||||||
7.69%, 1/23/50 | 159 | 161 | |||||||||
Qatar Government International Bond, 5.10%, 4/23/48 (b) | 300 | 423 |
The accompanying notes are an integral part of the financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Face Amount (000) | Value (000) | ||||||||||
Sovereign (cont'd) | |||||||||||
Republic of Austria Government Bond, 0.85%, 12/31/99 (b) | $ | 60 | $ | 97 | |||||||
2.10%, 12/31/99 (b) | 42 | 115 | |||||||||
Republic of Belarus Ministry of Finance, 6.38%, 2/24/31 (b) | 220 | 224 | |||||||||
Republic of South Africa Government Bond, 8.00%, 1/31/30 | ZAR | 15,032 | 977 | ||||||||
8.25%, 3/31/32 | 5,109 | 313 | |||||||||
Republic of Uzbekistan Bond, 3.70%, 11/25/30 (b)(e) | $ | 200 | 211 | ||||||||
Russian Foreign Bond — Eurobond, 5.63%, 4/4/42 | 400 | 557 | |||||||||
Senegal Government International Bond, 6.25%, 5/23/33 (b) | 200 | 225 | |||||||||
14,296 | |||||||||||
Supranational (0.2%) | |||||||||||
Banque Ouest Africaine de Developpement, 4.70%, 10/22/31 (b) | 350 | 380 | |||||||||
Total Fixed Income Securities (Cost $170,557) | 178,140 | ||||||||||
Shares | |||||||||||
Short-Term Investments (15.6%) | |||||||||||
Investment Company (14.4%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Government Portfolio — Institutional Class (See Note H) (Cost $26,027) | 26,026,879 | 26,027 | |||||||||
Securities held as Collateral on Loaned Securities (0.4%) | |||||||||||
Investment Company (0.4%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Government Portfolio — Institutional Class (See Note H) (Cost $710) | 709,500 | 710 | |||||||||
Face Amount (000) | |||||||||||
U.S. Treasury Security (0.5%) | |||||||||||
U.S. Treasury Bill 0.09%, 6/3/21 (l)(m) (Cost $833) | $ | 833 | 833 | ||||||||
Sovereign (0.3%) | |||||||||||
Egypt Treasury Bills, 13.60%, 3/2/21 | EGP | 725 | 45 | ||||||||
13.65%, 3/2/21 | 1,200 | 75 | |||||||||
13.66%, 3/2/21 | 1,800 | 113 | |||||||||
13.68%, 3/2/21 | 2,575 | 162 | |||||||||
13.69%, 3/2/21 | 1,200 | 75 | |||||||||
13.70%, 3/2/21 | 175 | 11 | |||||||||
Total Sovereign (Cost $474) | 481 | ||||||||||
Total Short-Term Investments (Cost $28,044) | 28,051 | ||||||||||
Total Investments (113.9%) (Cost $198,601) Including $1,117 of Securities Loaned (l)(m) | 206,191 | ||||||||||
Liabilities in Excess of Other Assets (-13.9%) | (25,138 | ) | |||||||||
Net Assets (100.0%) | $ | 181,053 |
(a) Security is subject to delayed delivery.
(b) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(c) Floating or variable rate securities: The rates disclosed are as of December 31, 2020. For securities based on a published reference rate and spread, the reference rate and spread are indicated in the description in the Portfolio of Investments. Certain variable rate securities may not be based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description in the Portfolio of Investments.
(d) Inverse Floating Rate Security — Interest rate fluctuates with an inverse relationship to an associated interest rate. Indicated rate is the effective rate at December 31, 2020.
(e) All or a portion of this security was on loan at December 31, 2020.
(f) Perpetual — One or more securities do not have a predetermined maturity date. Rates for these securities are fixed for a period of time, after which they revert to a floating rate. Interest rates in effect are as of December 31, 2020.
(g) Issuer in bankruptcy.
(h) Non-income producing security; bond in default.
(i) Acquired through exchange offer.
(j) At December 31, 2020, the Fund held a fair valued security valued at $0, representing 0.0% of net assets. This security has been fair valued as determined in good faith under procedures established by and under the general supervision of the Company's (as defined herein) Directors.
(k) Multi-step — Coupon rate changes in predetermined increments to maturity. Rate disclosed is as of December 31, 2020. Maturity date disclosed is the ultimate maturity date.
(l) Rate shown is the yield to maturity at December 31, 2020.
(m) All or a portion of the security was pledged to cover margin requirements for futures contracts.
(n) Securities are available for collateral in connection with securities purchased on a forward commitment basis, open foreign currency forward exchange contracts and futures contracts.
(o) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $198,190,000. The aggregate gross unrealized appreciation is approximately $10,648,000 and the aggregate gross unrealized depreciation is approximately $3,094,000, resulting in net unrealized appreciation of approximately $7,554,000.
@ Value is less than $500.
EURIBOR Euro Interbank Offered Rate.
IO Interest Only.
LIBOR London Interbank Offered Rate.
MTN Medium Term Note.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
STRIPS Separate Trading of Registered Interest and Principal of Securities.
TBA To Be Announced.
The accompanying notes are an integral part of the financial statements.
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Foreign Currency Forward Exchange Contracts:
The Fund had the following foreign currency forward exchange contracts open at December 31, 2020:
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Delivery Date | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||
BNP Paribas SA | $ | 54 | ZAR | 787 | 1/6/21 | $ | (— | @) | |||||||||||
Bank of America NA | $ | 456 | JPY | 47,585 | 2/26/21 | 5 | |||||||||||||
Barclays Bank PLC | AUD | 5,521 | $ | 4,043 | 2/26/21 | (215 | ) | ||||||||||||
Barclays Bank PLC | $ | 615 | EUR | 503 | 2/26/21 | 1 | |||||||||||||
Barclays Bank PLC | $ | 444 | PLN | 1,665 | 2/26/21 | 1 | |||||||||||||
BNP Paribas SA | EUR | 365 | $ | 435 | 2/26/21 | (11 | ) | ||||||||||||
BNP Paribas SA | IDR | 5,140,174 | $ | 359 | 2/26/21 | (6 | ) | ||||||||||||
BNP Paribas SA | MXN | 8,345 | $ | 419 | 2/26/21 | 2 | |||||||||||||
BNP Paribas SA | PLN | 1,665 | $ | 450 | 2/26/21 | 5 | |||||||||||||
BNP Paribas SA | $ | 35 | CAD | 44 | 2/26/21 | — | @ | ||||||||||||
BNP Paribas SA | ZAR | 787 | $ | 53 | 2/26/21 | — | @ | ||||||||||||
BNP Paribas SA | ZAR | 6,752 | $ | 434 | 2/26/21 | (22 | ) | ||||||||||||
Citibank NA | $ | 568 | CLP | 424,875 | 2/26/21 | 30 | |||||||||||||
Citibank NA | $ | 454 | JPY | 46,950 | 2/26/21 | 1 | |||||||||||||
Citibank NA | $ | 456 | KRW | 507,940 | 2/26/21 | 12 | |||||||||||||
Goldman Sachs International | EUR | 317 | $ | 385 | 2/26/21 | (3 | ) | ||||||||||||
Goldman Sachs International | EUR | 4,606 | $ | 5,470 | 2/26/21 | (163 | ) | ||||||||||||
JPMorgan Chase Bank NA | CLP | 424,875 | $ | 558 | 2/26/21 | (40 | ) | ||||||||||||
JPMorgan Chase Bank NA | GBP | 852 | $ | 1,137 | 2/26/21 | (29 | ) | ||||||||||||
JPMorgan Chase Bank NA | MXN | 8,364 | $ | 417 | 2/26/21 | (1 | ) | ||||||||||||
JPMorgan Chase Bank NA | $ | 1,202 | AUD | 1,617 | 2/26/21 | 45 | |||||||||||||
JPMorgan Chase Bank NA | $ | 449 | NOK | 4,060 | 2/26/21 | 25 | |||||||||||||
JPMorgan Chase Bank NA | ZAR | 2,348 | $ | 158 | 2/26/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | ZAR | 1,586 | $ | 108 | 2/26/21 | — | @ | ||||||||||||
UBS AG | CAD | 827 | $ | 632 | 2/26/21 | (18 | ) | ||||||||||||
UBS AG | CHF | 400 | $ | 452 | 2/26/21 | (— | @) | ||||||||||||
UBS AG | NZD | 1,000 | $ | 698 | 2/26/21 | (22 | ) | ||||||||||||
UBS AG | $ | 1,267 | AUD | 1,702 | 2/26/21 | 46 | |||||||||||||
UBS AG | $ | 7 | GBP | 5 | 2/26/21 | — | @ | ||||||||||||
UBS AG | $ | 41 | MXN | 842 | 2/26/21 | 1 | |||||||||||||
UBS AG | $ | 466 | MXN | 9,465 | 2/26/21 | 7 | |||||||||||||
$ | (349 | ) |
The accompanying notes are an integral part of the financial statements.
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Core Plus Fixed Income Portfolio
Futures Contracts:
The Fund had the following futures contracts open at December 31, 2020:
Number of Contracts | Expiration Date | Notional Amount (000) | Value (000) | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||||||
Long: | |||||||||||||||||||||||
U.S. Treasury 10 yr. Note | 4 | Mar-21 | $ | 400 | $ | 552 | $ | — | @ | ||||||||||||||
U.S. Treasury 2 yr. Note | 46 | Mar-21 | 9,200 | 10,165 | 8 | ||||||||||||||||||
U.S. Treasury 5 yr. Note | 90 | Mar-21 | 9,000 | 11,355 | 24 | ||||||||||||||||||
U.S. Treasury Ultra Long Bond | 52 | Mar-21 | 5,200 | 11,105 | (161 | ) | |||||||||||||||||
Short: | |||||||||||||||||||||||
Euro OAT | 13 | Mar-21 | (1,300 | ) | (2,666 | ) | 1 | ||||||||||||||||
German Euro 30 yr. Bond | 1 | Mar-21 | (100 | ) | (275 | ) | 1 | ||||||||||||||||
German Euro Bund | 8 | Mar-21 | (800 | ) | (1,736 | ) | 2 | ||||||||||||||||
U.S. Treasury 30 yr. Bond | 8 | Mar-21 | (800 | ) | (1,385 | ) | 12 | ||||||||||||||||
U.S. Treasury Ultra Long Bond | 36 | Mar-21 | (3,600 | ) | (5,629 | ) | 15 | ||||||||||||||||
$ | (98 | ) |
@ Value is less than $500.
OAT — Obligations Assimilables du Trésor (French Treasury Obligation)
AUD — Australian Dollar
BRL — Brazilian Real
CAD — Canadian Dollar
CHF — Swiss Franc
CLP — Chilean Peso
EGP — Egyptian Pound
EUR — Euro
GBP — British Pound
IDR — Indonesian Rupiah
JPY — Japanese Yen
KRW — South Korean Won
MXN — Mexican Peso
NOK — Norwegian Krone
NZD — New Zealand Dollar
PLN — Polish Zloty
USD — United States Dollar
ZAR — South African Rand
Portfolio Composition*
Classification | Percentage of Total Investments | ||||||
Industrials | 16.7 | % | |||||
Agency Fixed Rate Mortgages | 16.6 | ||||||
Finance | 14.7 | ||||||
Short-Term Investments | 13.3 | ||||||
Mortgages — Other | 11.8 | ||||||
Asset-Backed Securities | 9.3 | ||||||
Sovereign | 7.0 | ||||||
Commercial Mortgage-Backed Securities | 5.6 | ||||||
Other** | 5.0 | ||||||
Total Investments | 100.0 | %*** |
* Percentages indicated are based upon total investments (excluding Securities held as Collateral on Loaned Securities) as of December 31, 2020.
** Industries and/or investment types representing less than 5% of total investments.
*** Does not include open long/short futures contracts with a value of approximately $44,868,000 and net unrealized depreciation of approximately $98,000. Does not include open foreign currency forward exchange contracts with net unrealized depreciation of approximately $349,000.
The accompanying notes are an integral part of the financial statements.
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Core Plus Fixed Income Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $171,864) | $ | 179,454 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $26,737) | 26,737 | ||||||
Total Investments in Securities, at Value (Cost $198,601) | 206,191 | ||||||
Foreign Currency, at Value (Cost $23) | 23 | ||||||
Receivable for Investments Sold | 11,572 | ||||||
Interest Receivable | 1,098 | ||||||
Receivable for Variation Margin on Futures Contracts | 601 | ||||||
Receivable for Fund Shares Sold | 277 | ||||||
Unrealized Appreciation on Foreign Currency Forward Exchange Contracts | 181 | ||||||
Tax Reclaim Receivable | 5 | ||||||
Receivable from Affiliate | 1 | ||||||
Receivable from Securities Lending Income | 1 | ||||||
Other Assets | 17 | ||||||
Total Assets | 219,967 | ||||||
Liabilities: | |||||||
Payable for Investments Purchased | 36,946 | ||||||
Collateral on Securities Loaned, at Value | 710 | ||||||
Unrealized Depreciation on Foreign Currency Forward Exchange Contracts | 530 | ||||||
Payable for Fund Shares Redeemed | 335 | ||||||
Payable for Advisory Fees | 128 | ||||||
Deferred Capital Gain Country Tax | 95 | ||||||
Payable for Servicing Fees | 67 | ||||||
Payable for Custodian Fees | 20 | ||||||
Payable for Distribution Fees — Class II Shares | 19 | ||||||
Payable for Administration Fees | 12 | ||||||
Payable for Professional Fees | 11 | ||||||
Payable for Transfer Agency Fees | 2 | ||||||
Other Liabilities | 39 | ||||||
Total Liabilities | 38,914 | ||||||
NET ASSETS | $ | 181,053 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 163,698 | |||||
Total Distributable Earnings | 17,355 | ||||||
Net Assets | $ | 181,053 | |||||
CLASS I: | |||||||
Net Assets | $ | 86,993 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 7,422,743 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 11.72 | |||||
CLASS II: | |||||||
Net Assets | $ | 94,060 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 8,052,693 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 11.68 | |||||
(1) Including: | |||||||
Securities on Loan, at Value: | $ | 1,117 |
The accompanying notes are an integral part of the financial statements.
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Core Plus Fixed Income Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Interest from Securities of Unaffiliated Issuers (Net of $17 of Foreign Taxes Withheld) | $ | 5,622 | |||||
Dividends from Security of Affiliated Issuer (Note H) | 60 | ||||||
Dividends from Securities of Unaffiliated Issuers | 9 | ||||||
Income from Securities Loaned — Net | 5 | ||||||
Total Investment Income | 5,696 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 678 | ||||||
Distribution Fees — Class II Shares (Note E) | 235 | ||||||
Servicing Fees (Note D) | 205 | ||||||
Administration Fees (Note C) | 145 | ||||||
Professional Fees | 137 | ||||||
Custodian Fees (Note G) | 60 | ||||||
Pricing Fees | 53 | ||||||
Shareholder Reporting Fees | 36 | ||||||
Transfer Agency Fees (Note F) | 10 | ||||||
Directors' Fees and Expenses | 7 | ||||||
Interest Expenses | 1 | ||||||
Other Expenses | 20 | ||||||
Total Expenses | 1,587 | ||||||
Waiver of Advisory Fees (Note B) | (86 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (31 | ) | |||||
Net Expenses | 1,470 | ||||||
Net Investment Income | 4,226 | ||||||
Realized Gain (Loss): | |||||||
Investments Sold (Net of $9 of Capital Gain Country Tax) | 6,452 | ||||||
Foreign Currency Forward Exchange Contracts | (477 | ) | |||||
Foreign Currency Translation | (29 | ) | |||||
Futures Contracts | 580 | ||||||
Swap Agreements | 182 | ||||||
Net Realized Gain | 6,708 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments (Net of Increase in Deferred Capital Gain Country Tax of $59) | 1,950 | ||||||
Foreign Currency Forward Exchange Contracts | (213 | ) | |||||
Foreign Currency Translation | 4 | ||||||
Futures Contracts | (176 | ) | |||||
Swap Agreements | 5 | ||||||
Net Change in Unrealized Appreciation (Depreciation) | 1,570 | ||||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | 8,278 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 12,504 |
The accompanying notes are an integral part of the financial statements.
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Core Plus Fixed Income Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 4,226 | $ | 5,046 | |||||||
Net Realized Gain | 6,708 | 4,158 | |||||||||
Net Change in Unrealized Appreciation (Depreciation) | 1,570 | 7,725 | |||||||||
Net Increase in Net Assets Resulting from Operations | 12,504 | 16,929 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (3,273 | ) | (2,963 | ) | |||||||
Class II | (3,366 | ) | (3,607 | ) | |||||||
Total Dividends and Distributions to Shareholders | (6,639 | ) | (6,570 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 19,076 | 32,507 | |||||||||
Distributions Reinvested | 3,273 | 2,963 | |||||||||
Redeemed | (30,207 | ) | (18,360 | ) | |||||||
Class II: | |||||||||||
Subscribed | 22,491 | 18,320 | |||||||||
Distributions Reinvested | 3,366 | 3,607 | |||||||||
Redeemed | (30,920 | ) | (23,496 | ) | |||||||
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | (12,921 | ) | 15,541 | ||||||||
Total Increase (Decrease) in Net Assets | (7,056 | ) | 25,900 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 188,109 | 162,209 | |||||||||
End of Period | $ | 181,053 | $ | 188,109 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 1,662 | 2,899 | |||||||||
Shares Issued on Distributions Reinvested | 289 | 270 | |||||||||
Shares Redeemed | (2,677 | ) | (1,651 | ) | |||||||
Net Increase (Decrease) in Class I Shares Outstanding | (726 | ) | 1,518 | ||||||||
Class II: | |||||||||||
Shares Subscribed | 1,965 | 1,659 | |||||||||
Shares Issued on Distributions Reinvested | 297 | 329 | |||||||||
Shares Redeemed | (2,722 | ) | (2,137 | ) | |||||||
Net Decrease in Class II Shares Outstanding | (460 | ) | (149 | ) |
The accompanying notes are an integral part of the financial statements.
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Core Plus Fixed Income Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.31 | $ | 10.63 | $ | 10.98 | $ | 10.67 | $ | 10.25 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.28 | 0.35 | 0.34 | 0.34 | 0.33 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 0.58 | 0.79 | (0.41 | ) | 0.32 | 0.30 | |||||||||||||||||
Total from Investment Operations | 0.86 | 1.14 | (0.07 | ) | 0.66 | 0.63 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.33 | ) | (0.46 | ) | (0.28 | ) | (0.35 | ) | (0.21 | ) | |||||||||||||
Net Realized Gain | (0.12 | ) | — | — | — | — | |||||||||||||||||
Total Distributions | (0.45 | ) | (0.46 | ) | (0.28 | ) | (0.35 | ) | (0.21 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 11.72 | $ | 11.31 | $ | 10.63 | $ | 10.98 | $ | 10.67 | |||||||||||||
Total Return(3) | 7.80 | % | 10.88 | %(4) | (0.65 | )% | 6.24 | % | 6.11 | %(5) | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 86,993 | $ | 92,157 | $ | 70,476 | $ | 79,752 | $ | 82,746 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 0.75 | % | 0.77 | % | 0.76 | % | 0.76 | % | 0.72 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.68 | %(6) | 0.69 | %(6) | 0.68 | %(6) | 0.68 | %(6) | 0.61 | %(6) | |||||||||||||
Ratio of Expenses After Expense Limitation Excluding Interest Expenses | 0.68 | %(6) | N/A | N/A | N/A | 0.61 | %(6) | ||||||||||||||||
Ratio of Net Investment Income | 2.47 | %(6) | 3.16 | %(6) | 3.12 | %(6) | 3.10 | %(6) | 3.06 | %(6) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.02 | % | 0.01 | % | 0.02 | % | 0.02 | % | 0.02 | % | |||||||||||||
Portfolio Turnover Rate | 296 | % | 231 | % | 220 | % | 277 | % | 376 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation would have been 0.07% higher and the Ratio of Net Investment Income would have been 0.07% lower had the custodian not reimbursed the Fund.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) Performance was positively impacted by approximately 0.10% due to the receipt of proceeds from the settlement of class action suit involving the Fund's past holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had this settlement not occurred, the total return for Class I shares would have been approximately 10.78%.
(5) Performance was positively impacted by approximately 1.77% due to the receipt of proceeds from the settlement of class action suits involving the Fund's past holdings. These were one-time settlements, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occurred, the total return for Class I shares would have been approximately 4.34%.
(6) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
The accompanying notes are an integral part of the financial statements.
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Core Plus Fixed Income Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.27 | $ | 10.59 | $ | 10.94 | $ | 10.64 | $ | 10.22 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.25 | 0.32 | 0.31 | 0.31 | 0.30 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 0.58 | 0.79 | (0.41 | ) | 0.31 | 0.30 | |||||||||||||||||
Total from Investment Operations | 0.83 | 1.11 | (0.10 | ) | 0.62 | 0.60 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.30 | ) | (0.43 | ) | (0.25 | ) | (0.32 | ) | (0.18 | ) | |||||||||||||
Net Realized Gain | (0.12 | ) | — | — | — | — | |||||||||||||||||
Total Distributions | (0.42 | ) | (0.43 | ) | (0.25 | ) | (0.32 | ) | (0.18 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 11.68 | $ | 11.27 | $ | 10.59 | $ | 10.94 | $ | 10.64 | |||||||||||||
Total Return(3) | 7.55 | % | 10.61 | %(4) | (0.91 | )% | 5.89 | % | 5.86 | %(5) | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 94,060 | $ | 95,952 | $ | 91,733 | $ | 111,585 | $ | 103,739 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.00 | % | 1.02 | % | 1.01 | % | 1.01 | % | 0.97 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.93 | %(6) | 0.94 | %(6) | 0.93 | %(6) | 0.93 | %(6) | 0.86 | %(6) | |||||||||||||
Ratio of Expenses After Expense Limitation Excluding Interest Expenses | 0.93 | %(6) | N/A | N/A | N/A | 0.86 | %(6) | ||||||||||||||||
Ratio of Net Investment Income | 2.22 | %(6) | 2.91 | %(6) | 2.87 | %(6) | 2.85 | %(6) | 2.81 | %(6) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.02 | % | 0.01 | % | 0.02 | % | 0.02 | % | 0.02 | % | |||||||||||||
Portfolio Turnover Rate | 296 | % | 231 | % | 220 | % | 277 | % | 376 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation would have been 0.07% higher and the Ratio of Net Investment Income would have been 0.07% lower had the custodian not reimbursed the Fund.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) Performance was positively impacted by approximately 0.10% due to the receipt of proceeds from the settlement of class action suit involving the Fund's past holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had this settlement not occurred, the total return for Class II shares would have been approximately 10.51%.
(5) Performance was positively impacted by approximately 1.77% due to the receipt of proceeds from the settlement of class action suits involving the Fund's past holdings. These were one-time settlements, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occurred, the total return for Class II shares would have been approximately 4.09%.
(6) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
The accompanying notes are an integral part of the financial statements.
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Core Plus Fixed Income Portfolio. The Fund seeks above-average total return over a market cycle of three to five years by investing primarily in a diversified portfolio of fixed income securities. The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
In March 2020, Financial Accounting Standards Board ("FASB") issued an Accounting Standard Update, ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate ("LIBOR") and other IBOR-based reference rates at the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the Fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
1. Security Valuation: (1) Certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and
specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser"), a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (2) futures are valued at the settlement price on the exchange on which they trade or, if a settlement price is unavailable, at the last sale price on the exchange; (3) over-the-counter ("OTC") swaps may be valued by an outside pricing service approved by the Directors or quotes from a broker or dealer. Swaps cleared on a clearinghouse or exchange may be valued using the closing price provided by the clearinghouse or exchange; (4) when market quotations are not readily available, including circumstances under which the Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (5) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (6) investments in
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: FASB Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Agency Adjustable Rate Mortgages | $ | — | $ | 118 | $ | — | $ | 118 | |||||||||||
Agency Fixed Rate Mortgages | — | 34,055 | — | 34,055 | |||||||||||||||
Asset-Backed Securities | — | 19,204 | — | 19,204 | |||||||||||||||
Collateralized Mortgage Obligations - Agency Collateral Series | — | 2,228 | — | 2,228 | |||||||||||||||
Commercial Mortgage-Backed Securities | — | 11,501 | — | 11,501 | |||||||||||||||
Corporate Bonds | — | 69,926 | — | † | 69,926 | † | |||||||||||||
Mortgages - Other | — | 24,225 | — | 24,225 | |||||||||||||||
Municipal Bonds | — | 2,207 | — | 2,207 | |||||||||||||||
Sovereign | — | 14,296 | — | 14,296 | |||||||||||||||
Supranational | — | 380 | — | 380 | |||||||||||||||
Total Fixed Income Securities | — | 178,140 | — | † | 178,140 | † | |||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 26,737 | — | — | 26,737 | |||||||||||||||
Sovereign | — | 481 | — | 481 | |||||||||||||||
U.S. Treasury Securities | — | 833 | — | 833 | |||||||||||||||
Total Short-Term Investments | 26,737 | 1,314 | — | 28,051 | |||||||||||||||
Foreign Currency Forward Exchange Contracts | — | 181 | — | 181 | |||||||||||||||
Futures Contracts | 63 | — | — | 63 | |||||||||||||||
Total Assets | 26,800 | 179,635 | — | † | 206,435 | † |
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Liabilities: | |||||||||||||||||||
Foreign Currency Forward Exchange Contracts | $ | — | $ | (530 | ) | $ | — | $ | (530 | ) | |||||||||
Futures Contracts | (161 | ) | — | — | (161 | ) | |||||||||||||
Total Liabilities | (161 | ) | (530 | ) | — | (691 | ) | ||||||||||||
Total | $ | 26,639 | $ | 179,105 | $ | — | † | $ | 205,744 | † |
† Includes a security valued at zero.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Corporate Bond (000) | |||||||
Beginning Balance | $ | — | † | ||||
Purchases | — | ||||||
Sales | — | ||||||
Amortization of discount | — | ||||||
Transfers in | — | ||||||
Transfers out | — | ||||||
Corporate actions | — | ||||||
Change in unrealized appreciation (depreciation) | — | ||||||
Realized gains (losses) | — | ||||||
Ending Balance | $ | — | † | ||||
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2020 | $ | — |
† Includes a security valued at zero.
3. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from
changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from sales and maturities of foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
4. Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.
Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.
Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:
Foreign Currency Forward Exchange Contracts: In connection with its investments in foreign securities, the Fund also entered into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. In addition, the Fund may use cross currency hedging or proxy hedging with respect to currencies in which the Fund has or expects to have portfolio or currency exposure. Cross currency hedges involve the sale of one currency against the positive exposure to a different currency and may be used for hedging purposes or to establish an active exposure to the exchange rate between any two currencies. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions may reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which the Fund's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract. A currency contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.
Futures: A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. During the period the futures contract is open, payments are
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
received from or made to the broker based upon changes in the value of the contract (the variation margin). A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return and the potential loss from futures contracts can exceed the Fund's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with which the Fund has open positions in the futures contract.
Swaps: The Fund may enter into OTC swap contracts or cleared swap transactions. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Fund's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each party. Cleared swap transactions may help reduce counterparty credit risk. In a cleared swap, the Fund's ultimate counterparty is a clearinghouse rather than a swap dealer, bank or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by the Fund or if the reference index, security or investments do not perform as expected. During the period swap agreements are open, payments are received from or made to the clearinghouse or counterparty based upon changes in the value of the contract (variation margin). The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the
clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis based on the type of market participant and U.S. Commodity Futures Trading Commission ("CFTC") approval of contracts for central clearing and exchange trading.
The Fund's use of swaps during the period included those based on the credit of an underlying security commonly referred to as "credit default swaps." The Fund may be either the buyer or seller in a credit default swap. Where the Fund is the buyer of a credit default swap contract, it would typically be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract only in the event of a default or similar event by the issuer of the debt obligation. If no default occurs, the Fund would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, it typically receives the stream of payments but is obligated to pay an amount equal to the par (or other agreed-upon) value of a referenced debt obligation upon the default or similar event by the issuer of the referenced debt obligation. The use of credit default swaps could result in losses to the Fund if the Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation.
If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap agreement and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap agreement and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
comprising the referenced index. Recovery values are estimated by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value. The Fund's maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the swap agreement.
The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.
When the Fund has an unrealized loss on a swap agreement, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. If applicable, cash collateral is included with "Due from (to) Broker" in the Statement of Assets and Liabilities.
Upfront payments paid or received by the Fund will be reflected as an asset or liability, respectively, in the Statement of Assets and Liabilities.
As of December 31, 2020, the Fund did not have any open swap agreements.
FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The following tables set forth the fair value of the Fund's derivative contracts by primary risk exposure as of December 31, 2020:
Asset Derivatives Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Foreign Currency Forward Exchange Contracts | Unrealized Appreciation on Foreign Currency Forward Exchange Contracts | Currency Risk | $ | 181 | |||||||||||
Futures Contracts | Variation Margin on Futures Contracts | Interest Rate Risk | 63 | (a) | |||||||||||
Total | $ | 244 | |||||||||||||
Liability Derivatives Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Foreign Currency Forward Exchange Contracts | Unrealized Depreciation on Foreign Currency Forward Exchange Contracts | Currency Risk | $ | (530 | ) | ||||||||||
Futures Contracts | Variation Margin on Futures Contracts | Interest Rate Risk | (161 | )(a) | |||||||||||
Total | $ | (691 | ) |
(a) This amount represents the cumulative appreciation (depreciation) as reported in the Portfolio of Investments. The Statement of Assets and Liabilities only reflects the current day's net variation margin.
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the year ended December 31, 2020 in accordance with ASC 815:
Realized Gain (Loss) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | (477 | ) | |||||||
Interest Rate Risk | Futures Contracts | 580 | |||||||||
Credit Risk | Swap Agreements | 182 | |||||||||
Total | $ | 285 | |||||||||
Change in Unrealized Appreciation (Depreciation) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | (213 | ) | |||||||
Interest Rate Risk | Futures Contracts | (176 | ) | ||||||||
Credit Risk | Swap Agreements | 5 | |||||||||
Total | $ | (384 | ) |
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
At December 31, 2020, the Fund's derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities | |||||||||||
Derivatives(b) | Assets(c) (000) | Liabilities(c) (000) | |||||||||
Foreign Currency Forward Exchange Contracts | $ | 181 | $ | (530 | ) |
(b) Excludes exchange-traded derivatives.
(c) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Fund exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of the Fund's net liability may be delayed or denied.
The following tables present derivative financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Asset Derivatives Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | |||||||||||||||
Bank of America NA | $ | 5 | $ | — | $ | — | $ | 5 | |||||||||||
Barclays Bank PLC | 2 | (2 | ) | — | 0 | ||||||||||||||
BNP Paribas SA | 7 | (7 | ) | — | 0 | ||||||||||||||
Citibank NA | 43 | — | — | 43 | |||||||||||||||
JPMorgan Chase Bank NA | 70 | (70 | ) | — | 0 | ||||||||||||||
UBS AG | 54 | (40 | ) | — | 14 | ||||||||||||||
Total | $ | 181 | $ | (119 | ) | $ | — | $ | 62 | ||||||||||
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Liability Derivatives Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Pledged (000) | Net Amount (not less than $0) (000) | |||||||||||||||
Barclays Bank PLC | $ | 215 | $ | (2 | ) | $ | — | $ | 213 | ||||||||||
BNP Paribas SA | 39 | (7 | ) | — | 32 | ||||||||||||||
Goldman Sachs International | 166 | — | — | 166 | |||||||||||||||
JPMorgan Chase Bank NA | 70 | (70 | ) | — | 0 | ||||||||||||||
UBS AG | 40 | (40 | ) | — | 0 | ||||||||||||||
Total | $ | 530 | $ | (119 | ) | $ | — | $ | 411 |
For the year ended December 31, 2020, the approximate average monthly amount outstanding for each derivative type is as follows:
Foreign Currency Forward Exchange Contracts: | |||||||
Average monthly principal amount | $ | 34,538,000 | |||||
Futures Contracts: | |||||||
Average monthly notional value | $ | 63,020,000 | |||||
Swap Agreements: | |||||||
Average monthly notional amount | $ | 1,483,000 |
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
5. When-Issued/Delayed Delivery Securities: The Fund purchases and sells when-issued and delayed delivery securities. Securities purchased on a when-issued or delayed delivery basis are purchased for delivery beyond the normal settlement date at a stated price and yield, and no income accrues to the Fund on such securities prior to delivery date. Payment and delivery for when-issued and delayed delivery securities can take place a month or more after the date of the transaction. When the Fund enters into a purchase transaction on a when-issued or delayed delivery basis, securities are available for collateral in an amount at least equal in value to the Fund's commitments to purchase such securities. Purchasing securities on a when-issued or delayed delivery basis may involve a risk that the market price at the time of delivery may be lower than the agreed upon purchase price, in which case there could be an unrealized loss at the time of delivery. Purchasing investments on a when-issued or delayed delivery basis may be considered a form of leverage which may increase the impact that gains (losses) may have on the Fund.
6. Securities Lending: The Fund lends securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund would receive cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned — Net" in the Fund's Statement of Operations. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund has the right under the securities lending agreement to recover the securities from the borrower on demand.
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||
Gross Asset Amounts Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | ||||||||||||
$ | 1,117 | (d) | $ | — | $ | (1,117 | )(e)(f) | $ | 0 |
(d) Represents market value of loaned securities at year end.
(e) The Fund received cash collateral of approximately $710,000, which was subsequently invested in Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. In addition, the Fund received non-cash collateral of approximately $432,000 in the form of U.S. Government obligations, which the Fund cannot sell or repledge, and accordingly are not reflected in the Portfolio of Investments.
(f) The actual collateral received is greater than the amount shown here due to overcollateralization.
FASB ASC 860, "Transfers & Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures", is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged and the remaining contractual maturity of those transactions as of December 31, 2020:
Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||
Overnight and Continuous (000) | <30 days (000) | Between 30 & 90 days (000) | >90 days (000) | Total (000) | |||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||
Corporate Bonds | $ | 161 | $ | — | $ | — | $ | — | $ | 161 | |||||||||||||
Sovereign | 549 | — | — | — | 549 | ||||||||||||||||||
Total Borrowings | $ | 710 | $ | — | $ | — | $ | — | $ | 710 | |||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 710 |
7. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior
28
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
9. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $1 billion | Over $1 billion | ||||||
0.375 | % | 0.30 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.31% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.70% for Class I shares and 0.95% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $86,000 of advisory fees were waived pursuant to this arrangement.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street, State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities
29
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $109,364,000 and $100,664,000, respectively. For the year ended December 31, 2020, purchases and sales of long-term U.S. Government securities were approximately $410,087,000 and $430,408,000, respectively.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $31,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 16,060 | $ | 91,504 | $ | 80,827 | $ | 60 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 26,737 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 6,132 | $ | 507 | $ | 6,570 | $ | — |
30
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 8,539 | $ | 2,064 |
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 56.7%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
M. LIBOR Risk: The Fund's investments, payment obligations and financing terms may be based on floating rates, such as London Interbank Offer Rate ("LIBOR"), Euro Interbank Offered Rate and other similar types of reference rates (each, a "Reference Rate"). These Reference Rates are generally intended to represent the rate at which contributing banks may obtain short-term borrowings from each other within certain financial markets. On July 27, 2017, the Chief Executive of the UK Financial Conduct Authority ("FCA"), which regulates LIBOR, announced that the FCA will no longer persuade nor require banks to submit rates for the calculation of LIBOR and certain other Reference Rates after 2021. Such announcement indicates that the continuation of LIBOR and other Reference Rates on the current basis cannot and will not be guaranteed after the end of 2021. This announcement and any additional regulatory or market changes may have an adverse impact on the Fund or its investments.
In advance of 2022, regulators and market participants are currently engaged in identifying successor Reference Rates ("Alternative Reference Rates"). Additionally, prior to the end of 2021, it is expected that market participants will focus on the transition mechanisms by which the Reference Rates in existing contracts or instruments may be amended, whether through marketwide protocols, fallback contractual provisions, bespoke negotiations or amendments or otherwise. Nonetheless, the termination of certain Reference Rates presents risks to the Fund. At this time, it is not possible to completely identify or predict the effect of any such changes, any establishment of Alternative Reference Rates or any other reforms to Reference Rates that may be enacted in the UK or elsewhere. The elimination of a Reference Rate or any other changes or reforms to the determination or supervision of Reference Rates could have an adverse impact on the market for or value of any securities or payments linked to those Reference Rates and other financial obligations held by the Fund or on its overall financial condition or results of operations.
31
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Core Plus Fixed Income Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Core Plus Fixed Income Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Core Plus Fixed Income Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
32
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
33
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020.
The Fund designated and paid approximately $507,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
34
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
35
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
36
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
37
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
38
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFCPFIANN
3386922 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Discovery Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 5 | ||||||
Statement of Assets and Liabilities | 8 | ||||||
Statement of Operations | 9 | ||||||
Statements of Changes in Net Assets | 10 | ||||||
Financial Highlights | 11 | ||||||
Notes to Financial Statements | 13 | ||||||
Report of Independent Registered Public Accounting Firm | 23 | ||||||
Liquidity Risk Management Program | 24 | ||||||
Federal Tax Notice | 25 | ||||||
Director and Officer Information | 26 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Discovery Portfolio
As a shareholder of the Discovery Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Discovery Portfolio Class I | $ | 1,000.00 | $ | 1,565.60 | $ | 1,020.36 | $ | 6.13 | $ | 4.82 | 0.95 | % | |||||||||||||||
Discovery Portfolio Class II | 1,000.00 | 1,565.00 | 1,019.86 | 6.77 | 5.33 | 1.05 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Discovery Portfolio
The Fund seeks long term capital growth by investing primarily in common stocks and other equity securities.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 152.30%, net of fees, and 152.04%, net of fees, for Class II shares. The Fund's Class I and Class II shares outperformed the Fund's benchmark, the Russell Midcap® Growth Index (the "Index"), which returned 35.59%.
Please keep in mind that high triple-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions.
Factors Affecting Performance
• U.S. equities reversed a steep sell-off caused by the COVID-19 pandemic shock, aided by massive fiscal and monetary stimulus that kept liquidity flowing and supported a faster-than-expected rebound in economic activity. Promising vaccine news throughout the year, along with the start of vaccine distribution across the U.S. and Europe in December 2020, also helped investors look past resurgences of the virus and renewed curbs on social and business activity that have slowed the economic recovery in the short term. Political uncertainty eased after the U.S. election in November 2020, with markets taking a positive stance on a Biden administration and the prospect for additional fiscal stimulus in 2021.
• Within the Index, communication services, information technology and health care were the top-performing sectors, while energy (the only sector with negative performance), consumer staples and materials were the bottom three performing sectors in the 12-month period.
• Counterpoint Global seeks high quality companies, which we define primarily as those with sustainable competitive advantages. We manage concentrated portfolios that are highly differentiated from the benchmark, with securities weighted on our assessment of the quality of the company and our conviction. The value added or detracted in any period of time will result from stock selection, given our philosophy and process. For the year, the Fund outperformed the Index.
• The long-term investment horizon and conviction-weighted investment approach embraced by the team since 1998 can result in periods of performance deviation from the benchmark and peers. The Fund outperformed the Index in this reporting period mainly due to favorable stock selection, with a smaller contribution from sector allocations.
• Stock selection was the strongest across the information technology sector. A proprietary cloud-based communications platform that connects users through frictionless video, voice, chat and content sharing, was the top contributor in the sector and across the portfolio. Its shares continued to advance on solid results which significantly surpassed expectations and were characterized by strong revenue growth, customer base expansion, speed to scale in international markets, higher profit margins, traction with new products, and a raised financial outlook. The company has experienced growing use of its products by both consumers and businesses as video-based communication has become mission critical during the COVID-19 pandemic.
• Stock selection in consumer discretionary was also strongly favorable, led by a holding in an online furniture retailer. The company has benefited from the accelerating adoption of e-commerce across markets, which led to strong revenue and profit growth that materially exceeded Street expectations. To a lesser extent, the Fund benefited from stock selection in health care and communication services.
• Given the magnitude of the Fund's outperformance relative to the benchmark, there were no meaningful sector detractors from performance. While stock selection in industrials detracted slightly from relative performance, the gain from an underweight allocation to the sector more than compensated. Although the information technology sector was by far the largest contributor to performance, the strength in these holdings was partly offset by weakness in a provider of cloud-based business planning software, which was the largest detractor across the portfolio. Shares of the company sold off earlier in 2020 on disappointing quarterly results, characterized by weaker than expected billings growth which was attributed to changes in sales leadership and an organizational restructuring, resulting in weaker execution and fewer new deal closings. The position in the company was eliminated during the first quarter of 2020 in order to fund other investments that we believe offer a superior risk/reward profile.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Discovery Portfolio
Management Strategies
• As a team, we believe having a market outlook can be an anchor. Our focus is on assessing company prospects over a five-year horizon, and owning a portfolio of unique companies whose market value we believe can increase significantly for underlying fundamental reasons.
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the Russell Midcap® Growth Index(1)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(2) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(5) | ||||||||||||||||
Fund – Class I(3) | 152.30 | % | 37.70 | % | 20.76 | % | 12.61 | % | |||||||||||
Russell Midcap® Growth Index | 35.59 | 18.66 | 15.04 | 9.67 | |||||||||||||||
Fund – Class II(4) | 152.04 | 37.56 | 20.64 | 17.71 | |||||||||||||||
Russell Midcap® Growth Index | 35.59 | 18.66 | 15.04 | 13.02 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap® Index is a subset of the Russell 1000® Index and includes approximately 800 of the smallest securities in the Russell 1000® Index, which in turn consists of approximately 1,000 of the largest U.S. securities based on a combination of market capitalization and current index membership. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(3) Commenced operations on October 18, 1999.
(4) Commenced offering on May 5, 2003.
(5) For comparative purposes, average annual since inception returns listed for the Index refers to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Discovery Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (90.9%) | |||||||||||
Biotechnology (1.7%) | |||||||||||
Alnylam Pharmaceuticals, Inc. (a) | 8,509 | $ | 1,106 | ||||||||
Exact Sciences Corp. (a) | 31,216 | 4,136 | |||||||||
Moderna, Inc. (a) | 17,156 | 1,792 | |||||||||
7,034 | |||||||||||
Commercial Services & Supplies (2.1%) | |||||||||||
Cintas Corp. | 11,699 | 4,135 | |||||||||
Copart, Inc. (a) | 32,601 | 4,149 | |||||||||
8,284 | |||||||||||
Entertainment (2.0%) | |||||||||||
Roku, Inc. (a) | 11,957 | 3,970 | |||||||||
Zynga, Inc., Class A (a) | 428,367 | 4,228 | |||||||||
8,198 | |||||||||||
Health Care Equipment & Supplies (3.0%) | |||||||||||
DexCom, Inc. (a) | 28,427 | 10,510 | |||||||||
Penumbra, Inc. (a) | 7,776 | 1,361 | |||||||||
11,871 | |||||||||||
Health Care Providers & Services (3.6%) | |||||||||||
Covetrus, Inc. (a) | 366,365 | 10,529 | |||||||||
Guardant Health, Inc. (a) | 31,774 | 4,095 | |||||||||
14,624 | |||||||||||
Health Care Technology (5.1%) | |||||||||||
Agilon Health Topco, Inc. (a)(b)(c) (acquisition cost — $596; acquired 11/7/18) | 1,577 | 929 | |||||||||
GoodRx Holdings, Inc., Class A (a) | 58,722 | 2,369 | |||||||||
Teladoc Health, Inc. (a) | 10,638 | 2,127 | |||||||||
Veeva Systems, Inc., Class A (a) | 54,923 | 14,953 | |||||||||
20,378 | |||||||||||
Hotels, Restaurants & Leisure (0.5%) | |||||||||||
Airbnb, Inc., Class A (a) | 15,234 | 2,236 | |||||||||
Information Technology Services (19.1%) | |||||||||||
Adyen N.V. (Netherlands) (a) | 2,192 | 5,093 | |||||||||
ContextLogic, Inc., Class A (a) | 315,263 | 5,750 | |||||||||
Fastly, Inc., Class A (a) | 211,314 | 18,463 | |||||||||
MongoDB, Inc. (a) | 38,960 | 13,988 | |||||||||
Okta, Inc. (a) | 55,836 | 14,197 | |||||||||
Twilio, Inc., Class A (a) | 55,970 | 18,946 | |||||||||
76,437 | |||||||||||
Interactive Media & Services (12.6%) | |||||||||||
Pinterest, Inc., Class A (a) | 295,093 | 19,447 | |||||||||
Twitter, Inc. (a) | 275,299 | 14,907 | |||||||||
Zillow Group, Inc., Class C (a) | 41,290 | 5,359 | |||||||||
ZoomInfo Technologies, Inc., Class A (a) | 223,525 | 10,781 | |||||||||
50,494 |
Shares | Value (000) | ||||||||||
Internet & Direct Marketing Retail (8.1%) | |||||||||||
Chewy, Inc., Class A (a) | 42,314 | $ | 3,804 | ||||||||
DoorDash, Inc., Class A (a) | 24,646 | 3,518 | |||||||||
Farfetch Ltd., Class A (a) | 169,101 | 10,790 | |||||||||
Opendoor Technologies, Inc. (a)(d) | 85,363 | 1,940 | |||||||||
Overstock.com, Inc. (a) | 61,190 | 2,935 | |||||||||
Stitch Fix, Inc., Class A (a) | 61,720 | 3,624 | |||||||||
Wayfair, Inc., Class A (a) | 25,213 | 5,694 | |||||||||
32,305 | |||||||||||
Leisure Products (1.0%) | |||||||||||
Peloton Interactive, Inc., Class A (a) | 26,088 | 3,958 | |||||||||
Life Sciences Tools & Services (3.2%) | |||||||||||
10X Genomics, Inc., Class A (a) | 62,280 | 8,819 | |||||||||
NanoString Technologies, Inc. (a) | 60,420 | 4,041 | |||||||||
12,860 | |||||||||||
Metals & Mining (0.1%) | |||||||||||
Royal Gold, Inc. | 4,085 | 435 | |||||||||
Oil, Gas & Consumable Fuels (0.2%) | |||||||||||
Texas Pacific Land Trust | 1,053 | 766 | |||||||||
Pharmaceuticals (2.4%) | |||||||||||
Royalty Pharma PLC, Class A (United Kingdom) | 192,956 | 9,657 | |||||||||
Professional Services (2.2%) | |||||||||||
CoStar Group, Inc. (a) | 4,683 | 4,328 | |||||||||
Verisk Analytics, Inc. | 21,097 | 4,380 | |||||||||
8,708 | |||||||||||
Real Estate Management & Development (0.9%) | |||||||||||
Redfin Corp. (a) | 52,032 | 3,571 | |||||||||
Software (19.4%) | |||||||||||
Alteryx, Inc., Class A (a) | 27,185 | 3,311 | |||||||||
Appian Corp. (a) | 66,096 | 10,713 | |||||||||
Cloudflare, Inc., Class A (a) | 52,294 | 3,974 | |||||||||
Coupa Software, Inc. (a) | 29,957 | 10,153 | |||||||||
Datadog, Inc., Class A (a) | 40,410 | 3,978 | |||||||||
DocuSign, Inc. (a) | 17,839 | 3,966 | |||||||||
Dropbox, Inc., Class A (a) | 270,697 | 6,007 | |||||||||
MicroStrategy, Inc., Class A (a) | 13,002 | 5,052 | |||||||||
Nuance Communications, Inc. (a) | 44,931 | 1,981 | |||||||||
Palantir Technologies, Inc. (a) | 165,440 | 3,721 | |||||||||
Skillz, Inc. (a) | 544,968 | 10,899 | |||||||||
Trade Desk, Inc. (The), Class A (a) | 13,424 | 10,753 | |||||||||
Unity Software, Inc. (a) | 21,500 | 3,299 | |||||||||
77,807 | |||||||||||
Specialty Retail (2.7%) | |||||||||||
Carvana Co. (a) | 44,871 | 10,748 | |||||||||
Trading Companies & Distributors (1.0%) | |||||||||||
Fastenal Co. | 85,731 | 4,186 | |||||||||
Total Common Stocks (Cost $239,809) | 364,557 |
The accompanying notes are an integral part of the financial statements.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Discovery Portfolio
Shares | Value (000) | ||||||||||
Preferred Stocks (2.4%) | |||||||||||
Internet & Direct Marketing Retail (2.4%) | |||||||||||
Airbnb, Inc. Series D (a)(b) (acquisition cost — $1,370; acquired 4/16/14) | 67,272 | $ | 9,086 | ||||||||
Overstock.com, Inc. Series A-1 (a) | 7,866 | 348 | |||||||||
Total Preferred Stocks (Cost $1,450) | 9,434 | ||||||||||
Short-Term Investments (6.2%) | |||||||||||
Securities held as Collateral on Loaned Securities (0.5%) | |||||||||||
Investment Company (0.4%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) | 1,837,209 | 1,837 | |||||||||
Face Amount (000) | |||||||||||
Repurchase Agreements (0.1%) | |||||||||||
Barclays Capital, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $56; fully collateralized by a U.S. Government obligation; 1.63% due 11/15/22; valued at $57) | $ | 56 | 56 | ||||||||
HSBC Securities USA, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $219; fully collateralized by a U.S. Government obligation; 0.15% due 10/31/22; valued at $223) | 219 | 219 | |||||||||
Merrill Lynch & Co., Inc., (0.06%, 12/31/20, due 1/4/21; proceeds $22; fully collateralized by a U.S. Government obligation; 2.50% due 5/15/46; valued at $23) | 22 | 22 | |||||||||
297 | |||||||||||
Total Securities held as Collateral on Loaned Securities (Cost $2,134) | 2,134 | ||||||||||
Shares | |||||||||||
Investment Company (5.7%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) (Cost $22,775) | 22,775,126 | 22,775 | |||||||||
Total Short-Term Investments (Cost $24,909) | 24,909 | ||||||||||
Total Investments Excluding Purchased Options (99.5%) (Cost $266,168) | 398,900 | ||||||||||
Total Purchased Options Outstanding (0.1%) (Cost $1,295) | 248 | ||||||||||
Total Investments (99.6%) (Cost $267,463) Including $1,940 of Securities Loaned (e)(f) | 399,148 | ||||||||||
Other Assets in Excess of Liabilities (0.4%) | 1,692 | ||||||||||
Net Assets (100.0%) | $ | 400,840 |
(a) Non-income producing security.
(b) Security cannot be offered for public resale without first being registered under the Securities Act of 1933 and related rules ("restricted security"). Acquisition date represents the day on which an enforceable right to acquire such security is obtained and is presented along with related cost in the security description. The Fund has registration rights for certain restricted securities. Any costs related to such registration are borne by the issuer. The aggregate value of restricted securities (excluding 144A holdings) at December 31, 2020 amounts to approximately $10,015,000 and represents 2.5% of net assets.
(c) At December 31, 2020, the Fund held a fair valued security valued at approximately $929,000, representing 0.2% of net assets. This security has been fair valued as determined in good faith under procedures established by and under the general supervision of the Company's (as defined herein) Directors.
(d) All or a portion of this security was on loan at December 31, 2020.
(e) The approximate fair value and percentage of net assets, $5,093,000 and 1.3%, respectively, represent the security that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.
(f) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $271,740,000. The aggregate gross unrealized appreciation is approximately $136,102,000 and the aggregate gross unrealized depreciation is approximately $8,694,000, resulting in net unrealized appreciation of approximately $127,408,000.
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Discovery Portfolio
Call Options Purchased:
The Fund had the following call options purchased open at December 31, 2020:
Counterparty | Description | Strike Price | Expiration Date | Number of Contracts | Notional Amount (000) | Value (000) | Premiums Paid (000) | Unrealized Depreciation (000) | |||||||||||||||||||||||||||
BNP Paribas | USD/CNH | CNH | 7.99 | Sep-21 | 48,631,053 | $ | 48,631 | $ | 46 | $ | 294 | $ | (248 | ) | |||||||||||||||||||||
BNP Paribas | USD/CNH | CNH | 7.64 | Nov-21 | 60,267,001 | 60,267 | 165 | 327 | (162 | ) | |||||||||||||||||||||||||
Royal Bank of Scotland | USD/CNH | CNH | 7.75 | Jan-21 | 38,896,197 | 38,896 | — | @ | 170 | (170 | ) | ||||||||||||||||||||||||
Royal Bank of Scotland | USD/CNH | CNH | 8.06 | Jul-21 | 53,638,983 | 53,639 | 32 | 285 | (253 | ) | |||||||||||||||||||||||||
Royal Bank of Scotland | USD/CNH | CNH | 8.48 | May-21 | 35,020,637 | 35,021 | 5 | 219 | (214 | ) | |||||||||||||||||||||||||
$ | 248 | $ | 1,295 | $ | (1,047 | ) |
@ Value is less than $500.
CNH — Chinese Yuan Renminbi Offshore
USD — United States Dollar
Portfolio Composition*
Classification | Percentage of Total Investments | ||||||
Other** | 27.0 | % | |||||
Software | 19.6 | ||||||
Information Technology Services | 19.3 | ||||||
Interactive Media & Services | 12.7 | ||||||
Internet & Direct Marketing Retail | 10.5 | ||||||
Short-Term Investments | 5.8 | ||||||
Health Care Technology | 5.1 | ||||||
Total Investments | 100.0 | % |
* Percentages indicated are based upon total investments (excluding Securities
held as Collateral on Loaned Securities) as of December 31, 2020.
** Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Discovery Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $242,851) | $ | 374,536 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $24,612) | 24,612 | ||||||
Total Investments in Securities, at Value (Cost $267,463) | 399,148 | ||||||
Foreign Currency, at Value (Cost $1) | 1 | ||||||
Receivable for Investments Sold | 12,413 | ||||||
Receivable for Fund Shares Sold | 169 | ||||||
Receivable from Securities Lending Income | 27 | ||||||
Receivable from Affiliate | — | @ | |||||
Other Assets | 13 | ||||||
Total Assets | 411,771 | ||||||
Liabilities: | |||||||
Payable for Investments Purchased | 7,096 | ||||||
Collateral on Securities Loaned, at Value | 2,134 | ||||||
Payable for Advisory Fees | 573 | ||||||
Payable for Fund Shares Redeemed | 513 | ||||||
Due to Broker | 410 | ||||||
Payable for Servicing Fees | 104 | ||||||
Payable for Distribution Fees — Class II Shares | 28 | ||||||
Payable for Administration Fees | 27 | ||||||
Payable for Professional Fees | 15 | ||||||
Payable for Custodian Fees | 5 | ||||||
Payable for Transfer Agency Fees | 2 | ||||||
Other Liabilities | 24 | ||||||
Total Liabilities | 10,931 | ||||||
NET ASSETS | $ | 400,840 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 125,132 | |||||
Total Distributable Earnings | 275,708 | ||||||
Net Assets | $ | 400,840 | |||||
CLASS I: | |||||||
Net Assets | $ | 68,299 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 2,315,365 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 29.50 | |||||
CLASS II: | |||||||
Net Assets | $ | 332,541 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 11,706,346 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 28.41 | |||||
(1) Including: | |||||||
Securities on Loan, at Value: | $ | 1,940 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Discovery Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Income from Securities Loaned — Net | $ | 193 | |||||
Dividends from Securities of Unaffiliated Issuers | 55 | ||||||
Dividends from Security of Affiliated Issuer (Note H) | 13 | ||||||
Total Investment Income | 261 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 1,939 | ||||||
Distribution Fees — Class II Shares (Note E) | 533 | ||||||
Servicing Fees (Note D) | 398 | ||||||
Administration Fees (Note C) | 207 | ||||||
Professional Fees | 131 | ||||||
Shareholder Reporting Fees | 48 | ||||||
Custodian Fees (Note G) | 15 | ||||||
Transfer Agency Fees (Note F) | 10 | ||||||
Directors' Fees and Expenses | 8 | ||||||
Pricing Fees | 3 | ||||||
Other Expenses | 22 | ||||||
Total Expenses | 3,314 | ||||||
Waiver of Advisory Fees (Note B) | (325 | ) | |||||
Waiver of Distribution Fees — Class II Shares (Note E) | (320 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (13 | ) | |||||
Net Expenses | 2,656 | ||||||
Net Investment Loss | (2,395 | ) | |||||
Realized Gain (Loss): | |||||||
Investments Sold | 147,230 | ||||||
Foreign Currency Translation | (— | @) | |||||
Net Realized Gain | 147,230 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments | 100,669 | ||||||
Foreign Currency Translation | — | @ | |||||
Net Change in Unrealized Appreciation (Depreciation) | 100,669 | ||||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | 247,899 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 245,504 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Discovery Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Loss | $ | (2,395 | ) | $ | (959 | ) | |||||
Net Realized Gain | 147,230 | 30,675 | |||||||||
Net Change in Unrealized Appreciation (Depreciation) | 100,669 | 21,166 | |||||||||
Net Increase in Net Assets Resulting from Operations | 245,504 | 50,882 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (5,068 | ) | (5,010 | ) | |||||||
Class II | (24,283 | ) | (19,016 | ) | |||||||
Total Dividends and Distributions to Shareholders | (29,351 | ) | (24,026 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 15,457 | 8,452 | |||||||||
Distributions Reinvested | 5,068 | 5,010 | |||||||||
Redeemed | (20,658 | ) | (16,098 | ) | |||||||
Class II: | |||||||||||
Subscribed | 44,075 | 19,074 | |||||||||
Distributions Reinvested | 24,283 | 19,016 | |||||||||
Redeemed | (47,501 | ) | (26,007 | ) | |||||||
Net Increase in Net Assets Resulting from Capital Share Transactions | 20,724 | 9,447 | |||||||||
Total Increase in Net Assets | 236,877 | 36,303 | |||||||||
Net Assets: | |||||||||||
Beginning of Period | 163,963 | 127,660 | |||||||||
End of Period | $ | 400,840 | $ | 163,963 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 783 | 637 | |||||||||
Shares Issued on Distributions Reinvested | 253 | 368 | |||||||||
Shares Redeemed | (1,076 | ) | (1,228 | ) | |||||||
Net Decrease in Class I Shares Outstanding | (40 | ) | (223 | ) | |||||||
Class II: | |||||||||||
Shares Subscribed | 2,362 | 1,502 | |||||||||
Shares Issued on Distributions Reinvested | 1,256 | 1,443 | |||||||||
Shares Redeemed | (2,462 | ) | (1,992 | ) | |||||||
Net Increase in Class II Shares Outstanding | 1,156 | 953 |
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Discovery Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.05 | $ | 10.71 | $ | 12.10 | $ | 8.72 | $ | 10.03 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Loss(2) | (0.17 | ) | (0.07 | ) | (0.08 | ) | (0.05 | ) | (0.00 | )(3) | |||||||||||||
Net Realized and Unrealized Gain (Loss) | 18.96 | 4.45 | 1.69 | 3.43 | (0.87 | ) | |||||||||||||||||
Total from Investment Operations | 18.79 | 4.38 | 1.61 | 3.38 | (0.87 | ) | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Realized Gain | (2.34 | ) | (2.04 | ) | (3.00 | ) | — | (0.44 | ) | ||||||||||||||
Net Asset Value, End of Period | $ | 29.50 | $ | 13.05 | $ | 10.71 | $ | 12.10 | $ | 8.72 | |||||||||||||
Total Return(4) | 152.30 | % | 40.11 | % | 10.65 | % | 38.76 | % | (8.78 | )% | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 68,299 | $ | 30,739 | $ | 27,630 | $ | 28,747 | $ | 27,893 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.08 | % | 1.11 | % | 1.15 | % | 1.17 | % | 1.14 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.95 | %(5) | 0.94 | %(5) | 0.94 | %(5) | 0.99 | %(5)(6) | 1.04 | %(5) | |||||||||||||
Ratio of Net Investment Loss | (0.86 | )%(5) | (0.49 | )%(5) | (0.59 | )%(5) | (0.45 | )%(5) | (0.00 | )%(5)(7) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(7) | 0.01 | % | 0.01 | % | 0.00 | %(7) | 0.01 | % | |||||||||||||
Portfolio Turnover Rate | 112 | % | 101 | % | 89 | % | 64 | % | 42 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Loss would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment loss.
(2) Per share amount is based on average shares outstanding.
(3) Amount is less than $0.005 per share.
(4) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(5) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Loss reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(6) Effective July 1, 2017, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.95% for Class I shares. Prior to July 1, 2017, the maximum ratio was 1.05% for Class I shares.
(7) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Discovery Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.63 | $ | 10.42 | $ | 11.85 | $ | 8.55 | $ | 9.85 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Loss(2) | (0.18 | ) | (0.08 | ) | (0.09 | ) | (0.06 | ) | (0.01 | ) | |||||||||||||
Net Realized and Unrealized Gain (Loss) | 18.30 | 4.33 | 1.66 | 3.36 | (0.85 | ) | |||||||||||||||||
Total from Investment Operations | 18.12 | 4.25 | 1.57 | 3.30 | (0.86 | ) | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Realized Gain | (2.34 | ) | (2.04 | ) | (3.00 | ) | — | (0.44 | ) | ||||||||||||||
Net Asset Value, End of Period | $ | 28.41 | $ | 12.63 | $ | 10.42 | $ | 11.85 | $ | 8.55 | |||||||||||||
Total Return(3) | 152.04 | % | 39.97 | % | 10.53 | % | 38.60 | % | (8.84 | )% | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 332,541 | $ | 133,224 | $ | 100,030 | $ | 89,140 | $ | 75,163 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.33 | % | 1.36 | % | 1.40 | % | 1.42 | % | 1.39 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.05 | %(4) | 1.04 | %(4) | 1.04 | %(4) | 1.09 | %(4)(5) | 1.14 | %(4) | |||||||||||||
Ratio of Net Investment Loss | (0.96 | )%(4) | (0.59 | )%(4) | (0.69 | )%(4) | (0.55 | )%(4) | (0.10 | )%(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(6) | 0.01 | % | 0.01 | % | 0.00 | %(6) | 0.01 | % | |||||||||||||
Portfolio Turnover Rate | 112 | % | 101 | % | 89 | % | 64 | % | 42 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Loss would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment loss.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Loss reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective July 1, 2017, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.05% for Class II shares. Prior to July 1, 2017, the maximum ratio was 1.15% for Class II shares.
(6) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Discovery Portfolio. The Fund seeks long-term capital growth by investing primarily in common stocks and other equity securities. The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such
market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) listed options are valued at the last reported sales price on the exchange on which they are listed (or at the exchange official closing price if such exchange reports an official closing price). If an official closing price or last reported sales price is unavailable, the listed option should be fair valued at the mean between its latest bid and ask prices. Unlisted options are valued at the mean between their latest bid and ask prices from a broker/dealer or valued by a pricing service/vendor; (4) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser"), a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (5) when market quotations are not readily available including circumstances under which the Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices are
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
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 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 of the New York Stock Exchange ("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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; and (6) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Biotechnology | $ | 7,034 | $ | — | $ | — | $ | 7,034 | |||||||||||
Commercial Services & Supplies | 8,284 | — | — | 8,284 | |||||||||||||||
Entertainment | 8,198 | — | — | 8,198 | |||||||||||||||
Health Care Equipment & Supplies | 11,871 | — | — | 11,871 | |||||||||||||||
Health Care Providers & Services | 14,624 | — | — | 14,624 | |||||||||||||||
Health Care Technology | 19,449 | — | 929 | 20,378 |
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Common Stocks (cont'd) | |||||||||||||||||||
Hotels, Restaurants & Leisure | $ | 2,236 | $ | — | $ | — | $ | 2,236 | |||||||||||
Information Technology Services | 71,344 | 5,093 | — | 76,437 | |||||||||||||||
Interactive Media & Services | 50,494 | — | — | 50,494 | |||||||||||||||
Internet & Direct Marketing Retail | 32,305 | — | — | 32,305 | |||||||||||||||
Leisure Products | 3,958 | — | — | 3,958 | |||||||||||||||
Life Sciences Tools & Services | 12,860 | — | — | 12,860 | |||||||||||||||
Metals & Mining | 435 | — | — | 435 | |||||||||||||||
Oil, Gas & Consumable Fuels | 766 | — | — | 766 | |||||||||||||||
Pharmaceuticals | 9,657 | — | — | 9,657 | |||||||||||||||
Professional Services | 8,708 | — | — | 8,708 | |||||||||||||||
Real Estate Management & Development | 3,571 | — | — | 3,571 | |||||||||||||||
Software | 74,086 | 3,721 | — | 77,807 | |||||||||||||||
Specialty Retail | 10,748 | — | — | 10,748 | |||||||||||||||
Trading Companies & Distributors | 4,186 | — | — | 4,186 | |||||||||||||||
Total Common Stocks | 354,814 | 8,814 | 929 | 364,557 | |||||||||||||||
Preferred Stocks | |||||||||||||||||||
Internet & Direct Marketing Retail | 348 | 9,086 | — | 9,434 | |||||||||||||||
Call Options Purchased | — | 248 | — | 248 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 24,612 | — | — | 24,612 | |||||||||||||||
Repurchase Agreements | — | 297 | — | 297 | |||||||||||||||
Total Short-Term Investments | 24,612 | 297 | — | 24,909 | |||||||||||||||
Total Assets | $ | 379,774 | $ | 18,445 | $ | 929 | $ | 399,148 |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Common Stock (000) | Preferred Stocks (000) | ||||||||||
Beginning Balance | $ | 709 | $ | 5,712 | |||||||
Purchases | — | — | |||||||||
Sales | — | — | |||||||||
Amortization of discount | — | — | |||||||||
Transfers in | — | — | |||||||||
Transfers out | — | (4,419 | )† | ||||||||
Corporate actions | — | (1,293 | ) | ||||||||
Change in unrealized appreciation (depreciation) | 220 | — | |||||||||
Realized gains (losses) | — | — | |||||||||
Ending Balance | $ | 929 | $ | — | |||||||
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2020 | $ | 220 | $ | — |
† A security transferred out of level 3 due to an Initial Public Offering.
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of December 31, 2020. Various valuation techniques were used in the valuation of certain investments and weighted based on the level of significance. The Fund calculated the weighted averages of the unobservable inputs relative to each investment's fair value as of December 31, 2020.
Fair Value at December 31, 2020 (000) | Valuation Technique | Unobservable Input | Amount* | Impact to Valuation from an Increase in Input** | |||||||||||||||||||
Common Stock | $ | 929 | Discounted Cash Flow | Weighted Average Cost of Capital | 13.0 | % | Decrease | ||||||||||||||||
Perpetual Growth Rate | 3.5 | % | Increase | ||||||||||||||||||||
Market Comparable | Enterprise Value/Revenue | 1.3 | x | Increase | |||||||||||||||||||
Companies | Discount for Lack of Marketability | 13.0 | % | Decrease |
* Amount is indicative of the weighted average.
** Represents the expected directional change in the fair value of the Level 3 investments that would result from an increase in the corresponding input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs could result in significantly higher or lower fairvalue measurements.
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
3. Repurchase Agreements: The Fund may enter into repurchase agreements under which the Fund lends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral proceeds may be subject to cost and delays. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements.
4. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency
transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
5. Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.
Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.
Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:
Options: With respect to options, the Fund is subject to equity risk, interest rate risk and foreign currency exchange risk in the normal course of pursuing its investment objectives. If the Fund buys an option, it buys a legal contract giving it the right to buy or sell a specific amount of the underlying instrument or foreign currency, or futures contract on the underlying instrument or foreign currency, at an agreed-upon price during a period of time or on a specified date typically in exchange for a premium paid by the Fund. The Fund may purchase and/or sell put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying (or similar) instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying (or similar)
instrument. When entering into purchased option contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the purchased option contracts; however the risk of loss is limited to the premium paid. Purchased options are reported as part of "Total Investments in Securities" in the Statement of Assets and Liabilities. Premiums paid for purchasing options which expired are treated as realized losses. If the Fund sells an option, it sells to another party the right to buy from or sell to the Fund a specific amount of the underlying instrument or foreign currency, or futures contract on the underlying instrument or foreign currency, at an agreed-upon price during a period of time or on a specified date typically in exchange for a premium received by the Fund. When options are purchased OTC, the Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. Options may also be illiquid and the Fund may have difficulty closing out its position. A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well-conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.
FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The following table sets forth the fair value of the Fund's derivative contracts by primary risk exposure as of December 31, 2020:
Asset Derivatives Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Purchased Options | Investments, at value (Purchased Options) | Currency Risk | $ | 248 | (a) |
(a) Amounts are included in Investments in Securities in the Statement of Assets and Liabilities.
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
for the year ended December 31, 2020 in accordance with ASC 815:
Realized Gain (Loss) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Investments (Purchased Options) | $ | (487 | )(b) |
(b) Amounts are included in Investments Sold in the Statement of Operations.
Change in Unrealized Appreciation (Depreciation) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Investments (Purchased Options) | $ | (618 | )(c) |
(c) Amounts are included in Investments in the Statement of Operations.
At December 31, 2020, the Fund's derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities | |||||||||||
Derivatives | Assets(d) (000) | Liabilities(d) (000) | |||||||||
Purchased Options | $ | 248 | (a) | $ | — |
(a) Amounts are included in Investments in Securities in the Statement of Assets and Liabilities.
(d) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination
provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Fund exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of the Fund's net liability may be delayed or denied.
The following table presents derivative financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Asset Derivatives Presented in the Statement of Assets and Liabilities(a) (000) | Financial Instrument (000) | Collateral Received(e) (000) | Net Amount (not less than $0) (000) | |||||||||||||||
BNP Paribas | $ | 211 | $ | — | $ | (211 | ) | $ | 0 | ||||||||||
Royal Bank of Scotland | 37 | — | (37 | ) | 0 | ||||||||||||||
Total | $ | 248 | $ | — | $ | (248 | ) | $ | 0 |
(a) Amounts are included in Investments in Securities in the Statement of Assets and Liabilities.
(e) In some instances, the actual collateral received may be more than the amount shown here due to overcollateralization.
For the year ended December 31, 2020, the approximate average monthly amount outstanding for each derivative type is as follows:
Purchased Options: | |||||||
Average monthly notional amount | 150,907,000 |
6. Securities Lending: The Fund lends securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund would receive cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned — Net" in the Fund's Statement of Operations. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund has the right under the securities lending agreement to recover the securities from the borrower on demand.
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||
Gross Asset Amounts Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | ||||||||||||
$ | 1,940 | (f) | $ | — | $ | (1,940 | )(g)(h) | $ | 0 |
(f) Represents market value of loaned securities at year end.
(g) The Fund received cash collateral of approximately $2,134,000, which was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments.
(h) The actual collateral received is greater than the amount shown here due to overcollateralization.
FASB ASC 860, "Transfers & Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures", is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged and the remaining
contractual maturity of those transactions as of December 31, 2020:
Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||
Overnight and Continuous (000) | <30 days (000) | Between 30 & 90 days (000) | >90 days (000) | Total (000) | |||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||
Common Stocks | $ | 2,134 | $ | — | $ | — | $ | — | $ | 2,134 | |||||||||||||
Total Borrowings | $ | 2,134 | $ | — | $ | — | $ | — | $ | 2,134 | |||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 2,134 |
7. Restricted Securities: The Fund invests in unregistered or otherwise restricted securities. The term "restricted securities" refers to securities that are unregistered or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale. As a result, restricted securities may be more difficult to value and the Fund may have difficulty disposing of such assets either in a timely manner or for a reasonable price. In order to dispose of an unregistered security, the Fund, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered so that the Fund can sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and the acquirer of the securities. The Fund would, in either case, bear market risks during that period. Restricted securities are identified in the Portfolio of Investments.
8. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
9. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
10. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $500 million | Next $500 million | Over $1 billion | |||||||||
0.75 | % | 0.70 | % | 0.65 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.62% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.95% for Class I shares and 1.05% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $325,000 of advisory fees were waived pursuant to this arrangement.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street, State Street provides certain administrative services to the Company. For such services, the
Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares. The Distributor has agreed to waive 0.15% of the 0.25% distribution fee that it may receive. This fee waiver will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waiver when they deem such action is appropriate. For the year ended December 31, 2020, this waiver amounted to approximately $320,000.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $279,897,000 and $317,180,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds -Treasury Securities Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $13,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 8,601 | $ | 180,261 | $ | 164,250 | $ | 13 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 24,612 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund engaged in cross-trade purchases of approximately $290,000.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 6,331 | $ | 23,020 | $ | 604 | $ | 23,422 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 32,576 | $ | 115,730 |
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 63.1%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Discovery Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Discovery Portfolio (the "Fund") (one of the funds constituting the Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Discovery Portfolio (one of the funds constituting the Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020.
The Fund designated and paid approximately $23,020,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
28
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
29
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFMCGANN
3386924 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Debt Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 5 | ||||||
Statement of Assets and Liabilities | 11 | ||||||
Statement of Operations | 12 | ||||||
Statements of Changes in Net Assets | 13 | ||||||
Financial Highlights | 14 | ||||||
Notes to Financial Statements | 16 | ||||||
Report of Independent Registered Public Accounting Firm | 25 | ||||||
Liquidity Risk Management Program | 26 | ||||||
Director and Officer Information | 27 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Emerging Markets Debt Portfolio
As a shareholder of the Emerging Markets Debt Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Emerging Markets Debt Portfolio Class I | $ | 1,000.00 | $ | 1,095.40 | $ | 1,019.36 | $ | 6.06 | $ | 5.84 | 1.15 | % | |||||||||||||||
Emerging Markets Debt Portfolio Class II | 1,000.00 | 1,094.20 | 1,019.10 | 6.32 | 6.09 | 1.20 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Emerging Markets Debt Portfolio
The Fund seeks high total return by investing primarily in fixed income securities of government and government related issuers and, to a lesser extent, of corporate issuers in emerging market countries.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 5.55%, net of fees, and 5.53%, net of fees, for Class II shares. The Fund's Class I and Class II shares outperformed the Fund's benchmark, the J.P. Morgan Emerging Markets Bond Global Diversified Index (the "Index"), which returned 5.26%.
Factors Affecting Performance
• Extraordinary times were matched by extraordinary price action across markets in the first quarter of 2020, and movements in emerging market (EM) debt were no exception. Risk markets registered new historic lows in March 2020 and wiped out gains from January and February 2020. EM assets were struck by a combination of the global slowdown in response to COVID-19, and the drop in oil prices, due to both demand destruction and supply-side frictions between Saudi Arabia and Russia. Given the overall uncertainty, we expected price volatility to remain elevated as the negative news accompanying the pandemic worked its way around the world and influenced investment flows, and liquidity constraints, which were exacerbated by widely adopted work-from-home arrangements. As such, where possible, we took steps to pare risk in the more vulnerable countries (where fiscal dynamics limit a strong COVID-19 response), certain sectors (the more obvious being energy and commodity-related) and individual high yield issuers that struggled to pass our stress tests. Later in the period, risk appetite began to rebound in April 2020, with September 2020 being the first month since the spring during which risk aversion drove price action. While economic data improved in the second half of the year, it lost some of the momentum built up over the summer in September, as rising levels of infection stoked fears of greater restrictions and the consequent economic damage. However, EM rebounded in October given continued expectations of monetary and fiscal support for markets, optimism regarding a potential coronavirus vaccine, and better-than-expected third quarter 2020 corporate earnings. In November, the market reacted positively to the U.S. election result, pricing out odds of a contested election scenario and focusing on the perception that a Biden administration would lead to more
predictable and multilateral policymaking. Risk-on sentiment kept driving price action in December, supported by the ongoing policy support, vaccine approvals and the avoidance of a "no-deal" Brexit.
• In an environment of supportive monetary policy driven by central bank interest rate cuts, higher-rated and longer-duration bonds from countries in Asia, Africa and Europe led the way, while those from Latin America and the Middle East lagged. In particular, bonds from Uruguay, Tajikistan, the Dominican Republic and Guatemala outperformed the most, while bonds from Serbia, Venezuela, Lebanon and Ecuador lagged.
• For the year, allocation across and security selection within countries was beneficial to relative performance. This was especially true in Argentina, Egypt, Lebanon and Brazil. Underweight positions in Sri Lanka and Lebanon, along with overweight positions in the Dominican Republic and Brazil, also added to relative performance. Conversely, overweight positions and security selection in Ecuador and Ukraine detracted, as did the overweight positions in Venezuela.
Management Strategies
• Conditions for EM debt outperformance in the near term appear to be in place, despite the recent tightening of lockdown measures around the world in response to a rapid increase in infections and the emergence of more contagious strains of the COVID-19 virus. Our constructive view on risk assets is predicated on a global backdrop of steady, extended monetary accommodation, an ongoing rollout of multiple vaccines in the developed world (and parts of EM), and expectations of looser fiscal policy under the incoming Biden administration. Therefore, we believe high yield credit, EM currencies and local currency high-yielders may outperform investment grade counterparts, which have less valuation cushion and are vulnerable to a potential steepening of developed market yield curves. Moreover, the incoming U.S. administration, by signaling a more cooperative and multilateral foreign policy stance, may alleviate trade tensions and support global trade, thus further supporting EM assets. Finally, the weak U.S. dollar consensus view, if proven accurate, would further strengthen the case in favor of EM currencies.
• Notwithstanding our constructive outlook for the asset class, we highlight potential risks. First, a delayed deployment of vaccines in EM would demand a more protracted policy support by governments, exacerbating
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Emerging Markets Debt Portfolio
fiscal and debt sustainability concerns. Therefore, the potential for debt restructurings and defaults is non-negligible, though in our view, these would not pose a systemic risk for the asset class. More generally, a delayed transition to fiscal consolidation, whether it is caused by logistical hurdles in deploying vaccines in EM or by governments' reluctance to incur the political cost of fiscal austerity, may prompt the market to demand higher risk premiums in EM fixed income assets. Finally, potentially excessive optimism about reduced trade frictions under a Biden administration (particularly in U.S.-China relations) could challenge our positive scenarios for global trade and growth, and thus negatively impact the performance of growth-sensitive EM assets.
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the J.P. Morgan Emerging Markets Bond Global Diversified Index(1), and the Emerging Markets Debt Blended Index(2)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(3) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(6) | ||||||||||||||||
Fund – Class I(4) | 5.55 | % | 6.36 | % | 4.79 | % | 6.62 | % | |||||||||||
J.P. Morgan Emerging Markets Bond Global Diversified Index | 5.26 | 7.08 | 6.22 | 8.19 | |||||||||||||||
Emerging Markets Debt Blended Index | 5.26 | 6.71 | 5.91 | 7.91 | |||||||||||||||
Fund – Class II(5) | 5.53 | 6.30 | 4.72 | 7.33 | |||||||||||||||
J.P. Morgan Emerging Markets Bond Global Diversified Index | 5.26 | 7.08 | 6.22 | 8.19 | |||||||||||||||
Emerging Markets Debt Blended Index | 5.26 | 6.71 | 5.91 | 8.21 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The J.P. Morgan Emerging Markets Bond Global Diversified Index tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady Bonds, loans, Eurobonds and local market instruments for emerging market countries but limits the weights of countries with larger debt stocks by only including a specified portion of these countries' eligible current face amounts of debt outstanding. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) The Emerging Markets Debts Blended Index is a performance linked benchmark of old and new benchmark of the Fund. Old benchmark represented by J.P. Morgan Emerging Markets Bond Global Index (benchmark that tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities) from the Fund's inception to December 31, 2019, and the new benchmark represented by J.P. Morgan Emerging Markets Bond Global Diversified Index for periods thereafter. The Index is unmanaged and its 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) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(4) Commenced operations on June 16, 1997.
(5) Commenced offering on December 19, 2002.
(6) For comparative purposes, average annual since inception returns listed for the Index refers to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Emerging Markets Debt Portfolio
Face Amount (000) | Value (000) | ||||||||||
Fixed Income Securities (97.0%) | |||||||||||
Angola (1.1%) | |||||||||||
Sovereign (1.1%) | |||||||||||
Angolan Government International Bond, 8.00%, 11/26/29 (a)(b) | $ | 990 | $ | 933 | |||||||
9.38%, 5/8/48 (a) | 890 | 842 | |||||||||
1,775 | |||||||||||
Argentina (1.6%) | |||||||||||
Corporate Bonds (1.2%) | |||||||||||
Province of Santa Fe, 6.90%, 11/1/27 (a) | 1,210 | 835 | |||||||||
Provincia de Cordoba, 7.45%, 9/1/24 (a) | 440 | 275 | |||||||||
Provincia de Entre Rios Argentina, 8.75%, 2/8/25 (a)(c)(d) | 1,470 | 845 | |||||||||
1,955 | |||||||||||
Sovereign (0.4%) | |||||||||||
Argentine Republic Government International Bond, 0.13%, 7/9/30 - 7/9/35 (e) | 1,476 | 573 | |||||||||
1.00%, 7/9/29 | 148 | 65 | |||||||||
638 | |||||||||||
2,593 | |||||||||||
Armenia (0.5%) | |||||||||||
Sovereign (0.5%) | |||||||||||
Republic of Armenia International Bond, 3.95%, 9/26/29 | 460 | 466 | |||||||||
7.15%, 3/26/25 | 370 | 428 | |||||||||
894 | |||||||||||
Azerbaijan (0.9%) | |||||||||||
Sovereign (0.9%) | |||||||||||
Republic of Azerbaijan International Bond, 3.50%, 9/1/32 | 1,460 | 1,549 | |||||||||
Bahrain (1.1%) | |||||||||||
Sovereign (1.1%) | |||||||||||
Bahrain Government International Bond, 7.50%, 9/20/47 | 1,530 | 1,802 | |||||||||
Belarus (0.8%) | |||||||||||
Sovereign (0.8%) | |||||||||||
Republic of Belarus International Bond, 6.20%, 2/28/30 (a) | 720 | 731 | |||||||||
Republic of Belarus Ministry of Finance, 6.38%, 2/24/31 (a) | 550 | 561 | |||||||||
1,292 | |||||||||||
Brazil (5.5%) | |||||||||||
Corporate Bonds (2.8%) | |||||||||||
Braskem Netherlands Finance BV, 4.50%, 1/31/30 (a) | 1,030 | 1,059 | |||||||||
CSN Islands XI Corp., 6.75%, 1/28/28 (a) | 1,130 | 1,225 | |||||||||
Minerva Luxembourg SA, 5.88%, 1/19/28 (a)(b) | 710 | 767 |
Face Amount (000) | Value (000) | ||||||||||
Petrobras Global Finance BV, 5.09%, 1/15/30 | $ | 449 | $ | 502 | |||||||
6.75%, 6/3/50 | 320 | 398 | |||||||||
Rumo Luxembourg Sarl, 7.38%, 2/9/24 | 452 | 470 | |||||||||
Suzano Austria GmbH, 3.75%, 1/15/31 | 175 | 186 | |||||||||
4,607 | |||||||||||
Sovereign (2.7%) | |||||||||||
Brazilian Government International Bond, 3.88%, 6/12/30 (b) | 460 | 486 | |||||||||
4.50%, 5/30/29 | 420 | 468 | |||||||||
5.00%, 1/27/45 | 1,739 | 1,938 | |||||||||
6.00%, 4/7/26 | 1,250 | 1,504 | |||||||||
4,396 | |||||||||||
9,003 | |||||||||||
Chile (2.0%) | |||||||||||
Corporate Bond (0.7%) | |||||||||||
Colbun SA, 3.15%, 3/6/30 (a) | 990 | 1,069 | |||||||||
Sovereign (1.3%) | |||||||||||
Chile Government International Bond, 3.50%, 1/25/50 | 900 | 1,036 | |||||||||
3.86%, 6/21/47 | 230 | 281 | |||||||||
Empresa Nacional del Petroleo, 4.75%, 12/6/21 | 761 | 789 | |||||||||
2,106 | |||||||||||
3,175 | |||||||||||
China (4.3%) | |||||||||||
Corporate Bond (0.6%) | |||||||||||
Fufeng Group Ltd., 5.88%, 8/28/21 | 950 | 974 | |||||||||
Sovereign (3.7%) | |||||||||||
Sinopec Group Overseas Development 2012 Ltd., 4.88%, 5/17/42 | 390 | 505 | |||||||||
Sinopec Group Overseas Development 2013 Ltd., 4.38%, 10/17/23 | 650 | 709 | |||||||||
Sinopec Group Overseas Development 2018 Ltd., 2.95%, 11/12/29 (a) | 1,600 | 1,689 | |||||||||
Three Gorges Finance I Cayman Islands Ltd., 2.30%, 6/2/21 (a) | 1,340 | 1,346 | |||||||||
3.70%, 6/10/25 | 750 | 820 | |||||||||
3.70%, 6/10/25 (a) | 838 | 916 | |||||||||
5,985 | |||||||||||
6,959 | |||||||||||
Colombia (3.0%) | |||||||||||
Corporate Bonds (1.2%) | |||||||||||
Geopark Ltd., 6.50%, 9/21/24 (a)(b) | 890 | 926 |
The accompanying notes are an integral part of the financial statements.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Emerging Markets Debt Portfolio
Face Amount (000) | Value (000) | ||||||||||
Corporate Bonds (cont'd) | |||||||||||
Millicom International Cellular SA, 6.63%, 10/15/26 (a) | $ | 390 | $ | 418 | |||||||
Termocandelaria Power Ltd., 7.88%, 1/30/29 (a) | 610 | 672 | |||||||||
2,016 | |||||||||||
Sovereign (1.8%) | |||||||||||
Colombia Government International Bond, 3.00%, 1/30/30 | 556 | 584 | |||||||||
5.00%, 6/15/45 | 1,960 | 2,398 | |||||||||
2,982 | |||||||||||
4,998 | |||||||||||
Costa Rica (0.9%) | |||||||||||
Sovereign (0.9%) | |||||||||||
Costa Rica Government International Bond, 6.13%, 2/19/31 (a) | 840 | 787 | |||||||||
7.16%, 3/12/45 | 710 | 661 | |||||||||
1,448 | |||||||||||
Croatia (0.3%) | |||||||||||
Sovereign (0.3%) | |||||||||||
Croatia Government International Bond, 6.00%, 1/26/24 | 400 | 461 | |||||||||
Dominican Republic (3.6%) | |||||||||||
Sovereign (3.6%) | |||||||||||
Dominican Republic International Bond, 4.88%, 9/23/32 (a) | 230 | 255 | |||||||||
5.88%, 1/30/60 (a) | 960 | 1,061 | |||||||||
6.00%, 7/19/28 (a) | 570 | 683 | |||||||||
6.85%, 1/27/45 (a) | 740 | 906 | |||||||||
6.88%, 1/29/26 (a) | 970 | 1,172 | |||||||||
7.45%, 4/30/44 (a) | 739 | 957 | |||||||||
9.75%, 6/5/26 (a) | DOP | 44,050 | 816 | ||||||||
5,850 | |||||||||||
Ecuador (1.7%) | |||||||||||
Sovereign (1.7%) | |||||||||||
Ecuador Government International Bond, 0.00%, 7/31/30 (a) | $ | 273 | 131 | ||||||||
0.50%, 7/31/30 - 7/31/40 (a)(e) | 4,520 | 2,522 | |||||||||
0.50%, 7/31/35 - 7/31/40 (e) | 371 | 194 | |||||||||
2,847 | |||||||||||
Egypt (4.2%) | |||||||||||
Sovereign (4.2%) | |||||||||||
Arab Republic of Egypt, 5.25%, 10/6/25 (a) | 550 | 586 | |||||||||
Egypt Government International Bond, 4.75%, 4/16/26 | EUR | 510 | 649 | ||||||||
6.38%, 4/11/31 (a) | 1,050 | 1,383 | |||||||||
6.59%, 2/21/28 | $ | 1,000 | 1,102 | ||||||||
7.50%, 1/31/27 (a)(b) | 890 | 1,032 | |||||||||
8.15%, 11/20/59 (a) | 1,540 | 1,699 | |||||||||
8.88%, 5/29/50 (a) | 340 | 400 | |||||||||
6,851 |
Face Amount (000) | Value (000) | ||||||||||
El Salvador (1.3%) | |||||||||||
Sovereign (1.3%) | |||||||||||
El Salvador Government International Bond, 6.38%, 1/18/27 | $ | 1,141 | $ | 1,083 | |||||||
7.12%, 1/20/50 (a) | 360 | 323 | |||||||||
8.63%, 2/28/29 (a) | 760 | 763 | |||||||||
2,169 | |||||||||||
Gabon (0.6%) | |||||||||||
Sovereign (0.6%) | |||||||||||
Gabon Government International Bond, 6.63%, 2/6/31 (a) | 320 | 331 | |||||||||
6.95%, 6/16/25 (a) | 610 | 655 | |||||||||
986 | |||||||||||
Ghana (1.4%) | |||||||||||
Sovereign (1.4%) | |||||||||||
Ghana Government International Bond, 8.63%, 6/16/49 (a) | 1,060 | 1,089 | |||||||||
8.95%, 3/26/51 (a) | 1,070 | 1,119 | |||||||||
2,208 | |||||||||||
Guatemala (1.3%) | |||||||||||
Sovereign (1.3%) | |||||||||||
Guatemala Government Bond, 4.88%, 2/13/28 | 1,410 | 1,627 | |||||||||
6.13%, 6/1/50 (a) | 320 | 424 | |||||||||
2,051 | |||||||||||
Honduras (0.1%) | |||||||||||
Sovereign (0.1%) | |||||||||||
Honduras Government International Bond, 5.63%, 6/24/30 (a) | 180 | 207 | |||||||||
Hungary (1.3%) | |||||||||||
Sovereign (1.3%) | |||||||||||
Hungary Government International Bond, 5.38%, 3/25/24 | 1,250 | 1,428 | |||||||||
7.63%, 3/29/41 | 350 | 622 | |||||||||
2,050 | |||||||||||
India (0.5%) | |||||||||||
Sovereign (0.5%) | |||||||||||
Export-Import Bank of India, 3.38%, 8/5/26 (a)(b) | 790 | 856 | |||||||||
Indonesia (5.6%) | |||||||||||
Sovereign (5.6%) | |||||||||||
Indonesia Government International Bond, 3.85%, 7/18/27 | 400 | 458 | |||||||||
4.13%, 1/15/25 | 1,764 | 1,977 | |||||||||
4.45%, 4/15/70 (b) | 860 | 1,058 | |||||||||
4.75%, 1/8/26 (a) | 830 | 972 | |||||||||
4.75%, 1/8/26 | 990 | 1,160 | |||||||||
5.35%, 2/11/49 | 200 | 276 | |||||||||
5.88%, 1/15/24 | 1,250 | 1,438 | |||||||||
Pertamina Persero PT, 6.45%, 5/30/44 (a) | 680 | 928 | |||||||||
6.50%, 11/7/48 (a) | 660 | 931 | |||||||||
9,198 |
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Emerging Markets Debt Portfolio
Face Amount (000) | Value (000) | ||||||||||
Iraq (0.2%) | |||||||||||
Sovereign (0.2%) | |||||||||||
Iraq International Bond, 6.75%, 3/9/23 (a) | $ | 290 | $ | 284 | |||||||
Jamaica (1.4%) | |||||||||||
Sovereign (1.4%) | |||||||||||
Jamaica Government International Bond, 7.88%, 7/28/45 | 720 | 1,035 | |||||||||
8.00%, 3/15/39 | 860 | 1,260 | |||||||||
2,295 | |||||||||||
Jordan (0.6%) | |||||||||||
Sovereign (0.6%) | |||||||||||
Jordan Government International Bond, 7.38%, 10/10/47 (a) | 840 | 982 | |||||||||
Kazakhstan (2.1%) | |||||||||||
Sovereign (2.1%) | |||||||||||
Kazakhstan Government International Bond, 5.13%, 7/21/25 (a) | 200 | 237 | |||||||||
5.13%, 7/21/25 | 1,000 | 1,185 | |||||||||
6.50%, 7/21/45 | 320 | 517 | |||||||||
KazMunayGas National Co., JSC, 6.38%, 10/24/48 (a) | 980 | 1,412 | |||||||||
3,351 | |||||||||||
Kenya (0.8%) | |||||||||||
Sovereign (0.8%) | |||||||||||
Kenya Government International Bond, 8.00%, 5/22/32 (a) | 1,110 | 1,296 | |||||||||
Lebanon (0.3%) | |||||||||||
Sovereign (0.3%) | |||||||||||
Lebanon Government International Bond, 6.85%, 3/23/27 - 5/25/29 (c)(d) | 2,940 | 416 | |||||||||
Malaysia (0.5%) | |||||||||||
Sovereign (0.5%) | |||||||||||
Petronas Capital Ltd., 3.50%, 3/18/25 | 720 | 799 | |||||||||
Mexico (6.9%) | |||||||||||
Corporate Bond (0.9%) | |||||||||||
Orbia Advance Corp SAB de CV, 5.50%, 1/15/48 (a) | 1,240 | 1,507 | |||||||||
Sovereign (6.0%) | |||||||||||
Banco Nacional de Comercio Exterior SNC, 3.80%, 8/11/26 (a) | 243 | 244 | |||||||||
Mexican Bonos Series M, 7.50%, 6/3/27 | MXN | 14,450 | 827 | ||||||||
Mexico Government International Bond, 3.75%, 1/11/28 | $ | 555 | 625 | ||||||||
3.77%, 5/24/61 | 200 | 209 | |||||||||
4.15%, 3/28/27 | 1,244 | 1,438 | |||||||||
4.50%, 4/22/29 | 410 | 482 |
Face Amount (000) | Value (000) | ||||||||||
Petroleos Mexicanos, 6.84%, 1/23/30 | $ | 1,501 | $ | 1,574 | |||||||
6.88%, 10/16/25 (a) | 575 | 631 | |||||||||
6.95%, 1/28/60 | 470 | 443 | |||||||||
7.69%, 1/23/50 | 3,238 | 3,270 | |||||||||
9,743 | |||||||||||
11,250 | |||||||||||
Mongolia (0.6%) | |||||||||||
Sovereign (0.6%) | |||||||||||
Mongolia Government International Bond, 5.13%, 4/7/26 (a)(b) | 240 | 258 | |||||||||
5.63%, 5/1/23 | 740 | 783 | |||||||||
1,041 | |||||||||||
Morocco (0.4%) | |||||||||||
Sovereign (0.4%) | |||||||||||
Morocco Government International Bond, 4.00%, 12/15/50 (a) | 610 | 631 | |||||||||
Nigeria (3.0%) | |||||||||||
Corporate Bond (0.6%) | |||||||||||
IHS Netherlands Holdco BV, 8.00%, 9/18/27 (a) | 950 | 1,028 | |||||||||
Sovereign (2.4%) | |||||||||||
Nigeria Government International Bond, 6.38%, 7/12/23 | 270 | 293 | |||||||||
6.50%, 11/28/27 (a) | 920 | 993 | |||||||||
7.14%, 2/23/30 (a) | 860 | 930 | |||||||||
9.25%, 1/21/49 (a) | 1,400 | 1,650 | |||||||||
3,866 | |||||||||||
4,894 | |||||||||||
Oman (1.4%) | |||||||||||
Sovereign (1.4%) | |||||||||||
Oman Government International Bond, 6.00%, 8/1/29 (a) | 2,200 | 2,276 | |||||||||
Panama (3.1%) | |||||||||||
Corporate Bond (0.2%) | |||||||||||
AES Panama Generation Holdings SRL, 4.38%, 5/31/30 (a) | 375 | 406 | |||||||||
Sovereign (2.9%) | |||||||||||
Aeropuerto Internacional de Tocumen SA, 5.63%, 5/18/36 (a) | 1,245 | 1,452 | |||||||||
Panama Government International Bond, 3.87%, 7/23/60 | 470 | 556 | |||||||||
4.00%, 9/22/24 | 914 | 1,013 | |||||||||
4.50%, 4/1/56 | 450 | 582 | |||||||||
8.88%, 9/30/27 | 763 | 1,103 | |||||||||
4,706 | |||||||||||
5,112 |
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Emerging Markets Debt Portfolio
Face Amount (000) | Value (000) | ||||||||||
Paraguay (0.9%) | |||||||||||
Sovereign (0.9%) | |||||||||||
Paraguay Government International Bond, 4.95%, 4/28/31 (a) | $ | 600 | $ | 728 | |||||||
5.40%, 3/30/50 (a) | 610 | 774 | |||||||||
1,502 | |||||||||||
Peru (2.8%) | |||||||||||
Sovereign (2.8%) | |||||||||||
Corporación Financiera de Desarrollo SA, 2.40%, 9/28/27 (a) | 280 | 284 | |||||||||
5.25%, 7/15/29 (a) | 998 | 1,088 | |||||||||
Peruvian Government International Bond, 5.63%, 11/18/50 | 890 | 1,403 | |||||||||
6.55%, 3/14/37 | 1,150 | 1,750 | |||||||||
4,525 | |||||||||||
Philippines (2.1%) | |||||||||||
Sovereign (2.1%) | |||||||||||
Philippine Government International Bond, 3.95%, 1/20/40 | 386 | 460 | |||||||||
9.50%, 2/2/30 | 1,749 | 2,887 | |||||||||
3,347 | |||||||||||
Poland (0.6%) | |||||||||||
Sovereign (0.6%) | |||||||||||
Republic of Poland Government International Bond, 3.00%, 3/17/23 | 940 | 995 | |||||||||
Qatar (3.3%) | |||||||||||
Sovereign (3.3%) | |||||||||||
Qatar Government International Bond, 3.75%, 4/16/30 (a) | 760 | 896 | |||||||||
4.00%, 3/14/29 | 420 | 499 | |||||||||
4.82%, 3/14/49 (a) | 2,870 | 3,924 | |||||||||
5,319 | |||||||||||
Romania (1.5%) | |||||||||||
Sovereign (1.5%) | |||||||||||
Romanian Government International Bond, 3.00%, 2/14/31 | 380 | 409 | |||||||||
4.00%, 2/14/51 | 830 | 905 | |||||||||
4.38%, 8/22/23 | 600 | 655 | |||||||||
4.88%, 1/22/24 | 500 | 559 | |||||||||
2,528 | |||||||||||
Russia (4.0%) | |||||||||||
Sovereign (4.0%) | |||||||||||
Russian Foreign Bond — Eurobond, 4.50%, 4/4/22 | 2,200 | 2,300 | |||||||||
5.63%, 4/4/42 | 3,000 | 4,180 | |||||||||
6,480 | |||||||||||
Saudi Arabia (2.2%) | |||||||||||
Corporate Bond (0.5%) | |||||||||||
Saudi Arabian Oil Co., 3.50%, 11/24/70 (a) | 860 | 873 |
Face Amount (000) | Value (000) | ||||||||||
Sovereign (1.7%) | |||||||||||
Saudi Government International Bond, 4.38%, 4/16/29 | $ | 1,100 | $ | 1,309 | |||||||
5.25%, 1/16/50 (a) | 1,080 | 1,475 | |||||||||
2,784 | |||||||||||
3,657 | |||||||||||
Senegal (0.6%) | |||||||||||
Sovereign (0.6%) | |||||||||||
Senegal Government International Bond, 6.25%, 5/23/33 (a) | 920 | 1,035 | |||||||||
Serbia (0.2%) | |||||||||||
Sovereign (0.2%) | |||||||||||
Serbia International Bond, 2.13%, 12/1/30 (a) | 310 | 307 | |||||||||
South Africa (1.3%) | |||||||||||
Sovereign (1.3%) | |||||||||||
Eskom Holdings SOC Ltd., 7.13%, 2/11/25 | 760 | 780 | |||||||||
8.45%, 8/10/28 (a) | 1,220 | 1,351 | |||||||||
2,131 | |||||||||||
Sri Lanka (0.7%) | |||||||||||
Sovereign (0.7%) | |||||||||||
Sri Lanka Government International Bond, 6.20%, 5/11/27 | 1,800 | 1,034 | |||||||||
7.55%, 3/28/30 | 300 | 173 | |||||||||
1,207 | |||||||||||
Turkey (3.5%) | |||||||||||
Sovereign (3.5%) | |||||||||||
Turkey Government International Bond, 4.88%, 4/16/43 | 630 | 553 | |||||||||
5.25%, 3/13/30 | 1,670 | 1,679 | |||||||||
5.63%, 3/30/21 | 1,204 | 1,216 | |||||||||
6.38%, 10/14/25 (b) | 830 | 899 | |||||||||
6.88%, 3/17/36 | 700 | 765 | |||||||||
7.25%, 12/23/23 | 480 | 526 | |||||||||
5,638 | |||||||||||
Ukraine (2.5%) | |||||||||||
Sovereign (2.5%) | |||||||||||
Ukraine Government International Bond, 7.75%, 9/1/23 - 9/1/26 | 3,730 | 4,155 | |||||||||
United Arab Emirates (3.5%) | |||||||||||
Corporate Bonds (0.7%) | |||||||||||
Galaxy Pipeline Assets Bidco Ltd., 3.25%, 9/30/40 (a) | 965 | 1,021 |
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Emerging Markets Debt Portfolio
Face Amount (000) | Value (000) | ||||||||||
Sovereign (2.8%) | |||||||||||
Abu Dhabi Government International Bond, 2.50%, 9/30/29 (a) | $ | 1,750 | $ | 1,892 | |||||||
2.70%, 9/2/70 (a) | 820 | 767 | |||||||||
3.13%, 5/3/26 | 938 | 1,043 | |||||||||
DP World Crescent Ltd., 4.85%, 9/26/28 | 740 | 862 | |||||||||
4,564 | |||||||||||
5,585 | |||||||||||
Uruguay (1.7%) | |||||||||||
Sovereign (1.7%) | |||||||||||
Uruguay Government International Bond, 4.38%, 10/27/27 | 1,100 | 1,305 | |||||||||
5.10%, 6/18/50 | 1,020 | 1,431 | |||||||||
2,736 | |||||||||||
Uzbekistan (0.3%) | |||||||||||
Sovereign (0.3%) | |||||||||||
Republic of Uzbekistan Bond, 3.70%, 11/25/30 (a) | 410 | 433 | |||||||||
Venezuela (0.4%) | |||||||||||
Sovereign (0.4%) | |||||||||||
Petroleos de Venezuela SA, 6.00%, 11/15/26 (c)(d) | 15,740 | 630 | |||||||||
Total Fixed Income Securities (Cost $156,134) | 158,059 | ||||||||||
No. of Warrants | |||||||||||
Warrant (0.0%) (f) | |||||||||||
Venezuela (0.0%) (f) | |||||||||||
Venezuela Government International Bond, Oil-Linked Payment Obligation, expires 4/15/20 (g) (Cost $—) | 3,750 | 8 | |||||||||
Shares | |||||||||||
Short-Term Investments (4.8%) | |||||||||||
Securities held as Collateral on Loaned Securities (2.4%) | |||||||||||
Investment Company (2.1%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) | 3,399,262 | 3,399 | |||||||||
Face Amount (000) | |||||||||||
Repurchase Agreements (0.3%) | |||||||||||
Barclays Capital, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $104; fully collateralized by a U.S. Government obligation; 1.63% due 11/15/22; valued at $106) | $ | 104 | 104 | ||||||||
HSBC Securities USA, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $404; fully collateralized by a U.S. Government obligation; 0.15% due 10/31/22; valued at $412) | 404 | 404 |
Face Amount (000) | Value (000) | ||||||||||
Merrill Lynch & Co., Inc., (0.06%, dated 12/31/20, due 1/4/21; proceeds $42; fully collateralized by a U.S. Government obligation; 2.50% due 5/15/46; valued at $42) | $ | 42 | $ | 42 | |||||||
550 | |||||||||||
Total Securities held as Collateral on Loaned Securities (Cost $3,949) | 3,949 | ||||||||||
Shares | |||||||||||
Investment Company (1.3%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) (Cost $2,175) | 2,174,517 | 2,175 | |||||||||
Face Amount (000) | |||||||||||
Sovereign (1.1%) | |||||||||||
Egypt (1.1%) | |||||||||||
Egypt Treasury Bills, 13.60%, 3/2/21 | EGP | 2,625 | 165 | ||||||||
13.65%, 3/2/21 | 4,325 | 271 | |||||||||
13.66%, 3/2/21 | 6,500 | 407 | |||||||||
13.68%, 3/2/21 | 9,325 | 585 | |||||||||
13.69%, 3/2/21 | 4,325 | 271 | |||||||||
13.70%, 3/2/21 | 650 | 41 | |||||||||
Total Sovereign (Cost $1,713) | 1,740 | ||||||||||
Total Short-Term Investments (Cost $7,837) | 7,864 | ||||||||||
Total Investments (101.8%) (Cost $163,971) Including $3,873 of Securities Loaned (h)(i) | 165,931 | ||||||||||
Liabilities in Excess of Other Assets (-1.8%) | (2,857 | ) | |||||||||
Net Assets (100.0%) | $ | 163,074 |
Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.
(a) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(b) All or a portion of this security was on loan at December 31, 2020.
(c) Non-income producing security; bond in default.
(d) Issuer in bankruptcy.
(e) Multi-step — Coupon rate changes in predetermined increments to maturity. Rate disclosed is as of December 31, 2020. Maturity date disclosed is the ultimate maturity date.
(f) Amount is less than 0.05%.
(g) Perpetual maturity date. Date disclosed is the last expiration date.
(h) Securities are available for collateral in connection with an open foreign currency forward exchange contract.
(i) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $164,715,000. The aggregate gross unrealized appreciation is approximately $15,450,000 and the aggregate gross unrealized depreciation is approximately $14,234,000, resulting in net unrealized appreciation of approximately $1,216,000.
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Emerging Markets Debt Portfolio
Foreign Currency Forward Exchange Contract:
The Fund had the following foreign currency forward exchange contract open at December 31, 2020:
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Delivery Date | Unrealized Depreciation (000) | |||||||||||||||
BNP Paribas SA | EUR | 1,650 | $ | 2,007 | 3/5/21 | $ | (11 | ) |
DOP — Dominican Peso
EGP — Egyptian Pound
EUR — Euro
MXN — Mexican Peso
Portfolio Composition*
Classification | Percentage of Total Investments | ||||||
Sovereign | 88.1 | % | |||||
Corporate Bonds | 9.5 | ||||||
Other** | 2.4 | ||||||
Total Investments | 100.0 | %*** |
* Percentages indicated are based upon total investments (excluding Securities held as Collateral on Loaned Securities) as of December 31, 2020.
** Industries and/or investment types representing less than 5% of total investments.
*** Does not include an open foreign currency forward exchange contract with unrealized depreciation of approximately $11,000.
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Debt Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $158,397) | $ | 160,357 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $5,574) | 5,574 | ||||||
Total Investments in Securities, at Value (Cost $163,971) | 165,931 | ||||||
Foreign Currency, at Value (Cost $33) | 22 | ||||||
Interest Receivable | 2,289 | ||||||
Receivable for Fund Shares Sold | 27 | ||||||
Receivable from Securities Lending Income | 1 | ||||||
Receivable from Affiliate | — | @ | |||||
Other Assets | 18 | ||||||
Total Assets | 168,288 | ||||||
Liabilities: | |||||||
Collateral on Securities Loaned, at Value | 3,949 | ||||||
Deferred Capital Gain Country Tax | 699 | ||||||
Payable for Advisory Fees | 303 | ||||||
Payable for Fund Shares Redeemed | 123 | ||||||
Payable for Servicing Fees | 64 | ||||||
Payable for Professional Fees | 20 | ||||||
Unrealized Depreciation on Foreign Currency Forward Exchange Contract | 11 | ||||||
Payable for Administration Fees | 11 | ||||||
Payable for Custodian Fees | 6 | ||||||
Payable for Transfer Agency Fees | 2 | ||||||
Payable for Distribution Fees — Class II Shares | 1 | ||||||
Other Liabilities | 25 | ||||||
Total Liabilities | 5,214 | ||||||
NET ASSETS | $ | 163,074 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 178,011 | |||||
Total Accumulated Loss | (14,937 | ) | |||||
Net Assets | $ | 163,074 | |||||
CLASS I: | |||||||
Net Assets | $ | 145,312 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 18,779,581 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 7.74 | |||||
CLASS II: | |||||||
Net Assets | $ | 17,762 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 2,315,047 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 7.67 | |||||
(1) Including: | |||||||
Securities on Loan, at Value: | $ | 3,873 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Debt Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Interest from Securities of Unaffiliated Issuers (Net of $20 of Foreign Taxes Withheld) | $ | 9,070 | |||||
Dividends from Security of Affiliated Issuer (Note H) | 26 | ||||||
Dividends from Securities of Unaffiliated Issuers | 11 | ||||||
Income from Securities Loaned — Net | 9 | ||||||
Total Investment Income | 9,116 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 1,244 | ||||||
Servicing Fees (Note D) | 279 | ||||||
Professional Fees | 144 | ||||||
Administration Fees (Note C) | 133 | ||||||
Distribution Fees — Class II Shares (Note E) | 46 | ||||||
Shareholder Reporting Fees | 31 | ||||||
Custodian Fees (Note G) | 19 | ||||||
Pricing Fees | 16 | ||||||
Transfer Agency Fees (Note F) | 10 | ||||||
Directors' Fees and Expenses | 7 | ||||||
Other Expenses | 23 | ||||||
Total Expenses | 1,952 | ||||||
Waiver of Distribution Fees — Class II Shares (Note E) | (37 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (6 | ) | |||||
Net Expenses | 1,909 | ||||||
Net Investment Income | 7,207 | ||||||
Realized Gain (Loss): | |||||||
Investments Sold (Net of $65 of Capital Gain Country Tax) | 2,135 | ||||||
Foreign Currency Forward Exchange Contracts | (223 | ) | |||||
Foreign Currency Translation | (31 | ) | |||||
Net Realized Gain | 1,881 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments (Net of Increase in Deferred Capital Gain Country Tax of $224) | (3,729 | ) | |||||
Foreign Currency Forward Exchange Contracts | 10 | ||||||
Foreign Currency Translation | (6 | ) | |||||
Net Change in Unrealized Appreciation (Depreciation) | (3,725 | ) | |||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | (1,844 | ) | |||||
Net Increase in Net Assets Resulting from Operations | $ | 5,363 |
The accompanying notes are an integral part of the financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Debt Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 7,207 | $ | 9,689 | |||||||
Net Realized Gain (Loss) | 1,881 | (5,209 | ) | ||||||||
Net Change in Unrealized Appreciation (Depreciation) | (3,725 | ) | 21,132 | ||||||||
Net Increase in Net Assets Resulting from Operations | 5,363 | 25,612 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (6,350 | ) | (9,202 | ) | |||||||
Class II | (839 | ) | (1,118 | ) | |||||||
Total Dividends and Distributions to Shareholders | (7,189 | ) | (10,320 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 10,537 | 16,559 | |||||||||
Distributions Reinvested | 6,350 | 9,202 | |||||||||
Redeemed | (40,250 | ) | (34,616 | ) | |||||||
Class II: | |||||||||||
Subscribed | 1,915 | 2,508 | |||||||||
Distributions Reinvested | 839 | 1,118 | |||||||||
Redeemed | (6,036 | ) | (3,602 | ) | |||||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (26,645 | ) | (8,831 | ) | |||||||
Total Increase (Decrease) in Net Assets | (28,471 | ) | 6,461 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 191,545 | 185,084 | |||||||||
End of Period | $ | 163,074 | $ | 191,545 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 1,449 | 2,195 | |||||||||
Shares Issued on Distributions Reinvested | 886 | 1,219 | |||||||||
Shares Redeemed | (5,739 | ) | (4,595 | ) | |||||||
Net Decrease in Class I Shares Outstanding | (3,404 | ) | (1,181 | ) | |||||||
Class II: | |||||||||||
Shares Subscribed | 259 | 336 | |||||||||
Shares Issued on Distributions Reinvested | 118 | 149 | |||||||||
Shares Redeemed | (840 | ) | (480 | ) | |||||||
Net Increase (Decrease) in Class II Shares Outstanding | (463 | ) | 5 |
The accompanying notes are an integral part of the financial statements.
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Emerging Markets Debt Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.68 | $ | 7.09 | $ | 8.08 | $ | 7.79 | $ | 7.45 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.32 | 0.38 | 0.36 | 0.42 | 0.45 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 0.08 | 0.62 | (0.92 | ) | 0.32 | 0.34 | |||||||||||||||||
Total from Investment Operations | 0.40 | 1.00 | (0.56 | ) | 0.74 | 0.79 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.34 | ) | (0.41 | ) | (0.43 | ) | (0.45 | ) | (0.45 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 7.74 | $ | 7.68 | $ | 7.09 | $ | 8.08 | $ | 7.79 | |||||||||||||
Total Return(3) | 5.55 | % | 14.25 | % | (6.94 | )% | 9.71 | % | 10.55 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 145,312 | $ | 170,382 | $ | 165,582 | $ | 219,994 | $ | 200,455 | |||||||||||||
Ratio of Expenses Before Expense Limitation | N/A | N/A | N/A | N/A | 1.08 | % | |||||||||||||||||
Ratio of Expenses After Expense Limitation | 1.15 | %(4) | 1.11 | %(4) | 1.11 | %(4) | 1.10 | %(4) | 1.05 | %(4) | |||||||||||||
Ratio of Expenses After Expense Limitation Excluding Interest Expenses | N/A | N/A | 1.11 | %(4) | N/A | N/A | |||||||||||||||||
Ratio of Net Investment Income | 4.34 | %(4) | 5.04 | %(4) | 4.83 | %(4) | 5.22 | %(4) | 5.72 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(5) | 0.01 | % | 0.00 | %(5) | 0.01 | % | 0.00 | %(5) | |||||||||||||
Portfolio Turnover Rate | 40 | % | 40 | % | 32 | % | 46 | % | 53 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation would have been 0.03% higher and the Ratio of Net Investment Income would have been 0.03% lower had the custodian not reimbursed the Fund.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Emerging Markets Debt Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.61 | $ | 7.03 | $ | 8.02 | $ | 7.74 | $ | 7.40 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.31 | 0.37 | 0.36 | 0.41 | 0.44 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 0.08 | 0.62 | (0.92 | ) | 0.32 | 0.34 | |||||||||||||||||
Total from Investment Operations | 0.39 | 0.99 | (0.56 | ) | 0.73 | 0.78 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.33 | ) | (0.41 | ) | (0.43 | ) | (0.45 | ) | (0.44 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 7.67 | $ | 7.61 | $ | 7.03 | $ | 8.02 | $ | 7.74 | |||||||||||||
Total Return(3) | 5.53 | % | 14.17 | % | (7.04 | )% | 9.58 | % | 10.58 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 17,762 | $ | 21,163 | $ | 19,502 | $ | 22,144 | $ | 19,661 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.40 | % | 1.37 | % | 1.36 | % | 1.36 | % | 1.33 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.20 | %(4) | 1.16 | %(4) | 1.16 | %(4) | 1.15 | %(4) | 1.10 | %(4) | |||||||||||||
Ratio of Expenses After Expense Limitation Excluding Interest Expenses | N/A | N/A | 1.16 | %(4) | N/A | N/A | |||||||||||||||||
Ratio of Net Investment Income | 4.29 | %(4) | 4.99 | %(4) | 4.78 | %(4) | 5.17 | %(4) | 5.67 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(5) | 0.01 | % | 0.00 | %(5) | 0.01 | % | 0.00 | %(5) | |||||||||||||
Portfolio Turnover Rate | 40 | % | 40 | % | 32 | % | 46 | % | 53 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation would have been 0.03% higher and the Ratio of Net Investment Income would have been 0.03% lower had the custodian not reimbursed the Fund.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Emerging Markets Debt Portfolio. The Fund seeks high total return by investing primarily in fixed income securities of government and government-related issuers and, to a lesser extent, of corporate issuers in emerging market countries. The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) Certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan
Stanley Investment Management Limited ("MSIM Limited") (the "Sub-Adviser"), each a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (2) when market quotations are not readily available, including circumstances under which the Adviser or the Sub-Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (3) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (4) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Corporate Bonds | $ | — | $ | 15,456 | $ | — | $ | 15,456 | |||||||||||
Sovereign | — | 142,603 | — | 142,603 | |||||||||||||||
Total Fixed Income Securities | — | 158,059 | — | 158,059 | |||||||||||||||
Warrant | — | 8 | — | 8 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 5,574 | — | — | 5,574 | |||||||||||||||
Repurchase Agreements | — | 550 | — | 550 | |||||||||||||||
Sovereign | — | 1,740 | — | 1,740 | |||||||||||||||
Total Short-Term Investments | 5,574 | 2,290 | — | 7,864 | |||||||||||||||
Total Assets | 5,574 | 160,357 | — | 165,931 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Foreign Currency Forward Exchange Contract | — | (11 | ) | — | (11 | ) | |||||||||||||
Total | $ | 5,574 | $ | 160,346 | $ | — | $ | 165,920 |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
3. Repurchase Agreements: The Fund may enter into repurchase agreements under which the Fund lends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
to the agreement, realization of the collateral proceeds may be subject to cost and delays. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements.
4. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a
result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
5. Structured Investments: The Fund invested a portion of its assets in structured investments. A structured investment is a derivative security designed to offer a return linked to a particular underlying security, currency, commodity or market. Structured investments may come in various forms including notes (such as exchange-traded notes), warrants and options to purchase securities. The Fund will typically use structured investments to gain exposure to a permitted underlying security, currency, commodity or market when direct access to a market is limited or inefficient from a tax or cost standpoint. There can be no assurance that structured investments will trade at the same price or have the same value as the underlying security, currency, commodity or market. Investments in structured investments involve risks including issuer risk, counterparty risk and market risk. Holders of structured investments bear risks of the underlying investment and are subject to issuer or counterparty risk because the Fund is relying on the creditworthiness of such issuer or counterparty and has no rights with respect to the underlying investment. Certain structured investments may be thinly traded or have a limited trading market and may have the effect of increasing the Fund's illiquidity to the extent that the Fund, at a particular time, may be unable to find qualified buyers for these securities.
6. Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.
Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.
Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:
Foreign Currency Forward Exchange Contracts: In connection with its investments in foreign securities, the Fund also entered into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the
contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions may reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which the Fund's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract. A currency contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.
FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The following table sets forth the fair value of the Fund's derivative contracts by primary risk exposure as of December 31, 2020:
Liability Derivatives Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Foreign Currency Forward Exchange Contract | Unrealized Depreciation on Foreign Currency Forward Exchange Contract | Currency Risk | $ | (11 | ) |
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
appreciation (depreciation) by type of derivative contract for the year ended December 31, 2020 in accordance with ASC 815:
Realized Gain (Loss) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | (223 | ) | |||||||
Change in Unrealized Appreciation (Depreciation) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | 10 |
At December 31, 2020, the Fund's derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities | |||||||||||
Derivatives | Assets(a) (000) | Liabilities(a) (000) | |||||||||
Foreign Currency Forward Exchange Contract | $ | — | $ | (11 | ) |
(a) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a
counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Fund exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of the Fund's net liability may be delayed or denied.
The following table presents derivative financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Liability Derivatives Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Pledged (000) | Net Amount (not less than $0) (000) | |||||||||||||||
BNP Paribas SA | $ | 11 | $ | — | $ | — | $ | 11 |
For the year ended December 31, 2020, the approximate average monthly amount outstanding for each derivative type is as follows:
Foreign Currency Forward Exchange Contracts: | |||||||
Average monthly principal amount | $ | 2,967,000 |
7. Securities Lending: The Fund lends securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund would receive cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned — Net" in the Fund's Statement of Operations. Risks in securities lending transactions are that a
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund has the right under the securities lending agreement to recover the securities from the borrower on demand.
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||
Gross Asset Amounts Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | ||||||||||||
$ | 3,873 | (b) | $ | — | $ | (3,873 | )(c)(d) | $ | 0 |
(b) Represents market value of loaned securities at year end.
(c) The Fund received cash collateral of approximately $3,949,000, which was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments.
(d) The actual collateral received is greater than the amount shown here due to overcollateralization.
FASB ASC 860, "Transfers & Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures", is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged and the remaining contractual maturity of those transactions as of December 31, 2020:
Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||
Overnight and Continuous (000) | <30 days (000) | Between 30 & 90 days (000) | >90 days (000) | Total (000) | |||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||
Corporate Bonds | $ | 112 | $ | — | $ | — | $ | — | $ | 112 | |||||||||||||
Sovereign | 3,837 | — | — | — | 3,837 | ||||||||||||||||||
Total Borrowings | $ | 3,949 | $ | — | $ | — | $ | — | $ | 3,949 | |||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 3,949 |
8. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
9. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
10. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory/Sub-Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $500 million | Next $500 million | Over $1 billion | |||||||||
0.75 | % | 0.70 | % | 0.65 | % |
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
For the year ended December 31, 2020, the advisory fee rate (net of rebate) was equivalent to an annual effective rate of 0.75% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 1.30% for Class I shares and 1.35% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. This arrangement had no effect for the year ended December 31, 2020.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser, a wholly-owned subsidiary of Morgan Stanley. The Sub-Adviser provides the Fund with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Directors. The Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser receives from the Fund.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street, State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares. The Distributor has agreed to waive 0.20% of the 0.25% distribution fee
that it may receive. This fee waiver will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waiver when they deem such action is inappropriate. For the year ended December 31, 2020, this waiver amounted to approximately $37,000.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $64,648,000 and $86,076,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $6,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 9,041 | $ | 53,596 | $ | 57,063 | $ | 26 |
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 5,574 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally,
each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||
Ordinary Income (000) | Ordinary Income (000) | ||||||
$ | 7,189 | $ | 10,320 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 7,121 | $ | — |
At December 31, 2020, the Fund had available for federal income tax purposes unused short-term and long-term capital losses of approximately $1,789,000 and $19,890,000, respectively, that do not have an expiration date.
To the extent that capital loss carryforwards are used to offset any future capital gains realized, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. During the year ended December 31, 2020, the Fund utilized capital loss carryforwards for U.S. federal income tax purposes of approximately $1,896,000.
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 63.7%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Emerging Markets Debt Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Emerging Markets Debt Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Emerging Markets Debt Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
28
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
29
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
30
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Sub-Adviser
Morgan Stanley Investment Management Limited
25 Cabot Square, Canary Wharf
London, E14 4QA, England
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFEMDANN
3386926 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Equity Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 6 | ||||||
Statement of Assets and Liabilities | 8 | ||||||
Statement of Operations | 9 | ||||||
Statements of Changes in Net Assets | 10 | ||||||
Financial Highlights | 11 | ||||||
Notes to Financial Statements | 13 | ||||||
Report of Independent Registered Public Accounting Firm | 21 | ||||||
Liquidity Risk Management Program | 22 | ||||||
Federal Tax Notice | 23 | ||||||
Director and Officer Information | 24 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Emerging Markets Equity Portfolio
As a shareholder of the Emerging Markets Equity Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Emerging Markets Equity Portfolio Class I | $ | 1,000.00 | $ | 1,303.30 | $ | 1,018.85 | $ | 7.24 | $ | 6.34 | 1.25 | % | |||||||||||||||
Emerging Markets Equity Portfolio Class II | 1,000.00 | 1,303.20 | 1,018.60 | 7.53 | 6.60 | 1.30 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Emerging Markets Equity Portfolio
The Fund seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of issuers in emerging market countries.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 14.44%, net of fees, and 14.36%, net of fees, for Class II shares. The Fund's Class I and Class II shares underperformed the Fund's benchmark, the MSCI Emerging Markets Index (the "Index"), which returned 18.31%.
Factors Affecting Performance
• Our aggregate stock selection was the main driver of performance for the full year. Country allocation contributed positively in November and December of 2020 as country dispersion began to increase in recent months. Emerging market (EM) equities recovered in the second half of the year, following the COVID-related market volatility that marked the first quarter of 2020. In the six months ending December 31, 2020, the Index returned +31.14% with returns more broadly based. Our process of identifying and owning growth stocks in many different countries across the EM universe was starting to be rewarded, and we believe this dispersion can continue.
• The Fund underperformed the Index in the first quarter of 2020 as investors flocked to the perceived safety of what had worked in the past during the sell-off triggered by the COVID-19 crisis. Investors flooded back to those countries, sectors and stocks that were already outperforming — and relatively expensive — before the pandemic broke out (North Asia, technology, semiconductors and mega-cap stocks). This resulted in extreme clustering at the country and industry levels on relative performance and valuation metrics.
• Throughout 2020, developed countries along with China, Korea and Taiwan have had the greater fiscal resources to spend more heavily on stimulus than the majority of EM countries, and this was reflected in market performance. Korea, Taiwan and China were the best performing markets in EM in 2020, returning +45%, +42% and +30%, respectively, while the majority of remaining EM countries ended the year with negative returns. Our underweight allocation to North Asia and overweight allocations to the neglected parts of EM — select Latin America countries like Brazil and Central and
Eastern European (CEE) countries like Poland and Russia — detracted from returns.
• For the full year, stock selection in Taiwan and Russia were top contributors to returns. In Taiwan, overweight allocations to two semiconductor companies helped drive returns. Within technology in Taiwan, we are focused on companies with competitive technology expertise, strong pricing power and structural growth in the value chain, particularly those in the hardware space.
• In Russia, the portfolio benefited from a combination of long-held high quality growth names supported by secular trends and some recent additions in 2020 in companies that we believe can benefit from accelerated trends such as digitalization.
• Stock selection in and underweight allocation to China was the largest detractor from performance. Though long-standing holdings in secular growth stories such as a leading beer brand and a dairy products company contributed, zero allocations to a shopping platform, electric vehicle manufacturer and an e-commerce company detracted as these stocks saw sharp rallies in 2020.
• Our overweight allocation to and stock selection in Poland detracted, driven by an allocation to a game developer. The stock underperformed following a turbulent release of its latest game in the fourth quarter of 2020.
• Stock selection in Turkey and India, particularly in the financials sector, also detracted. In India, financials were particularly hard hit when the government announced a 21-day lockdown in the first quarter of 2020 in response to the COVID-19 pandemic. Our allocation to a large bank in Turkey detracted as the worsening currency outlook for the Turkish lira remained a headwind for the stock.
Management Strategies
• Looking ahead, we are very constructive on the broad outlook for emerging markets as an asset class over the next five to 10 years after the U.S. dominance of market returns in the past decade. Key among the catalysts to trigger robust returns for EM equities are the weakening of the U.S. dollar, the recovery of commodities prices, and the emerging reforms and digital innovations emanating from many EM countries. We believe EM valuations overall are at very compelling valuations relative to the U.S. equity market, which are likely to trigger asset allocation shifts. We believe we are at an important inflection point as drivers of economic growth and equity market returns
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Emerging Markets Equity Portfolio
converge to help power the asset class after nearly a decade of underperforming the U.S.
• The portfolio is focused on the themes, stocks and countries that we believe can thrive even if growth levels are much lower than they were in the first decade of the 2000s when EM boomed. We continue to be overweight secular growth winners and are incrementally adding cyclical recovery plays, including select materials and energy companies. From a country allocation perspective, our overweights are primarily in those countries with healthy or improving domestic demand, low debt and resilience in the face of declining global trade as nationalism and protectionism continue to increase.
• We continue to overweight the CEE region through our exposure to stocks in Poland, Hungary and Czech Republic. CEE countries entered the pandemic with little or no economic imbalances and have ample room both on the monetary and fiscal sides to counter the economic impact of COVID-19, making it possible for these economies to recover faster than other developing countries. Recently, COVID-19 cases have increased in the region, but governments are taking measures to control the spread and limit the economic impact. That said, the companies we own have strong balance sheets that we believe can sustain another period of economic stress. We continue to invest in secular growth stories and strong franchises in CEE.
• We remain overweight Russia. Russia continues to follow a very orthodox macro policy framework, which has materially reduced the vulnerability of the Russian economy to external shocks. Further, we believe the monetary and fiscal policies of the Russian government have not only reduced inflation to post-Soviet lows, but also are materially reducing the sensitivity of the Russian economy to oil and leading to a less volatile domestic economy. Within this macro context and given other features of Russia — including strong software engineering talent, an underdeveloped regional economy and abundant low-cost resources — we like select domestic stocks given their secular earnings growth opportunities, as well as specific low-cost commodity producers with healthy balance sheets and strong free cash flow even at current commodity prices, and reinvestment/growth opportunities.
• Brazil suffered in 2020 from a combination of the pandemic, economic contraction and political uncertainty; however, we remain constructive on the prospects for reform advancing and on the quality, resilience and future growth prospects of the companies we own. We remain overweight Brazil, emphasizing stock opportunities within
a still difficult — even if better than expected — macro environment.
• We remain underweight China, mostly owing to our limited our exposure to state-owned and so-called "old" China industries. We believe surviving companies with strong balance sheets and cash flow could become market share consolidators in a post-COVID-19 world and thus likely long-term winners. In addition, the outbreak of the virus may foster digital trends on both the consumer and enterprise sides, favoring companies that embrace and enable the digital economy. We continue to focus on long-term fundamentals and identifying structural growth opportunities.
• We are underweight Korea given its high absolute levels of debt and status as a quasi-developed market. Our stock selection in Korea remains focused on identifying growth opportunities within the specific themes of technology, electric vehicles, media and gaming, most of which are driven by global demand.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Emerging Markets Equity Portfolio
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the MSCI Emerging Markets Index(1)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(2) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(5) | ||||||||||||||||
Fund – Class I(3) | 14.44 | % | 10.24 | % | 3.04 | % | 6.14 | % | |||||||||||
MSCI Emerging Markets Index | 18.31 | 12.81 | 3.63 | 6.60 | |||||||||||||||
Fund – Class II(4) | 14.36 | 10.18 | 2.98 | 9.85 | |||||||||||||||
MSCI Emerging Markets Index | 18.31 | 12.81 | 3.63 | 11.05 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance of emerging markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI Emerging Markets Index currently consists of 27 emerging market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. Returns, including periods prior to January 1, 2001, are calculated using the return data of the MSCI Emerging Markets Index (gross dividends) through December 31, 2000 and the return data of the MSCI Emerging Markets Net Index (net dividends) after December 31, 2000. Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(3) Commenced operations on October 1, 1996.
(4) Commenced offering on January 10, 2003.
(5) For comparative purposes, average annual since inception returns listed for the Index refers to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Emerging Markets Equity Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (98.8%) | |||||||||||
Argentina (1.1%) | |||||||||||
Globant SA (a) | 11,644 | $ | 2,534 | ||||||||
Brazil (7.1%) | |||||||||||
Hapvida Participacoes e Investimentos SA | 882,265 | 2,603 | |||||||||
Localiza Rent a Car SA | 167,843 | 2,237 | |||||||||
Lojas Renner SA | 342,572 | 2,880 | |||||||||
Pagseguro Digital Ltd., Class A (a) | 56,628 | 3,221 | |||||||||
Petroleo Brasileiro SA | 353,304 | 1,952 | |||||||||
Petroleo Brasileiro SA (Preference) | 424,930 | 2,307 | |||||||||
Rumo SA (a) | 491,711 | 1,818 | |||||||||
17,018 | |||||||||||
China (30.7%) | |||||||||||
Alibaba Group Holding Ltd. (a)(b) | 370,896 | 10,787 | |||||||||
Alibaba Group Holding Ltd. ADR (a) | 8,632 | 2,009 | |||||||||
Anhui Conch Cement Co., Ltd., Class A | 268,784 | 2,125 | |||||||||
China Construction Bank Corp. H Shares (b) | 4,196,230 | 3,165 | |||||||||
China International Capital Corp., Ltd. H Shares (a)(b) | 527,200 | 1,429 | |||||||||
China Mengniu Dairy Co., Ltd. (a)(b) | 755,000 | 4,552 | |||||||||
China Resources Beer Holdings Co., Ltd. (b) | 570,000 | 5,242 | |||||||||
China Resources Land Ltd. (b) | 232,000 | 956 | |||||||||
Hua Hong Semiconductor Ltd. (a)(b)(c) | 328,000 | 1,867 | |||||||||
Jiangsu Hengrui Medicine Co., Ltd., Class A | 79,158 | 1,349 | |||||||||
Joincare Pharmaceutical Group Industry Co. Ltd. | 342,300 | 728 | |||||||||
Kweichow Moutai Co., Ltd., Class A | 26,991 | 8,248 | |||||||||
New Oriental Education & Technology Group, Inc. ADR (a) | 18,121 | 3,367 | |||||||||
Ping An Insurance Group Co. of China Ltd., Class A | 124,889 | 1,662 | |||||||||
Ping An Insurance Group Co. of China Ltd. H Shares (b) | 94,500 | 1,150 | |||||||||
Shandong Weigao Group Medical Polymer Co., Ltd. H Shares (b) | 382,000 | 864 | |||||||||
Shenzhou International Group Holdings Ltd. (b) | 183,100 | 3,589 | |||||||||
TAL Education Group ADR (a) | 25,068 | 1,793 | |||||||||
Tencent Holdings Ltd. (b) | 231,900 | 16,686 | |||||||||
Universal Scientific Industrial Shanghai Co., Ltd., Class A | 403,095 | 1,194 | |||||||||
Yihai International Holding Ltd. (a)(b) | 76,000 | 1,129 | |||||||||
73,891 | |||||||||||
Hong Kong (1.0%) | |||||||||||
Hong Kong Exchanges & Clearing Ltd. | 44,100 | 2,419 | |||||||||
Hungary (1.0%) | |||||||||||
Richter Gedeon Nyrt | 99,449 | 2,496 | |||||||||
India (8.5%) | |||||||||||
Bharti Airtel Ltd. | 224,911 | 1,571 | |||||||||
Eicher Motors Ltd. | 26,499 | 919 | |||||||||
HDFC Bank Ltd. ADR (a) | 29,033 | 2,098 | |||||||||
Housing Development Finance Corp., Ltd. | 92,858 | 3,253 | |||||||||
ICICI Bank Ltd. (a) | 383,570 | 2,821 | |||||||||
ICICI Prudential Life Insurance Co., Ltd. (a) | 158,197 | 1,081 |
Shares | Value (000) | ||||||||||
Infosys Ltd. | 122,734 | $ | 2,104 | ||||||||
Infosys Ltd. ADR | 35,722 | 605 | |||||||||
Mahindra & Mahindra Ltd. | 131,841 | 1,304 | |||||||||
Marico Ltd. | 104,241 | 575 | |||||||||
Reliance Industries Ltd. | 63,696 | 1,733 | |||||||||
Reliance Industries Partly Paid | 87,007 | 1,337 | |||||||||
Shree Cement Ltd. | 2,965 | 975 | |||||||||
20,376 | |||||||||||
Indonesia (1.3%) | |||||||||||
Bank Central Asia Tbk PT | 1,274,900 | 3,073 | |||||||||
Korea, Republic of (10.2%) | |||||||||||
Kakao Corp. | 6,403 | 2,298 | |||||||||
LG Chem Ltd. | 1,589 | 1,208 | |||||||||
NCSoft Corp. | 1,512 | 1,298 | |||||||||
Samsung Biologics Co., Ltd. (a) | 1,769 | 1,347 | |||||||||
Samsung Electronics Co., Ltd. | 197,463 | 14,746 | |||||||||
Samsung SDI Co., Ltd. | 2,332 | 1,351 | |||||||||
SK Hynix, Inc. | 19,971 | 2,181 | |||||||||
24,429 | |||||||||||
Mexico (1.2%) | |||||||||||
Grupo Aeroportuario del Centro Norte SAB de CV (a) | 448,779 | 2,895 | |||||||||
Poland (2.3%) | |||||||||||
Allegro.eu SA (a) | 97,560 | 2,212 | |||||||||
Jeronimo Martins SGPS SA | 70,637 | 1,187 | |||||||||
LPP SA (a) | 1,007 | 2,242 | |||||||||
5,641 | |||||||||||
Russia (6.6%) | |||||||||||
LUKOIL PJSC ADR | 30,892 | 2,101 | |||||||||
Novatek PJSC GDR (Registered) | 16,779 | 2,732 | |||||||||
Novolipetskiy Metallurgicheskiy Kombinat PAO GDR | 94,400 | 2,612 | |||||||||
TCS Group Holding PLC GDR | 81,913 | 2,695 | |||||||||
X5 Retail Group N.V. GDR | 56,862 | 2,053 | |||||||||
Yandex N.V., Class A (a) | 51,389 | 3,576 | |||||||||
15,769 | |||||||||||
Singapore (1.3%) | |||||||||||
Sea Ltd. ADR (a) | 15,715 | 3,128 | |||||||||
South Africa (4.8%) | |||||||||||
Anglo American Platinum Ltd. | 17,066 | 1,680 | |||||||||
Anglo American PLC | 128,060 | 4,250 | |||||||||
Capitec Bank Holdings Ltd. (a)(c) | 31,573 | 3,088 | |||||||||
Clicks Group Ltd. | 150,173 | 2,579 | |||||||||
11,597 | |||||||||||
Taiwan (13.0%) | |||||||||||
ASE Technology Holding Co., Ltd. | 975,738 | 2,830 | |||||||||
Delta Electronics, Inc. | 317,000 | 2,973 | |||||||||
MediaTek, Inc. | 133,000 | 3,547 | |||||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 1,155,000 | 21,850 | |||||||||
31,200 |
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Emerging Markets Equity Portfolio
Shares | Value (000) | ||||||||||
United Kingdom (2.8%) | |||||||||||
Avast PLC | 467,901 | $ | 3,436 | ||||||||
Mondi PLC | 137,891 | 3,235 | |||||||||
6,671 | |||||||||||
United States (5.9%) | |||||||||||
ASML Holding NV | 11,564 | 5,640 | |||||||||
EPAM Systems, Inc. (a) | 6,664 | 2,388 | |||||||||
MercadoLibre, Inc. (a) | 1,945 | 3,258 | |||||||||
NIKE, Inc., Class B | 20,493 | 2,899 | |||||||||
14,185 | |||||||||||
Total Common Stocks (Cost $130,990) | 237,322 | ||||||||||
Short-Term Investment (1.3%) | |||||||||||
Investment Company (1.3%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Government Portfolio — Institutional Class (See Note H) (Cost $3,203) | 3,203,200 | 3,203 | |||||||||
Total Investments (100.1%) (Cost $134,193) Including $3,231 of Securities Loaned (d)(e) | 240,525 | ||||||||||
Liabilities in Excess of Other Assets (-0.1%) | (250 | ) | |||||||||
Net Assets (100.0%) | $ | 240,275 |
Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.
(a) Non-income producing security.
(b) Security trades on the Hong Kong exchange.
(c) All or a portion of this security was on loan at December 31, 2020.
(d) The approximate fair value and percentage of net assets, $195,699,000 and 81.4%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.
(e) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $136,244,000. The aggregate gross unrealized appreciation is approximately $104,793,000 and the aggregate gross unrealized depreciation is approximately $512,000, resulting in net unrealized appreciation of approximately $104,281,000.
ADR American Depositary Receipt.
GDR Global Depositary Receipt.
PJSC Public Joint Stock Company.
Portfolio Composition
Classification | Percentage of Total Investments | ||||||
Other* | 44.5 | % | |||||
Semiconductors & Semiconductor Equipment | 15.8 | ||||||
Interactive Media & Services | 9.4 | ||||||
Internet & Direct Marketing Retail | 7.6 | ||||||
Tech Hardware, Storage & Peripherals | 6.1 | ||||||
Banks | 5.9 | ||||||
Beverages | 5.6 | ||||||
Oil, Gas & Consumable Fuels | 5.1 | ||||||
Total Investments | 100.0 | % |
* Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Equity Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $130,990) | $ | 237,322 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $3,203) | 3,203 | ||||||
Total Investments in Securities, at Value (Cost $134,193) | 240,525 | ||||||
Foreign Currency, at Value (Cost $888) | 878 | ||||||
Dividends Receivable | 385 | ||||||
Receivable for Investments Sold | 233 | ||||||
Receivable for Fund Shares Sold | 87 | ||||||
Tax Reclaim Receivable | 64 | ||||||
Receivable from Securities Lending Income | 2 | ||||||
Receivable from Affiliate | — | @ | |||||
Other Assets | 25 | ||||||
Total Assets | 242,199 | ||||||
Liabilities: | |||||||
Payable for Investments Purchased | 776 | ||||||
Payable for Advisory Fees | 435 | ||||||
Deferred Capital Gain Country Tax | 246 | ||||||
Payable for Fund Shares Redeemed | 226 | ||||||
Payable for Servicing Fees | 99 | ||||||
Payable for Custodian Fees | 59 | ||||||
Payable for Professional Fees | 26 | ||||||
Payable for Administration Fees | 16 | ||||||
Payable for Transfer Agency Fees | 3 | ||||||
Payable for Distribution Fees — Class II Shares | 1 | ||||||
Other Liabilities | 37 | ||||||
Total Liabilities | 1,924 | ||||||
NET ASSETS | $ | 240,275 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 152,249 | |||||
Total Distributable Earnings | 88,026 | ||||||
Net Assets | $ | 240,275 | |||||
CLASS I: | |||||||
Net Assets | $ | 166,989 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 9,419,362 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 17.73 | |||||
CLASS II: | |||||||
Net Assets | $ | 73,286 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 4,149,180 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 17.66 | |||||
(1) Including: | |||||||
Securities on Loan, at Value: | $ | 3,231 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Equity Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Dividends from Securities of Unaffiliated Issuers (Net of $457 of Foreign Taxes Withheld) | $ | 3,263 | |||||
Income from Securities Loaned — Net | 33 | ||||||
Dividends from Security of Affiliated Issuer (Note H) | 9 | ||||||
Total Investment Income | 3,305 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 1,756 | ||||||
Servicing Fees (Note D) | 330 | ||||||
Custodian Fees (Note G) | 169 | ||||||
Professional Fees | 166 | ||||||
Administration Fees (Note C) | 165 | ||||||
Distribution Fees — Class II Shares (Note E) | 158 | ||||||
Shareholder Reporting Fees | 52 | ||||||
Transfer Agency Fees (Note F) | 15 | ||||||
Directors' Fees and Expenses | 8 | ||||||
Pricing Fees | 7 | ||||||
Interest Expenses | 1 | ||||||
Other Expenses | 18 | ||||||
Total Expenses | 2,845 | ||||||
Waiver of Distribution Fees — Class II Shares (Note E) | (127 | ) | |||||
Waiver of Advisory Fees (Note B) | (103 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (4 | ) | |||||
Net Expenses | 2,611 | ||||||
Net Investment Income | 694 | ||||||
Realized Loss: | |||||||
Investments Sold | (17,413 | ) | |||||
Foreign Currency Forward Exchange Contracts | (377 | ) | |||||
Foreign Currency Translation | (184 | ) | |||||
Net Realized Loss | (17,974 | ) | |||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments (Net of Increase in Deferred Capital Gain Country Tax of $122) | 45,576 | ||||||
Foreign Currency Forward Exchange Contracts | 146 | ||||||
Foreign Currency Translation | (5 | ) | |||||
Net Change in Unrealized Appreciation (Depreciation) | 45,717 | ||||||
Net Realized Loss and Change in Unrealized Appreciation (Depreciation) | 27,743 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 28,437 |
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Emerging Markets Equity Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 694 | $ | 3,148 | |||||||
Net Realized Gain (Loss) | (17,974 | ) | 5,358 | ||||||||
Net Change in Unrealized Appreciation (Depreciation) | 45,717 | 34,480 | |||||||||
Net Increase in Net Assets Resulting from Operations | 28,437 | 42,986 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (4,365 | ) | (12,545 | ) | |||||||
Class II | (1,886 | ) | (5,567 | ) | |||||||
Total Dividends and Distributions to Shareholders | (6,251 | ) | (18,112 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 14,816 | 13,470 | |||||||||
Distributions Reinvested | 4,365 | 12,545 | |||||||||
Redeemed | (31,140 | ) | (55,300 | ) | |||||||
Class II: | |||||||||||
Subscribed | 9,684 | 7,329 | |||||||||
Distributions Reinvested | 1,886 | 5,567 | |||||||||
Redeemed | (16,978 | ) | (16,733 | ) | |||||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (17,367 | ) | (33,122 | ) | |||||||
Total Increase (Decrease) in Net Assets | 4,819 | (8,248 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 235,456 | 243,704 | |||||||||
End of Period | $ | 240,275 | $ | 235,456 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 1,016 | 885 | |||||||||
Shares Issued on Distributions Reinvested | 307 | 840 | |||||||||
Shares Redeemed | (2,148 | ) | (3,583 | ) | |||||||
Net Decrease in Class I Shares Outstanding | (825 | ) | (1,858 | ) | |||||||
Class II: | |||||||||||
Shares Subscribed | 682 | 495 | |||||||||
Shares Issued on Distributions Reinvested | 133 | 374 | |||||||||
Shares Redeemed | (1,164 | ) | (1,110 | ) | |||||||
Net Decrease in Class II Shares Outstanding | (349 | ) | (241 | ) |
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Emerging Markets Equity Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.99 | $ | 14.48 | $ | 17.65 | $ | 13.16 | $ | 12.39 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.05 | 0.20 | 0.14 | 0.09 | 0.10 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 2.15 | 2.56 | (3.23 | ) | 4.52 | 0.73 | |||||||||||||||||
Total from Investment Operations | 2.20 | 2.76 | (3.09 | ) | 4.61 | 0.83 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.21 | ) | (0.17 | ) | (0.08 | ) | (0.12 | ) | (0.06 | ) | |||||||||||||
Net Realized Gain | (0.25 | ) | (1.08 | ) | — | — | — | ||||||||||||||||
Total Distributions | (0.46 | ) | (1.25 | ) | (0.08 | ) | (0.12 | ) | (0.06 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 17.73 | $ | 15.99 | $ | 14.48 | $ | 17.65 | $ | 13.16 | |||||||||||||
Total Return(3) | 14.44 | % | 19.59 | % | (17.47 | )% | 35.06 | % | 6.74 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 166,989 | $ | 163,794 | $ | 175,300 | $ | 238,026 | $ | 174,423 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.30 | % | 1.27 | % | N/A | 1.32 | % | 1.39 | % | ||||||||||||||
Ratio of Expenses After Expense Limitation | 1.25 | %(4) | 1.25 | %(4) | 1.22 | %(4) | 1.25 | %(4) | 1.28 | %(4)(5) | |||||||||||||
Ratio of Expenses After Expense Limitation Excluding Interest Expenses | 1.25 | %(4) | 1.25 | %(4) | 1.22 | %(4) | N/A | N/A | |||||||||||||||
Ratio of Net Investment Income | 0.35 | %(4) | 1.33 | %(4) | 0.86 | %(4) | 0.56 | %(4) | 0.74 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(6) | 0.00 | %(6) | 0.01 | % | 0.00 | %(6) | 0.00 | %(6) | |||||||||||||
Portfolio Turnover Rate | 52 | % | 36 | % | 42 | % | 37 | % | 34 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective September 30, 2016, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.25% for Class I shares. Prior to September 30, 2016, the maximum ratio was 1.35% for Class I shares.
(6) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Emerging Markets Equity Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.93 | $ | 14.44 | $ | 17.59 | $ | 13.11 | $ | 12.35 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.04 | 0.19 | 0.13 | 0.08 | 0.09 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 2.14 | 2.54 | (3.21 | ) | 4.51 | 0.73 | |||||||||||||||||
Total from Investment Operations | 2.18 | 2.73 | (3.08 | ) | 4.59 | 0.82 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.20 | ) | (0.16 | ) | (0.07 | ) | (0.11 | ) | (0.06 | ) | |||||||||||||
Net Realized Gain | (0.25 | ) | (1.08 | ) | — | — | — | ||||||||||||||||
Total Distributions | (0.45 | ) | (1.24 | ) | (0.07 | ) | (0.11 | ) | (0.06 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 17.66 | $ | 15.93 | $ | 14.44 | $ | 17.59 | $ | 13.11 | |||||||||||||
Total Return(3) | 14.36 | % | 19.51 | % | (17.51 | )% | 35.06 | % | 6.62 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 73,286 | $ | 71,662 | $ | 68,404 | $ | 89,249 | $ | 76,392 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.55 | % | 1.52 | % | 1.48 | % | 1.57 | % | 1.64 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.30 | %(4) | 1.30 | %(4) | 1.27 | %(4) | 1.30 | %(4) | 1.33 | %(4)(5) | |||||||||||||
Ratio of Expenses After Expense Limitation Excluding Interest Expenses | 1.30 | %(4) | 1.30 | %(4) | 1.27 | %(4) | N/A | N/A | |||||||||||||||
Ratio of Net Investment Income | 0.30 | %(4) | 1.28 | %(4) | 0.81 | %(4) | 0.51 | %(4) | 0.69 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(6) | 0.00 | %(6) | 0.01 | % | 0.00 | %(6) | 0.00 | %(6) | |||||||||||||
Portfolio Turnover Rate | 52 | % | 36 | % | 42 | % | 37 | % | 34 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective September 30, 2016, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.30% for Class II shares. Prior to September 30, 2016, the maximum ratio was 1.40% for Class II shares.
(6) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Emerging Markets Equity Portfolio. The Fund seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of issuers in emerging market countries. The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a
given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Company ("MSIM Company") (the "Sub-Adviser"), each a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (4) when market quotations are not readily available, including circumstances under which the Adviser or the Sub-Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
such securities as of the close of the NYSE, as determined in good faith by the Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (5) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (6) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Automobiles | $ | — | $ | 2,223 | $ | — | $ | 2,223 | |||||||||||
Banks | 2,098 | 12,147 | — | 14,245 | |||||||||||||||
Beverages | — | 13,490 | — | 13,490 | |||||||||||||||
Capital Markets | — | 3,848 | — | 3,848 | |||||||||||||||
Chemicals | — | 1,208 | — | 1,208 | |||||||||||||||
Commercial Banks | — | 2,695 | — | 2,695 | |||||||||||||||
Construction Materials | — | 3,100 | — | 3,100 | |||||||||||||||
Diversified Consumer Services | 5,160 | — | — | 5,160 | |||||||||||||||
Electronic Equipment, Instruments & Components | — | 5,518 | — | 5,518 | |||||||||||||||
Entertainment | 3,128 | 1,298 | — | 4,426 | |||||||||||||||
Food & Staples Retailing | — | 5,819 | — | 5,819 | |||||||||||||||
Food Products | — | 5,681 | — | 5,681 | |||||||||||||||
Health Care Equipment & Supplies | — | 864 | — | 864 | |||||||||||||||
Health Care Providers & Services | — | 2,603 | — | 2,603 | |||||||||||||||
Information Technology Services | 8,748 | 2,104 | — | 10,852 | |||||||||||||||
Insurance | — | 3,893 | — | 3,893 |
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Common Stocks (cont'd) | |||||||||||||||||||
Interactive Media & Services | $ | 3,576 | $ | 18,984 | $ | — | $ | 22,560 | |||||||||||
Internet & Direct Marketing Retail | 7,479 | 10,787 | — | 18,266 | |||||||||||||||
Life Sciences Tools & Services | — | 1,347 | — | 1,347 | |||||||||||||||
Metals & Mining | — | 8,542 | — | 8,542 | |||||||||||||||
Multi-Line Retail | — | 2,880 | — | 2,880 | |||||||||||||||
Oil, Gas & Consumable Fuels | — | 12,162 | — | 12,162 | |||||||||||||||
Paper & Forest Products | — | 3,235 | — | 3,235 | |||||||||||||||
Personal Products | — | 575 | — | 575 | |||||||||||||||
Pharmaceuticals | — | 4,573 | — | 4,573 | |||||||||||||||
Real Estate Management & Development | — | 956 | — | 956 | |||||||||||||||
Road & Rail | — | 4,055 | — | 4,055 | |||||||||||||||
Semiconductors & Semiconductor Equipment | 5,640 | 32,275 | — | 37,915 | |||||||||||||||
Software | — | 3,436 | — | 3,436 | |||||||||||||||
Tech Hardware, Storage & Peripherals | — | 14,746 | — | 14,746 | |||||||||||||||
Textiles, Apparel & Luxury Goods | 2,899 | 5,831 | — | 8,730 | |||||||||||||||
Thrifts & Mortgage Finance | — | 3,253 | — | 3,253 | |||||||||||||||
Transportation Infrastructure | 2,895 | — | — | 2,895 | |||||||||||||||
Wireless Telecommunication Services | — | 1,571 | — | 1,571 | |||||||||||||||
Total Common Stocks | 41,623 | 195,699 | — | 237,322 | |||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 3,203 | — | — | 3,203 | |||||||||||||||
Total Assets | $ | 44,826 | $ | 195,699 | $ | — | $ | 240,525 |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
3. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
4. Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.
Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser and/or Sub-Adviser seek to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.
Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:
Foreign Currency Forward Exchange Contracts: In connection with its investments in foreign securities, the Fund also entered into contracts with banks, brokers
or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions may reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which the Fund's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract. A currency contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.
As of December 31, 2020, the Fund did not have any open foreign currency forward exchange contracts.
FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
for the year ended December 31, 2020 in accordance with ASC 815:
Realized Loss | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | (377 | ) | |||||||
Change in Unrealized Appreciation (Depreciation) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | 146 |
For the year ended December 31, 2020, the approximate average monthly amount outstanding for each derivative type is as follows:
Foreign Currency Forward Exchange Contracts: | |||||||
Average monthly principal amount | $ | 14,271,000 |
5. Securities Lending: The Fund lends securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund would receive cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned — Net" in the Fund's Statement of Operations. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund has the right under the securities lending agreement to recover the securities from the borrower on demand.
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||
Gross Asset Amounts Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | ||||||||||||
$ | 3,231 | (a) | $ | — | $ | (3,231 | )(b)(c) | $ | 0 |
(a) Represents market value of loaned securities at year end.
(b) The Fund received non-cash collateral of approximately $3,487,000 in the form of U.S. Government obligations, which the Fund cannot sell or repledge, and accordingly are not reflected in the Portfolio of Investments.
(c) The actual collateral received is greater than the amount shown here due to overcollateralization.
6. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
7. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
8. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory/Sub-Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $500 million | Next $500 million | Next $1.5 billion | Over $2.5 billion | ||||||||||||
0.85 | % | 0.75 | % | 0.70 | % | 0.65 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.80% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 1.25% for Class I shares and 1.30% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $103,000 of advisory fees were waived pursuant to this arrangement.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser, a wholly-owned subsidiary of Morgan Stanley. The Sub-Adviser provides the Fund with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Directors. The Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser receives from the Fund.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street, State Street provides certain administrative services to the Company. For such services, the
Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares. The Distributor has agreed to waive 0.20% of the 0.25% distribution fee that it may receive. This fee waiver will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waiver when they deem such action is appropriate. For the year ended December 31, 2020, this waiver amounted to approximately $127,000.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $106,220,000 and $130,883,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Government Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $4,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 3,605 | $ | 55,211 | $ | 55,613 | $ | 9 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 3,203 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 2,804 | $ | 3,447 | $ | 2,399 | $ | 15,713 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 2,002 | $ | — |
At December 31, 2020, the Fund had available for federal income tax purposes unused short-term and long-term capital losses of approximately $8,910,000 and $9,091,000, respectively, that do not have an expiration date.
To the extent that capital loss carryforwards are used to offset any future capital gains realized, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders.
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 53.2%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Emerging Markets Equity Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Emerging Markets Equity Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Emerging Markets Equity Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020. For corporate shareholders 0.12% of the dividends qualified for the dividends received deduction.
The Fund designated and paid approximately $3,447,000 as a long-term capital gain distribution.
For federal income tax purposes, the following information is furnished with respect to the Fund's earnings for its taxable year ended December 31, 2020. When distributed, certain earnings may be subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designated up to a maximum of approximately $418,000 as taxable at this lower rate.
The Fund intends to pass through foreign tax credits of approximately $457,000 and has derived net income from sources within foreign countries amounting to approximately $3,617,000.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Sub-Adviser
Morgan Stanley Investment Management Company
23 Church Street
16-01 Capital Square, Singapore 049481
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFEMEANN
3386932 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Franchise Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 6 | ||||||
Statement of Assets and Liabilities | 7 | ||||||
Statement of Operations | 8 | ||||||
Statements of Changes in Net Assets | 9 | ||||||
Financial Highlights | 10 | ||||||
Notes to Financial Statements | 11 | ||||||
Report of Independent Registered Public Accounting Firm | 17 | ||||||
Liquidity Risk Management Program | 18 | ||||||
Federal Tax Notice | 19 | ||||||
Director and Officer Information | 20 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Global Franchise Portfolio
As a shareholder of the Global Franchise Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Global Franchise Portfolio Class II | $ | 1,000.00 | $ | 1,124.90 | $ | 1,019.10 | $ | 6.41 | $ | 6.09 | 1.20 | % |
* Expenses are calculated using the Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Global Franchise Portfolio
The Fund seeks long-term capital appreciation.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class II shares had a total return based on net asset value and reinvestment of distributions per share of 13.21%, net of fees. The Fund's Class II shares underperformed the Fund's benchmark, the MSCI World Net Index (the "Index"), which returned 15.90%.
Factors Affecting Performance
• The Index was up a mighty 14% in the fourth quarter of 2020 in U.S. dollars (USD), though a lower 12.4% in local currency terms given the dollar weakness. The strong fourth quarter meant that 2020 delivered double-digit returns for the Index despite the pandemic, up 15.9% in USD and 13.5% in local currency. Information technology (+44%) was the clear beneficiary of the pandemic, given the growth of remote working, e-commerce and the cloud, and was thus naturally the strongest sector, with all three sub-sectors doing well. Software & services rose 38%, semiconductors was up 47% and hardware gained 54%. Consumer discretionary (+37%) and communication services (+23%) also comfortably beat the Index, but this was far more dependent on a few winners rather than general sector strength. Two companies drove over 70% of consumer discretionary performance, while three companies did the same for communication services.(i) Materials (+20%) was also slightly ahead of the Index. At the other end of the spectrum, energy ended the year down 31%, despite the fourth quarter rally, while financials (-3%) and real estate (-5%) also posted negative returns. The risk-on fourth quarter of 2020 meant that the classic defensive sectors also lagged the Index, with utilities only up 5%, consumer staples up 8% and health care up 14%. Industrials (+12%) finished slightly behind the Index.
• For the Fund's performance in the year, sector allocation was positive, but stock selection negative. The overweight in information technology helped a great deal with sector allocation, as did the underweight in financials and the lack of energy stocks, despite the two sectors' strong performance in the fourth quarter of 2020. These positive effects were significantly larger than the negative impacts of the consumer staples overweight and consumer discretionary underweight. The underperformance in information technology was the main driver of the negative stock selection. Communication services also underperformed for 2020 as a whole, while health care and financials outperformed.
• Over the year, the largest absolute contributors were Microsoft, Danaher, Reckitt Benckiser, Accenture and Thermo Fisher. The top absolute detractors for the same period were Coca-Cola, Fox Corporation, Heineken, BAT and Becton Dickinson.
Management Strategies
• One of the benefits of compounders is that they are robust in tough times. Their recurring revenues help preserve their sales while their pricing power protects margins. 2020 was certainly tough times, with world gross domestic product estimated to be down 4.4%, and advanced economies faring even worse, down 5.8%.(ii) The idiosyncratic nature of the crisis did affect some of the holdings in the portfolio, with beverage companies hit by the closure of bars and restaurants, a financial services company's lucrative cross-border business severely affected by the collapse in travel, and some health care players affected by the cancellation of routine operations and the logistical challenges of the pandemic. Despite this, the portfolio's earnings held up well overall given the general resilience of the companies, with the next 12 months' forward earnings up 6%, while dividends, actually up 5% for the year, provided another 2% of returns.(iii) The rest of the portfolio's total return for the year was due to a mild single-digit re-rating.
• This is in stark contrast to the MSCI World Index as a whole. Its forward earnings fell 7%, despite all the government support for corporates. This meant that more than 100% of the overall Index return of 16% was accounted for by the major 23% re-rating. This repeated the pattern of 2019, when the Index returned 27%, despite a 1% fall in forward earnings, with re-rating driving the performance. Across the two years of 2019 and 2020, the Index has re-rated by 55%, from 13.4x to 20.7x next 12 months' forward earnings. It is also at an elevated 17.9x on a 24-month forward basis. The portfolio has also re-rated, by a more modest 22%, but at least half the returns have come from the compounding earnings, up 18%, and dividends.
• It is the relative de-rating that has driven the portfolio's relative underperformance, in the face of sharply better earnings growth. While the fourth quarter of 2020 saw a cyclical/value rally, this was not the driver of underperformance for the year as a whole, given that energy and financials still remained massively behind the Index for 2020. This issue was around the dominance of technology in the market's returns. The information
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Franchise Portfolio
technology sector alone delivered 60% of the Index's 16% return in 2020, and adding in certain household names in e-commerce, streaming, electric vehicles and social media — regarded by most people, if not MSCI, as technology companies — takes the share to 89%, meaning that the rest of the market only delivered 11% of the Index performance.(i) Another way of looking at it is that over half the total Index performance was delivered by only five companies, and 78% by the top 25, of which only one company is listed outside the U.S.
• The Fund has a strong weighting in information technology, 30% as against 20% for the Index, which secured the portfolio's positive sector allocation in 2020, given that the other two key sectors, consumer staples and health care, underperformed the Index. The issue was the portfolio's failure to keep up with the sector's hot pace, as our picks only delivered 20%, as against the Index's 44%, driving the portfolio's negative stock selection in the year. There were stock-specific factors behind this large gap: the collapse in international travel hit a financial services company's cross-border business, while store closures held back one of our holding's merchant acquirer division. In addition, a management services company was hit by concerns about U.S. employment levels and one of our software holding's strategy change and associated target re-basing were not welcomed by the market. Looking at the other side, not holding an Index-heavyweight consumer electronics company proved expensive. All that said, there were two more structural factors that drove the shortfall.
• The first was the portfolio's focus on services & software within information technology, which was "only" up 37%, lagging hardware (+54%) and semiconductors (+47%). Perhaps more importantly, the team's valuation discipline meant that the portfolio did not get the benefit of the year's massive growth boom (we are deliberately avoiding the term "bubble"). 2020 saw a spectacular 480 initial public offerings, amongst which there were 248 SPACs (special purpose acquisition companies), also known as "shell" or "blank check" companies.(iv)
• There are only two ways of losing money in equities: either the earnings go away or the valuation goes away. Our quality-obsessed investment philosophy looks to minimize
the former, and the rise in the portfolio's 2020 earnings has provided further evidence of resilience, despite some of the idiosyncratic headwinds the pandemic has produced. We have also looked to reduce the risk of the latter, in the face of the market's 20x forward earnings multiple. Not only have we abjured the more boisterous segments of the information technology sector, but we have shown discipline within the portfolio's existing holdings. 2020 saw around 600 basis points of net shifts from the growthier end of portfolio (where we estimate top-line growth of 6% or above) to the duller end (sub-6% growth). This makes a cumulative 1,700 basis point shift over the last three years. This shift to cheaper stocks has been to the detriment of performance, given the continued progress for growthier names, but we believe should support the portfolio's resilience in the future.
• We do not claim that the current multiple of 23x forward earnings means that the Fund is cheap in absolute terms — that would be tough to ask 11 years into a bull market. However, a relative earnings multiple of 1.11x the Index, which drops to parity on a free cash flow basis, does look far more defensible. Now more than ever, it is time to focus on keeping the lights on, rather than attempting to shoot them out, and reasonably priced compounders seem a reasonable way of avoiding a plunge into darkness.
(i) Source: FactSet and Morgan Stanley Investment Management.
(ii) Source: International Monetary Fund.
(iii) Source for all earnings and valuations data used in this report: FactSet and Morgan Stanley Investment Management.
(iv) Source: PwC Global IPO Watch.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Franchise Portfolio
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested.
Performance Compared to the MSCI World Net Index(1)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(2) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(4) | ||||||||||||||||
Fund – Class II(3) | 13.21 | % | 13.81 | % | 12.32 | % | 11.63 | % | |||||||||||
MSCI World Net Index | 15.90 | 12.19 | 9.87 | 9.12 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The MSCI World Net Index is a free float-adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI World Net Index currently consists of 23 developed market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(3) Commenced operations on April 30, 2003.
(4) For comparative purposes, average annual since inception returns listed for the Index refers to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Global Franchise Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (98.3%) | |||||||||||
France (5.8%) | |||||||||||
L'Oreal SA (BSRM) | 2,249 | $ | 858 | ||||||||
LVMH Moet Hennessy Louis Vuitton SE | 927 | 581 | |||||||||
Pernod Ricard SA | 2,813 | 540 | |||||||||
1,979 | |||||||||||
Germany (4.4%) | |||||||||||
SAP SE | 11,616 | 1,504 | |||||||||
Italy (0.5%) | |||||||||||
Davide Campari-Milano N.V. | 16,245 | 186 | |||||||||
Netherlands (2.4%) | |||||||||||
Heineken N.V. | 7,294 | 812 | |||||||||
United Kingdom (16.1%) | |||||||||||
British American Tobacco PLC | 22,013 | 818 | |||||||||
Experian PLC | 8,292 | 315 | |||||||||
Reckitt Benckiser Group PLC | 30,695 | 2,740 | |||||||||
RELX PLC (Euronext N.V.) | 11,636 | 284 | |||||||||
RELX PLC (LSE) | 30,089 | 736 | |||||||||
Unilever PLC | 10,068 | 604 | |||||||||
5,497 | |||||||||||
United States (69.1%) | |||||||||||
Abbott Laboratories | 12,180 | 1,334 | |||||||||
Accenture PLC, Class A | 6,371 | 1,664 | |||||||||
Automatic Data Processing, Inc. | 7,637 | 1,346 | |||||||||
Baxter International, Inc. | 17,342 | 1,392 | |||||||||
Becton Dickinson & Co. | 5,096 | 1,275 | |||||||||
Coca-Cola Co. (The) | 12,254 | 672 | |||||||||
Danaher Corp. | 6,177 | 1,372 | |||||||||
Factset Research Systems, Inc. | 670 | 223 | |||||||||
Fidelity National Information Services, Inc. | 5,868 | 830 | |||||||||
Fox Corp., Class A | 7,091 | 207 | |||||||||
Fox Corp., Class B (a) | 5,474 | 158 | |||||||||
Intercontinental Exchange, Inc. | 8,353 | 963 | |||||||||
Microsoft Corp. | 13,214 | 2,939 | |||||||||
Moody's Corp. | 1,272 | 369 | |||||||||
NIKE, Inc., Class B | 4,122 | 583 | |||||||||
Philip Morris International, Inc. | 32,795 | 2,715 | |||||||||
Procter & Gamble Co. (The) | 11,504 | 1,601 | |||||||||
Roper Technologies, Inc. | 745 | 321 | |||||||||
Thermo Fisher Scientific, Inc. | 2,656 | 1,237 | |||||||||
Visa, Inc., Class A | 8,766 | 1,917 | |||||||||
Zoetis, Inc. | 3,024 | 500 | |||||||||
23,618 | |||||||||||
Total Common Stocks (Cost $19,155) | 33,596 |
Shares | Value (000) | ||||||||||
Short-Term Investment (1.7%) | |||||||||||
Investment Company (1.7%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) (Cost $575) | 575,456 | $ | 575 | ||||||||
Total Investments (100.0%) (Cost $19,730) (b)(c) | 34,171 | ||||||||||
Other Assets in Excess of Liabilities (0.0%) | 17 | ||||||||||
Net Assets (100.0%) | $ | 34,188 |
Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.
(a) Non-income producing security.
(b) The approximate fair value and percentage of net assets, $9,978,000 and 29.2%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.
(c) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $20,011,000. The aggregate gross unrealized appreciation is approximately $14,578,000 and the aggregate gross unrealized depreciation is approximately $418,000, resulting in net unrealized appreciation of approximately $14,160,000.
BSRM Berlin Second Regulated Market.
Euronext N.V. Euronext Amsterdam Stock Market.
LSE London Stock Exchange.
Portfolio Composition
Classification | Percentage of Total Investments | ||||||
Other* | 24.9 | % | |||||
Information Technology Services | 16.9 | ||||||
Health Care Equipment & Supplies | 15.7 | ||||||
Software | 13.0 | ||||||
Household Products | 12.7 | ||||||
Tobacco | 10.3 | ||||||
Beverages | 6.5 | ||||||
Total Investments | 100.0 | % |
* Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Franchise Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value (Cost $19,155) | $ | 33,596 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $575) | 575 | ||||||
Total Investments in Securities, at Value (Cost $19,730) | 34,171 | ||||||
Dividends Receivable | 68 | ||||||
Tax Reclaim Receivable | 17 | ||||||
Receivable from Affiliate | — | @ | |||||
Other Assets | 8 | ||||||
Total Assets | 34,264 | ||||||
Liabilities: | |||||||
Payable for Professional Fees | 17 | ||||||
Payable for Fund Shares Redeemed | 16 | ||||||
Payable for Servicing Fees | 14 | ||||||
Payable for Distribution Fees — Class II Shares | 7 | ||||||
Payable for Custodian Fees | 5 | ||||||
Payable for Advisory Fees | 4 | ||||||
Payable for Administration Fees | 2 | ||||||
Payable for Transfer Agency Fees | 1 | ||||||
Other Liabilities | 10 | ||||||
Total Liabilities | 76 | ||||||
NET ASSETS | $ | 34,188 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 16,064 | |||||
Total Distributable Earnings | 18,124 | ||||||
Net Assets | $ | 34,188 | |||||
CLASS II: | |||||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 2,722,318 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 12.56 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Franchise Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Dividends from Securities of Unaffiliated Issuers (Net of $9 of Foreign Taxes Withheld) | $ | 636 | |||||
Dividends from Security of Affiliated Issuer (Note H) | 2 | ||||||
Total Investment Income | 638 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 264 | ||||||
Professional Fees | 119 | ||||||
Distribution Fees — Class II Shares (Note E) | 82 | ||||||
Servicing Fees (Note D) | 44 | ||||||
Administration Fees (Note C) | 26 | ||||||
Custodian Fees (Note G) | 19 | ||||||
Shareholder Reporting Fees | 17 | ||||||
Directors' Fees and Expenses | 5 | ||||||
Transfer Agency Fees (Note F) | 3 | ||||||
Pricing Fees | 2 | ||||||
Other Expenses | 12 | ||||||
Total Expenses | 593 | ||||||
Waiver of Advisory Fees (Note B) | (197 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (1 | ) | |||||
Net Expenses | 395 | ||||||
Net Investment Income | 243 | ||||||
Realized Gain (Loss): | |||||||
Investments Sold | 3,680 | ||||||
Foreign Currency Translation | (1 | ) | |||||
Net Realized Gain | 3,679 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments | 59 | ||||||
Foreign Currency Translation | 1 | ||||||
Net Change in Unrealized Appreciation (Depreciation) | 60 | ||||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | 3,739 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 3,982 |
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Franchise Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 243 | $ | 279 | |||||||
Net Realized Gain | 3,679 | 3,256 | |||||||||
Net Change in Unrealized Appreciation (Depreciation) | 60 | 5,272 | |||||||||
Net Increase in Net Assets Resulting from Operations | 3,982 | 8,807 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class II | (3,630 | ) | (4,904 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class II: | |||||||||||
Subscribed | 1,391 | 876 | |||||||||
Distributions Reinvested | 3,630 | 4,904 | |||||||||
Redeemed | (6,478 | ) | (6,712 | ) | |||||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (1,457 | ) | (932 | ) | |||||||
Total Increase (Decrease) in Net Assets | (1,105 | ) | 2,971 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 35,293 | 32,322 | |||||||||
End of Period | $ | 34,188 | $ | 35,293 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class II: | |||||||||||
Shares Subscribed | 119 | 72 | |||||||||
Shares Issued on Distributions Reinvested | 320 | 415 | |||||||||
Shares Redeemed | (547 | ) | (547 | ) | |||||||
Net Decrease in Class II Shares Outstanding | (108 | ) | (60 | ) |
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Global Franchise Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.47 | $ | 11.18 | $ | 13.73 | $ | 12.64 | $ | 14.02 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.09 | 0.10 | 0.11 | 0.13 | 0.16 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 1.41 | 3.09 | (0.22 | ) | 2.96 | 0.63 | |||||||||||||||||
Total from Investment Operations | 1.50 | 3.19 | (0.11 | ) | 3.09 | 0.79 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.11 | ) | (0.12 | ) | (0.15 | ) | (0.19 | ) | (0.21 | ) | |||||||||||||
Net Realized Gain | (1.30 | ) | (1.78 | ) | (2.29 | ) | (1.81 | ) | (1.96 | ) | |||||||||||||
Total Distributions | (1.41 | ) | (1.90 | ) | (2.44 | ) | (2.00 | ) | (2.17 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 12.56 | $ | 12.47 | $ | 11.18 | $ | 13.73 | $ | 12.64 | |||||||||||||
Total Return(3) | 13.21 | % | 29.53 | % | (1.77 | )% | 25.75 | % | 5.42 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 34,188 | $ | 35,293 | $ | 32,322 | $ | 39,318 | $ | 37,841 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.80 | % | 1.69 | % | 1.77 | % | 1.73 | % | 1.60 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.20 | %(4) | 1.20 | %(4) | 1.20 | %(4) | 1.20 | %(4) | 1.20 | %(4) | |||||||||||||
Ratio of Net Investment Income | 0.74 | %(4) | 0.82 | %(4) | 0.88 | %(4) | 0.96 | %(4) | 1.19 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(5) | 0.00 | %(5) | 0.00 | %(5) | 0.00 | %(5) | 0.00 | %(5) | |||||||||||||
Portfolio Turnover Rate | 17 | % | 14 | % | 27 | % | 26 | % | 24 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Global Franchise Portfolio. The Company seeks long-term capital appreciation. The Fund currently offers Class II shares only, although Class I shares may be offered in the future.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity
security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Limited ("MSIM Limited") (the "Sub-Adviser"), each a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (4) when market quotations are not readily available, including circumstances under which the Adviser or the Sub-Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (5) quotations of
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (6) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Beverages | $ | 672 | $ | 1,538 | $ | — | $ | 2,210 | |||||||||||
Capital Markets | 1,555 | — | — | 1,555 | |||||||||||||||
Health Care Equipment & Supplies | 5,373 | — | — | 5,373 | |||||||||||||||
Household Products | 1,601 | 2,740 | — | 4,341 | |||||||||||||||
Industrial Conglomerates | 321 | — | — | 321 | |||||||||||||||
Information Technology Services | 5,757 | — | — | 5,757 | |||||||||||||||
Life Sciences Tools & Services | 1,237 | — | — | 1,237 | |||||||||||||||
Media | 365 | — | — | 365 | |||||||||||||||
Personal Products | — | 1,462 | — | 1,462 | |||||||||||||||
Pharmaceuticals | 500 | — | — | 500 | |||||||||||||||
Professional Services | — | 1,335 | — | 1,335 | |||||||||||||||
Software | 2,939 | 1,504 | — | 4,443 | |||||||||||||||
Textiles, Apparel & Luxury Goods | 583 | 581 | — | 1,164 | |||||||||||||||
Tobacco | 2,715 | 818 | — | 3,533 | |||||||||||||||
Total Common Stocks | 23,618 | 9,978 | — | 33,596 | |||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 575 | — | — | 575 | |||||||||||||||
Total Assets | $ | 24,193 | $ | 9,978 | $ | — | $ | 34,171 |
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
3. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
4. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
5. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
paid for purchases may be delivered before the exchange is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
6. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory/Sub-Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $500 million | Next $500 million | Over $1 billion | |||||||||
0.80 | % | 0.75 | % | 0.70 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.20% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that the total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 1.20% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $197,000 of advisory fees were waived pursuant to this arrangement.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser, a wholly-owned subsidiary of Morgan Stanley. The Sub-Adviser provides the Fund with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Directors. The Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser receives from the Fund.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Company. For such services, the Administrator pays State
Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $5,454,000 and $10,287,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
reduced by approximately $1,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 633 | $ | 6,436 | $ | 6,494 | $ | 2 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 575 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign
currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 367 | $ | 3,263 | $ | 315 | $ | 4,589 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 276 | $ | 3,690 |
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 85.3%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Global Franchise Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Global Franchise Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Global Franchise Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020. For corporate shareholders 94.2% of the dividends qualified for the dividends received deduction.
The Fund designated and paid approximately $3,263,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Sub-Adviser
Morgan Stanley Investment Management Limited
25 Cabot Square, Canary Wharf
London, E14 4QA, England
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFGFANN
3386935 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Infrastructure Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 6 | ||||||
Statement of Assets and Liabilities | 8 | ||||||
Statement of Operations | 9 | ||||||
Statements of Changes in Net Assets | 10 | ||||||
Financial Highlights | 11 | ||||||
Notes to Financial Statements | 13 | ||||||
Report of Independent Registered Public Accounting Firm | 20 | ||||||
Liquidity Risk Management Program | 21 | ||||||
Federal Tax Notice | 22 | ||||||
Director and Officer Information | 23 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Global Infrastructure Portfolio
As a shareholder of the Global Infrastructure Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Global Infrastructure Portfolio Class I | $ | 1,000.00 | $ | 1,099.50 | $ | 1,020.76 | $ | 4.59 | $ | 4.42 | 0.87 | % | |||||||||||||||
Global Infrastructure Portfolio Class II | 1,000.00 | 1,098.80 | 1,019.51 | 5.91 | 5.69 | 1.12 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Global Infrastructure Portfolio
The Fund seeks both capital appreciation and current income.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of –1.15%, net of fees, and –1.43%, net of fees, for Class II shares. The Fund's Class I and Class II shares outperformed the Fund's benchmark, the Dow Jones Brookfield Global Infrastructure IndexSM (the "Index"), which returned –6.97%, but underperformed the S&P Global BMI Index, a proxy for global equities, which returned 16.78%.
Factors Affecting Performance
• Infrastructure shares declined 6.97% in the year ending December 31, 2020, as measured by the Index. From a sector perspective, water & waste, communications, European regulated utilities, electricity transmission & distribution, and toll roads outperformed the Index, while gas midstream, pipeline companies, ports, airports, diversified, and gas distribution utilities underperformed.
• Overall for 2020, global listed infrastructure securities performed poorly relative to the broader equity markets due to exposure to industries directly impacted by COVID-19, exposure to sectors anticipated to be adversely impacted by the "green" energy transition, as well as infrastructure's perceived defensiveness in a largely pro-cyclical market following the first quarter 2020 equity market lows. In fact, on a full-year basis, infrastructure securities trailed global equities by a wider margin than in any calendar year period post-Global Financial Crisis, with global equities finishing solidly in positive territory for the year while infrastructure securities remained in the red. 2020 was a broadly thematic market, where asset classes fitting into "en vogue" themes (e.g., work-from-home, energy transition) performed well, largely untethered to fundamental trends. After the depths of the pandemic in March 2020, investors also used the comfort of central bank and government "backstops" to broadly bid up equity share prices, as long as the companies being bid were not perceived to have risks associated with future impairment brought on by disruption. In this market, that meant companies with resilient operating fundamentals but little operating leverage were not rewarded. As a result, infrastructure was negatively impacted in 2020 both in sectors with direct, fundamental challenges brought on by the pandemic, as well as those sectors traditionally known for their resilience. In some ways, it was a perfect storm
impacting an asset class where utilities, transportation and energy infrastructure combined represent roughly 80% of the Index. However, the difficult year experienced in 2020 may also present an opportunity moving forward.
• For the full-year 2020, the Fund outperformed the Index. From a bottom-up perspective, the Fund benefited from favorable stock selection in the gas distribution utilities, communications and pipeline companies sectors, which was offset by adverse stock selection in the airports, water & waste, and diversified sectors. From a top-down perspective, the Fund benefited from out-of-benchmark positions in renewables and railroads, underweights to gas midstream and pipeline companies, and an overweight to water & waste, which was only modestly offset by underweights to communications and diversified and an overweight to toll roads.
Management Strategies
• We remain committed to our core investment philosophy as an infrastructure value investor. As value-oriented, bottom-up driven investors, our investment perspective is that over the medium and long term, the key factor in determining the performance of infrastructure securities will be underlying infrastructure asset values. Given the large and growing private infrastructure market, we believe that there are limits as to the level of premium or discount at which the public sector should trade relative to its underlying private infrastructure value. These limits can be viewed as the point at which the arbitrage opportunity between owning infrastructure in the private versus public markets becomes compelling. In aiming to achieve core infrastructure exposure in a cost-effective manner, we invest in equity securities of publicly listed infrastructure companies we believe offer the best value relative to their underlying infrastructure value and Net Asset Value growth prospects.
• Our research currently leads us to an overweighting in the Fund to a group of companies in the toll roads, water & waste, airports and gas midstream sectors, and an underweighting to companies in the electricity transmission & distribution, pipeline companies, communications, European regulated utilities, gas distribution utilities and diversified sectors. Our weighting to ports is roughly in line with the Index. Finally, we continue to retain out-of-benchmark positions in renewables, railroads and certain other utilities that are not contained in the Index.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Infrastructure Portfolio
• Looking forward into 2021, we are highly constructive on infrastructure securities. The relative underperformance of infrastructure versus the broader equity markets has been extreme, and we look for some of that gap to converge, in particular given the fact that fundamental deterioration for infrastructure was much more modest than that for the broader market outside of airports and toll roads, two areas directly impacted by work-from-home policies and the pandemic. Indeed, even in the area of energy infrastructure, where overall demand for natural gas, crude oil and natural gas liquids was reduced as a result of the pandemic, actual cash flow per share revisions were quite modest overall, and in select cases cash flows continued to grow.
• As a general comment, we view valuations in infrastructure securities as attractive, particularly in a relative sense, and believe there are fundamental tailwinds across all sectors, with recovery anticipated in transportation and energy. We acknowledge that rising interest rates may be a short-term headwind for select areas of infrastructure and the equity markets more broadly, but we do not anticipate that headwind to be material or long lasting. Core to this belief is that while we do believe risk-free sovereign rates have scope to rise, we do not believe they will rise to extreme levels, and indeed are likely to remain lower than base rates prior to the pandemic (recall, the U.S. 10-year Treasury yield was roughly 1.90% entering 2020).(i) Furthermore, we believe the velocity of change matters more than the absolute levels, and there is no indication central banks will materially alter their messaging in 2021, prompting a "taper tantrum." Finally, we believe this rise in rates is likely the result of increased expectations with regard to growth and inflation, both positive inputs to infrastructure cash flows through demand and pricing increases.
* Performance shown for the Fund's Class I shares reflects the performance of the Class X shares of VIS Global Infrastructure for periods prior to April 28, 2014.
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
(i) Source: Bloomberg L.P.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Infrastructure Portfolio
Performance Compared to the Dow Jones Brookfield Global Infrastructure IndexSM(1) and the S&P Global BMI Index(2)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(3) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(5) | ||||||||||||||||
Fund – Class I(4) | –1.15 | % | 8.76 | % | 9.44 | % | 8.01 | % | |||||||||||
Dow Jones Brookfield Global Infrastructure IndexSM | –6.97 | 7.52 | 8.15 | 8.82 | |||||||||||||||
S&P Global BMI Index | 16.78 | 12.66 | 9.60 | 8.40 | |||||||||||||||
Fund – Class II(4) | –1.43 | 8.48 | 9.17 | 5.02 | |||||||||||||||
Dow Jones Brookfield Global Infrastructure IndexSM | –6.97 | 7.52 | 8.15 | 7.01 | |||||||||||||||
S&P Global BMI Index | 16.78 | 12.66 | 9.60 | 6.39 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The Dow Jones Brookfield Global Infrastructure IndexSM is a float-adjusted market capitalization weighted index that measures the stock performance of companies that exhibit strong infrastructure characteristics. The Index intends to measure all sectors of the infrastructure market. The Index was first published in July 2008; however, back-tested hypothetical performance information is available for this Index since December 31, 2002. Returns are calculated using the return data of the S&P Global BMI Index through December 31, 2002 and the return data of the Dow Jones Brookfield Global Infrastructure Index for periods thereafter. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) The Standard & Poor's Global BMI Index (S&P Global BMI Index) is a broad market index designed to capture exposure to equities in all countries in the world that meet minimum size and liquidity requirements. The index members represent developed and emerging market countries. The Index is unmanaged and its 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) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(4) On April 28, 2014, the Variable Insurance Fund, Inc. (formerly Universal Institutional Funds, Inc.,) on behalf of the Fund, acquired substantially all of the assets and liabilities of Morgan Stanley Select Dimensions Investment Series — Global Infrastructure Portfolio ("SD Global Infrastructure") and Morgan Stanley Variable Investment Series — Global Infrastructure Portfolio ("VIS Global Infrastructure") in exchange for shares of the Fund. The Fund adopted the financial and performance history of VIS Global Infrastructure. As a result, performance shown for Class I shares and Class II shares reflects the performance history of VIS Global Infrastructure's Class X shares and Class Y shares, respectively, for periods prior to April 28, 2014. VIS Global Infrastructure's Class X shares commenced operations on March 1, 1990 and Class Y shares commenced operations on June 5, 2000.
(5) For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Global Infrastructure Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (95.4%) | |||||||||||
Australia (4.4%) | |||||||||||
Atlas Arteria Ltd. | 165,208 | $ | 831 | ||||||||
Sydney Airport (a) | 114,463 | 566 | |||||||||
Transurban Group | 191,413 | 2,017 | |||||||||
3,414 | |||||||||||
Brazil (0.4%) | |||||||||||
Energisa SA (Units) (b) | 29,900 | 303 | |||||||||
Canada (10.4%) | |||||||||||
Canadian National Railway Co. | 8,421 | 926 | |||||||||
Enbridge, Inc. | 58,227 | 1,862 | |||||||||
Gibson Energy, Inc. (c) | 149,162 | 2,410 | |||||||||
Keyera Corp. (c) | 21,222 | 377 | |||||||||
Pembina Pipeline Corp. (c) | 28,541 | 675 | |||||||||
TC Energy Corp. | 42,754 | 1,738 | |||||||||
7,988 | |||||||||||
China (7.5%) | |||||||||||
China Everbright International Ltd. (d) | 3,093,000 | 1,747 | |||||||||
China Gas Holdings Ltd. (d) | 582,800 | 2,309 | |||||||||
China Merchants Port Holdings Co., Ltd. (d) | 343,034 | 420 | |||||||||
China Tower Corp. Ltd. H Shares (d) | 2,922,000 | 430 | |||||||||
Jiangsu Expressway Co., Ltd. H Shares (d) | 562,000 | 629 | |||||||||
Zhejiang Expressway Co., Ltd., Class H (d) | 264,000 | 223 | |||||||||
5,758 | |||||||||||
Denmark (0.4%) | |||||||||||
Orsted A/S | 1,641 | 336 | |||||||||
France (5.9%) | |||||||||||
Aeroports de Paris (ADP) (a) | 1,712 | 221 | |||||||||
Getlink SE (a) | 37,840 | 655 | |||||||||
Vinci SA | 37,054 | 3,691 | |||||||||
4,567 | |||||||||||
Hong Kong (1.0%) | |||||||||||
Power Assets Holdings Ltd. | 137,500 | 745 | |||||||||
India (2.0%) | |||||||||||
Azure Power Global Ltd. (a) | 37,499 | 1,529 | |||||||||
Italy (3.5%) | |||||||||||
Atlantia SpA (a) | 24,321 | 439 | |||||||||
Infrastrutture Wireless Italiane SpA | 72,760 | 882 | |||||||||
Snam SpA | 74,679 | 422 | |||||||||
Terna Rete Elettrica Nazionale SpA | 126,304 | 971 | |||||||||
2,714 | |||||||||||
Japan (2.3%) | |||||||||||
Central Japan Railway Co. | 3,600 | 509 | |||||||||
East Japan Railway Co. | 18,800 | 1,254 | |||||||||
1,763 |
Shares | Value (000) | ||||||||||
Mexico (4.3%) | |||||||||||
Grupo Aeroportuario del Pacifico SAB de CV, Class B (a) | 54,853 | $ | 612 | ||||||||
Grupo Aeroportuario del Sureste SAB de CV, Class B (a) | 39,221 | 650 | |||||||||
Promotora y Operadora de Infraestructura SAB de CV | 228,514 | 2,026 | |||||||||
3,288 | |||||||||||
New Zealand (1.0%) | |||||||||||
Auckland International Airport Ltd. (a) | 136,787 | 748 | |||||||||
Spain (4.2%) | |||||||||||
Aena SME SA (a) | 5,914 | 1,028 | |||||||||
Cellnex Telecom SA | 18,220 | 1,094 | |||||||||
Ferrovial SA | 41,363 | 1,144 | |||||||||
3,266 | |||||||||||
Switzerland (0.9%) | |||||||||||
Flughafen Zurich AG (Registered) (a) | 4,083 | 720 | |||||||||
United Kingdom (5.1%) | |||||||||||
National Grid PLC | 238,430 | 2,818 | |||||||||
Pennon Group PLC | 38,065 | 493 | |||||||||
Severn Trent PLC | 20,232 | 631 | |||||||||
3,942 | |||||||||||
United States (42.1%) | |||||||||||
Ameren Corp. | 10,410 | 813 | |||||||||
American Electric Power Co., Inc. | 12,674 | 1,055 | |||||||||
American Tower Corp. REIT | 23,374 | 5,247 | |||||||||
American Water Works Co., Inc. | 9,548 | 1,465 | |||||||||
Atmos Energy Corp. | 14,578 | 1,391 | |||||||||
Avangrid, Inc. | 15,868 | 721 | |||||||||
Cheniere Energy, Inc. (a) | 25,291 | 1,518 | |||||||||
CMS Energy Corp. | 9,624 | 587 | |||||||||
Crown Castle International Corp. REIT | 24,258 | 3,862 | |||||||||
Edison International | 22,297 | 1,401 | |||||||||
Essential Utilities, Inc. | 35,459 | 1,677 | |||||||||
Eversource Energy | 16,280 | 1,408 | |||||||||
NiSource, Inc. | 54,162 | 1,242 | |||||||||
ONEOK, Inc. | 49,269 | 1,891 | |||||||||
Republic Services, Inc. | 5,322 | 513 | |||||||||
SBA Communications Corp. REIT | 6,569 | 1,853 | |||||||||
Sempra Energy | 15,906 | 2,027 | |||||||||
Targa Resources Corp. | 40,143 | 1,059 | |||||||||
Waste Management, Inc. | 9,015 | 1,063 | |||||||||
Williams Cos., Inc. (The) | 49,012 | 983 | |||||||||
Xcel Energy, Inc. | 10,112 | 674 | |||||||||
32,450 | |||||||||||
Total Common Stocks (Cost $57,738) | 73,531 |
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Global Infrastructure Portfolio
Shares | Value (000) | ||||||||||
Short-Term Investments (5.8%) | |||||||||||
Securities held as Collateral on Loaned Securities (3.2%) | |||||||||||
Investment Company (2.8%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) | 2,133,048 | $ | 2,133 | ||||||||
Face Amount (000) | |||||||||||
Repurchase Agreements (0.4%) | |||||||||||
Barclays Capital, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $65; fully collateralized by a U.S. Government obligation; 1.63% due 11/15/22; valued at $66) | $ | 65 | 65 | ||||||||
HSBC Securities USA, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $254; fully collateralized by a U.S. Government obligation; 0.15% due 10/31/22; valued at $259) | 254 | 254 | |||||||||
Merrill Lynch & Co., Inc., (0.06%, 12/31/20, due 1/4/21; proceeds $26; fully collateralized by a U.S. Government obligation; 2.50% due 5/15/46; valued at $27) | 26 | 26 | |||||||||
345 | |||||||||||
Total Securities held as Collateral on Loaned Securities (Cost $2,478) | 2,478 | ||||||||||
Shares | |||||||||||
Investment Company (2.6%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Portfolio — Institutional Class (See Note H) (Cost $2,036) | 2,036,420 | 2,036 | |||||||||
Total Short-Term Investments (Cost $4,514) | 4,514 | ||||||||||
Total Investments (101.2%) (Cost $62,252) Including $3,303 of Securities Loaned (e)(f) | 78,045 | ||||||||||
Liabilities in Excess of Other Assets (-1.2%) | (900 | ) | |||||||||
Net Assets (100.0%) | $ | 77,145 |
Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.
(a) Non-income producing security.
(b) Consists of one or more classes of securities traded together as a unit; stocks with attached warrants.
(c) All or a portion of this security was on loan at December 31, 2020.
(d) Security trades on the Hong Kong exchange.
(e) The approximate fair value and percentage of net assets, $28,276,000 and 36.7%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.
(f) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $64,411,000. The aggregate gross unrealized appreciation is approximately $16,954,000 and the aggregate gross unrealized depreciation is approximately $3,320,000, resulting in net unrealized appreciation of approximately $13,634,000.
REIT Real Estate Investment Trust.
Portfolio Composition*
Classification | Percentage of Total Investments | ||||||
Oil & Gas Storage & Transportation | 26.3 | % | |||||
Communications | 17.7 | ||||||
Electricity Transmission & Distribution | 13.4 | ||||||
Other** | 13.2 | ||||||
Toll Roads | 9.0 | ||||||
Water | 8.0 | ||||||
Diversified | 6.4 | ||||||
Airports | 6.0 | ||||||
Total Investments | 100.0 | % |
* Percentages indicated are based upon total investments (excluding Securities held as Collateral on Loaned Securities) as of December 31, 2020.
** Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Infrastructure Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $58,083) | $ | 73,876 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $4,169) | 4,169 | ||||||
Total Investments in Securities, at Value (Cost $62,252) | 78,045 | ||||||
Foreign Currency, at Value (Cost $57) | 58 | ||||||
Receivable for Investments Sold | 2,201 | ||||||
Dividends Receivable | 203 | ||||||
Receivable for Fund Shares Sold | 31 | ||||||
Tax Reclaim Receivable | 12 | ||||||
Receivable from Affiliate | — | @ | |||||
Receivable from Securities Lending Income | — | @ | |||||
Other Assets | 11 | ||||||
Total Assets | 80,561 | ||||||
Liabilities: | |||||||
Collateral on Securities Loaned, at Value | 2,478 | ||||||
Payable for Investments Purchased | 761 | ||||||
Payable for Advisory Fees | 56 | ||||||
Payable for Servicing Fees | 41 | ||||||
Payable for Fund Shares Redeemed | 21 | ||||||
Payable for Professional Fees | 18 | ||||||
Payable for Custodian Fees | 15 | ||||||
Payable for Distribution Fees — Class II Shares | 9 | ||||||
Payable for Administration Fees | 5 | ||||||
Payable for Transfer Agency Fees | 1 | ||||||
Other Liabilities | 11 | ||||||
Total Liabilities | 3,416 | ||||||
NET ASSETS | $ | 77,145 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 58,455 | |||||
Total Distributable Earnings | 18,690 | ||||||
Net Assets | $ | 77,145 | |||||
CLASS I: | |||||||
Net Assets | $ | 35,868 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 4,621,698 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 7.76 | |||||
CLASS II: | |||||||
Net Assets | $ | 41,277 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 5,358,726 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 7.70 | |||||
(1) Including: | |||||||
Securities on Loan, at Value: | $ | 3,303 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Infrastructure Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Dividends from Securities of Unaffiliated Issuers (Net of $94 of Foreign Taxes Withheld) | $ | 2,223 | |||||
Income from Securities Loaned — Net | 5 | ||||||
Dividends from Security of Affiliated Issuer (Note H) | 3 | ||||||
Total Investment Income | 2,231 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 647 | ||||||
Professional Fees | 118 | ||||||
Servicing Fees (Note D) | 113 | ||||||
Distribution Fees — Class II Shares (Note E) | 100 | ||||||
Administration Fees (Note C) | 61 | ||||||
Custodian Fees (Note G) | 41 | ||||||
Shareholder Reporting Fees | 25 | ||||||
Transfer Agency Fees (Note F) | 6 | ||||||
Directors' Fees and Expenses | 6 | ||||||
Pricing Fees | 4 | ||||||
Other Expenses | 15 | ||||||
Total Expenses | 1,136 | ||||||
Waiver of Advisory Fees (Note B) | (374 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (2 | ) | |||||
Net Expenses | 760 | ||||||
Net Investment Income | 1,471 | ||||||
Realized Gain: | |||||||
Investments Sold | 2,383 | ||||||
Foreign Currency Translation | 9 | ||||||
Net Realized Gain | 2,392 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments | (5,625 | ) | |||||
Foreign Currency Translation | (@) | ||||||
Net Change in Unrealized Appreciation (Depreciation) | (5,625 | ) | |||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | (3,233 | ) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (1,762 | ) |
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Infrastructure Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 1,471 | $ | 2,087 | |||||||
Net Realized Gain | 2,392 | 1,333 | |||||||||
Net Change in Unrealized Appreciation (Depreciation) | (5,625 | ) | 17,287 | ||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,762 | ) | 20,707 | ||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (1,168 | ) | (3,030 | ) | |||||||
Class II | (1,196 | ) | (3,020 | ) | |||||||
Total Dividends and Distributions to Shareholders | (2,364 | ) | (6,050 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 1,652 | 691 | |||||||||
Distributions Reinvested | 1,168 | 3,030 | |||||||||
Redeemed | (7,202 | ) | (7,493 | ) | |||||||
Class II: | |||||||||||
Subscribed | 5,363 | 5,255 | |||||||||
Distributions Reinvested | 1,196 | 3,020 | |||||||||
Redeemed | (9,123 | ) | (7,778 | ) | |||||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (6,946 | ) | (3,275 | ) | |||||||
Total Increase (Decrease) in Net Assets | (11,072 | ) | 11,382 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 88,217 | 76,835 | |||||||||
End of Period | $ | 77,145 | $ | 88,217 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 225 | 90 | |||||||||
Shares Issued on Distributions Reinvested | 164 | 394 | |||||||||
Shares Redeemed | (958 | ) | (974 | ) | |||||||
Net Decrease in Class I Shares Outstanding | (569 | ) | (490 | ) | |||||||
Class II: | |||||||||||
Shares Subscribed | 714 | 682 | |||||||||
Shares Issued on Distributions Reinvested | 169 | 395 | |||||||||
Shares Redeemed | (1,237 | ) | (1,018 | ) | |||||||
Net Increase (Decrease) in Class II Shares Outstanding | (354 | ) | 59 |
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Global Infrastructure Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 8.12 | $ | 6.80 | $ | 7.91 | $ | 7.53 | $ | 7.08 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.15 | 0.20 | 0.20 | 0.23 | 0.22 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | (0.26 | ) | 1.69 | (0.79 | ) | 0.72 | 0.88 | ||||||||||||||||
Total from Investment Operations | (0.11 | ) | 1.89 | (0.59 | ) | 0.95 | 1.10 | ||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.13 | ) | (0.22 | ) | (0.23 | ) | (0.19 | ) | (0.18 | ) | |||||||||||||
Net Realized Gain | (0.12 | ) | (0.35 | ) | (0.29 | ) | (0.38 | ) | (0.47 | ) | |||||||||||||
Total Distributions | (0.25 | ) | (0.57 | ) | (0.52 | ) | (0.57 | ) | (0.65 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 7.76 | $ | 8.12 | $ | 6.80 | $ | 7.91 | $ | 7.53 | |||||||||||||
Total Return(3) | (1.15 | )% | 28.30 | % | (7.85 | )% | 12.96 | % | 15.27 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 35,868 | $ | 42,162 | $ | 38,642 | $ | 50,116 | $ | 51,786 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.36 | % | 1.33 | % | 1.34 | % | 1.34 | % | 1.29 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.87 | %(4) | 0.87 | %(4) | 0.87 | %(4) | 0.86 | %(4) | 0.86 | %(4) | |||||||||||||
Ratio of Net Investment Income | 2.06 | %(4) | 2.58 | %(4) | 2.80 | %(4) | 2.98 | %(4) | 2.87 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(5) | 0.00 | %(5) | 0.00 | %(5) | 0.01 | % | 0.01 | % | |||||||||||||
Portfolio Turnover Rate | 62 | % | 30 | % | 44 | % | 43 | % | 51 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Global Infrastructure Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 8.06 | $ | 6.76 | $ | 7.85 | $ | 7.49 | $ | 7.05 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.13 | 0.18 | 0.18 | 0.21 | 0.20 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | (0.26 | ) | 1.67 | (0.77 | ) | 0.71 | 0.87 | ||||||||||||||||
Total from Investment Operations | (0.13 | ) | 1.85 | (0.59 | ) | 0.92 | 1.07 | ||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.11 | ) | (0.20 | ) | (0.21 | ) | (0.18 | ) | (0.16 | ) | |||||||||||||
Net Realized Gain | (0.12 | ) | (0.35 | ) | (0.29 | ) | (0.38 | ) | (0.47 | ) | |||||||||||||
Total Distributions | (0.23 | ) | (0.55 | ) | (0.50 | ) | (0.56 | ) | (0.63 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 7.70 | $ | 8.06 | $ | 6.76 | $ | 7.85 | $ | 7.49 | |||||||||||||
Total Return(3) | (1.43 | )% | 27.87 | % | (7.89 | )% | 12.54 | % | 14.97 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 41,277 | $ | 46,055 | $ | 38,193 | $ | 45,234 | $ | 37,747 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.61 | % | 1.58 | % | 1.59 | % | 1.59 | % | 1.54 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.12 | %(4) | 1.12 | %(4) | 1.12 | %(4) | 1.11 | %(4) | 1.11 | %(4) | |||||||||||||
Ratio of Net Investment Income | 1.81 | %(4) | 2.33 | %(4) | 2.55 | %(4) | 2.73 | %(4) | 2.62 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(5) | 0.00 | %(5) | 0.00 | %(5) | 0.01 | % | 0.01 | % | |||||||||||||
Portfolio Turnover Rate | 62 | % | 30 | % | 44 | % | 43 | % | 51 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Global Infrastructure Portfolio. The Fund seeks both capital appreciation and current income. The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is
no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser") a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (4) when market quotations are not readily available, including circumstances under which the Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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 Directors or
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
by the Adviser using a pricing service and/or procedures approved by the Directors; (5) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (6) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Airports | $ | 1,262 | $ | 3,283 | $ | — | $ | 4,545 | |||||||||||
Commercial Services & Supplies | 513 | — | — | 513 | |||||||||||||||
Communications | 10,962 | 2,406 | — | 13,368 | |||||||||||||||
Diversified | — | 4,835 | — | 4,835 | |||||||||||||||
Electricity Transmission & Distribution | 5,259 | 4,837 | — | 10,096 | |||||||||||||||
Oil & Gas Storage & Transportation | 17,173 | 2,731 | — | 19,904 | |||||||||||||||
Ports | — | 420 | — | 420 | |||||||||||||||
Railroads | 926 | 1,763 | — | 2,689 | |||||||||||||||
Renewables | 1,529 | 336 | — | 1,865 | |||||||||||||||
Toll Roads | 2,026 | 4,794 | — | 6,820 | |||||||||||||||
Utilities | 2,463 | — | — | 2,463 | |||||||||||||||
Water | 3,142 | 2,871 | — | 6,013 | |||||||||||||||
Total Common Stocks | 45,255 | 28,276 | — | 73,531 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 4,169 | — | — | 4,169 | |||||||||||||||
Repurchase Agreements | — | 345 | — | 345 | |||||||||||||||
Total Short-Term Investments | 4,169 | 345 | — | 4,514 | |||||||||||||||
Total Assets | $ | 49,424 | $ | 28,621 | $ | — | $ | 78,045 |
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
3. Repurchase Agreements: The Fund may enter into repurchase agreements under which the Fund lends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-tomarket on a daily basis to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral proceeds may be subject to cost and delays. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements.
4. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments
in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
5. Securities Lending: The Fund lends securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Fund. The Fund would receive cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned — Net" in the Fund's Statement of Operations. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund has the right under the securities lending agreement to recover the securities from the borrower on demand.
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||
Gross Asset Amounts Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | ||||||||||||
$ | 3,303 | (a) | $ | — | $ | (3,303 | )(b)(c) | $ | 0 |
(a) Represents market value of loaned securities at year end.
(b) The Fund received cash collateral of approximately $2,478,000, which was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. In addition, the Fund received non-cash collateral of approximately $992,000 in the form of U.S. Government obligations, which the Fund cannot sell or repledge, and accordingly are not reflected in the Portfolio of Investments.
(c) The actual collateral received is greater than the amount shown here due to overcollateralization.
FASB ASC 860, "Transfers & Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures", is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged and the remaining contractual maturity of those transactions as of December 31, 2020:
Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||
Overnight and Continuous (000) | <30 days (000) | Between 30 & 90 days (000) | >90 days (000) | Total (000) | |||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||
Common Stocks | $ | 2,478 | $ | — | $ | — | $ | — | $ | 2,478 | |||||||||||||
Total Borrowings | $ | 2,478 | $ | — | $ | — | $ | — | $ | 2,478 | |||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 2,478 |
6. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
7. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
8. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at an annual rate of 0.85% of the daily net assets of the Fund.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.87% for Class I shares and 1.12% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $374,000 of advisory fees were waived pursuant to this arrangement.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street, State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1
under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $46,759,000 and $57,148,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $2,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 924 | $ | 29,373 | $ | 26,128 | $ | 3 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 4,169 |
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 1,179 | $ | 1,185 | $ | 2,240 | $ | 3,810 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 2,113 | $ | 2,941 |
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 69.0%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Global Infrastructure Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Global Infrastructure Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Global Infrastructure Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020. For corporate shareholders 26.3% of the dividends qualified for the dividends received deduction.
The Fund designated and paid approximately $1,185,000 as a long-term capital gain distribution.
For federal income tax purposes, the following information is furnished with respect to the Fund's earnings for its taxable year ended December 31, 2020. When distributed, certain earnings may be subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designated up to a maximum of approximately $1,250,000 as taxable at this lower rate.
The Fund intends to pass through foreign tax credits of approximately $94,000 and has derived net income from sources within foreign countries amounting to approximately $1,348,000.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFGINANN
3386938 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Real Estate Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 6 | ||||||
Statement of Assets and Liabilities | 9 | ||||||
Statement of Operations | 10 | ||||||
Statements of Changes in Net Assets | 11 | ||||||
Financial Highlights | 12 | ||||||
Notes to Financial Statements | 13 | ||||||
Report of Independent Registered Public Accounting Firm | 21 | ||||||
Liquidity Risk Management Program | 22 | ||||||
Federal Tax Notice | 23 | ||||||
Director and Officer Information | 24 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Global Real Estate Portfolio
As a shareholder of the Global Real Estate Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Global Real Estate Portfolio Class II | $ | 1,000.00 | $ | 1,164.10 | $ | 1,018.85 | $ | 6.80 | $ | 6.34 | 1.25 | % |
* Expenses are calculated using the Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Global Real Estate Portfolio
The Fund seeks to provide current income and capital appreciation.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class II shares had a total return based on net asset value and reinvestment of distributions per share of -14.85%, net of fees. The Fund's Class II shares underperformed the Fund's benchmark, the FTSE EPRA Nareit Developed Real Estate Index — Net Total Return to U.S. Investors (the "Index"), which returned -8.45%, and the MSCI World Net Index, which returned 15.90%.
Factors Affecting Performance
• Global real estate securities declined 8.5% during the 12-month period ending December 31, 2020, as measured by the Index, as the impacts of COVID-19 and the widespread economic and social shutdowns experienced worldwide disproportionately impacted fundamentals for the property sector. After a sharp decline in the first quarter following the initial outbreak and spread of COVID-19, the sector posted gains for the remainder of the year, as markets responded positively to fiscal and monetary stimulus policies. Importantly, real estate posted strong gains in the fourth quarter of 2020, after a strong rally in November on news that the Pfizer-BioNTech and Moderna vaccines were over 90% effective in preventing COVID-19.
• The largest declines for the year from a sector perspective were experienced in the retail, hotel and office property sectors.
• Retail real estate experienced a pullback for the year given the direct impact social distancing and quarantining measures have had on earnings. The retail sector underperformed as London (declined 39.2%), Continental Europe (declined 39.0%) and U.S. retail assets (-37.4% for U.S. malls and -27.8% U.S. shopping centers) posted losses for the full year.(i) The temporary closure of a significant faction of retail real estate impaired cash rent collections. Additionally, the strain that the pandemic has placed on retail tenants has called into question the solvency of such tenants going forward, leading to greater uncertainty in cash flow projections for retail landlords.
• The Fund's security selection and overweight allocation to U.S. malls, overweight to Continental European retail and
security selection in the U.K. Majors detracted from performance for the year. However, the underweight to U.S. shopping centers overall, coupled with positive security selection, contributed to performance for the Fund.
• Global offices also underperformed for the year, as growing uncertainty regarding the potential structural impact of the work-from-home theme impacted the sector. For the full-year period, U.S. primary central business district (CBD) offices declined 22.0%, London offices declined 20.5% and U.S. secondary CBD/suburban offices declined 14.8%.(i) Despite this increased uncertainty, office companies have continued to have high rent collections and limited tenant bankruptcies. Additionally, despite low utilization of office space in much of the U.S. and Europe, it is noteworthy that in Northern Asia, where the health crisis is currently deemed to be more under control, the labor force has mostly returned to the workplace and the office market is not facing as intense scrutiny with regard to the structural impact from the work-from-home theme.
• The Fund's overweight allocation to primary CBD office within the U.S. was the largest detractor from performance, as was stock selection in this segment.
• Hotel stocks in the U.S. underperformed for the year (-25.9%) due to a significant decline in demand stemming from a pullback in both business and leisure travel as a result of the pandemic.(i) Despite this headwind, the Fund's positions in select hotel companies modestly contributed to performance.
• German residential, U.S. data centers and U.S. industrial were top performers over the course of the year, returning 35.7%, 18.1% and 13.4%, respectively.(i) Within Germany, investors were drawn to the defensive characteristics displayed by the residential landlords, as the pandemic had little impact on rental levels, occupancy rates and rent collections. Within the U.S., both data centers and industrial benefited from increased demand as a result of COVID-19 stemming from the increased need for digital infrastructure and e-commerce fulfillment.
• The underweight in German residential and U.S. data centers detracted from relative performance. Despite an underweight position in the U.S. industrial sector detracting from the Fund's performance, favorable security selection was additive for the year.
(i) Returns provided are a sub-segment of the FTSE EPRA Nareit Developed Index. Data as of December 31, 2020.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Real Estate Portfolio
• From a geographic perspective, we note the following:
o North American property stocks declined 9.7% as measured by the FTSE EPRA Nareit North America Index.(ii)
• Canada (-12.8%) underperformed the U.S. (-9.6%) for the year, given less sector exposure to outperforming alternative asset types, including data centers and self-storage.
o Within Asia, property stocks declined 9.1%, as measured by the FTSE EPRA Nareit Developed Asia Index.(ii)
• Singapore outperformed the Asian average (-0.8%), Australia (-9.0%) performed in line, while Japan (-9.8%) and Hong Kong (-12.2%) underperformed the Asian average for the year.
• Strength in the Asian currencies relative to the U.S. dollar lifted overall returns, particularly in Australia and Japan.
o European property stocks declined 1.9%, as measured by the FTSE EPRA Nareit Developed Europe Index.(ii)
• Spain (-26.6%), France (-20.4%) and the U.K. (-13.2%) experienced the weakest returns for the year, whereas Germany (25.4%) and Sweden (9.0%) were notable outperformers.
• Strength in the euro and British pound relative to the U.S. dollar were additive for index returns.
Management Strategies
• While real estate securities posted a negative return for the year, recent market strength in the asset class is supported by a number of macro and fundamental factors, including monetary stimulus, vaccine discovery and clarity on the timeline for successful vaccine dissemination, and the reopening of economies and related positive demand impacts for sectors across real estate. Additionally, the relative valuation of real estate securities is attractive compared to investable alternatives including the broader equity market, fixed income and direct property investment.
• For these reasons, we have a favorable outlook for real estate over the next year, however, continue to believe active management with a keen focus on relative value is important.
• The investment philosophy of the Fund has evolved to incorporate equity multiples and cash flow growth estimates, in addition to the more traditional net asset value approach. By incorporating both an equity market valuation and more traditional real estate valuation, we believe the Fund will be better prepared to identify securities with the best expected total returns going forward.
(ii) The FTSE EPRA Nareit North America Index is a subset of the FTSE EPRA Nareit Developed Index and is a free float-adjusted market capitalization weighted index composed of listed real estate securities in the North American (U.S. and Canada) real estate market. The FTSE EPRA Nareit Developed Asia Index is a subset of the FTSE EPRA Nareit Developed Index and is a free float-adjusted market capitalization weighted index composed of listed real estate securities in the Asian real estate markets. The FTSE EPRA Nareit Developed Europe Index is a subset of the FTSE EPRA Nareit Developed Index and is a free float-adjusted market capitalization weighted index composed of listed real estate securities in the European real estate markets. The performance of the indexes are listed in U.S. dollars and assume reinvestment of dividends. The 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.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Real Estate Portfolio
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested.
Performance Compared to the FTSE EPRA Nareit Developed Real Estate Index – Net Total Return to U.S. Investors(1) and the MSCI World Net Index(2)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(3) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(5) | ||||||||||||||||
Fund – Class II(4) | –14.85 | % | 0.86 | % | 3.45 | % | 2.91 | % | |||||||||||
FTSE EPRA Nareit Developed Real Estate Index – Net Total Return to U.S. Investors | –8.45 | 4.40 | 6.05 | 4.09 | |||||||||||||||
MSCI World Net Index | 15.90 | 12.19 | 9.87 | 6.81 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The FTSE EPRA Nareit Developed Real Estate Index — Net Total Return to U.S. Investors is a free float-adjusted market capitalization weighted index designed to reflect the stock performance of companies engaged in specific aspects of the major real estate markets/regions of the developed world. The performance of the Index is listed in U.S. dollars and assumes reinvestment of dividends. "Net Total Return to U.S. Investors" reflects a reduction in total returns after taking into account the withholding tax on dividends by certain foreign countries represented in the Index. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) The MSCI World Net Index is a free float-adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI World Net Index currently consists of 23 developed market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Index is unmanaged and its 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) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(4) Commenced operations on April 28, 2006.
(5) For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Global Real Estate Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (99.1%) | |||||||||||
Australia (3.1%) | |||||||||||
Dexus REIT | 59,595 | $ | 432 | ||||||||
Goodman Group REIT | 10,258 | 150 | |||||||||
GPT Group (The) REIT | 43,274 | 150 | |||||||||
Mirvac Group REIT | 82,050 | 167 | |||||||||
Scentre Group REIT | 123,850 | 266 | |||||||||
Stockland REIT | 100,215 | 324 | |||||||||
Vicinity Centres REIT | 131,093 | 162 | |||||||||
1,651 | |||||||||||
Austria (0.2%) | |||||||||||
CA Immobilien Anlagen AG | 2,228 | 85 | |||||||||
Canada (1.8%) | |||||||||||
First Capital REIT | 4,681 | 50 | |||||||||
Granite REIT | 9,608 | 588 | |||||||||
RioCan REIT | 25,480 | 335 | |||||||||
973 | |||||||||||
China (1.9%) | |||||||||||
China Resources Land Ltd. (a) | 50,000 | 206 | |||||||||
China Resources Mixc Lifestyle Services Ltd. (a)(b) | 32,153 | 149 | |||||||||
KWG Group Holdings Ltd. (a) | 59,353 | 81 | |||||||||
KWG Living Group Holdings Ltd. (a)(b) | 6,644 | 6 | |||||||||
Longfor Group Holdings Ltd. (a) | 77,500 | 453 | |||||||||
Shimao Group Holdings Ltd. (a) | 35,500 | 113 | |||||||||
1,008 | |||||||||||
Finland (0.4%) | |||||||||||
Kojamo Oyj | 10,898 | 242 | |||||||||
France (3.4%) | |||||||||||
Carmila SA REIT | 2,812 | 41 | |||||||||
Gecina SA REIT | 4,415 | 687 | |||||||||
ICADE REIT | 1,044 | 80 | |||||||||
Klepierre SA REIT (c) | 30,967 | 698 | |||||||||
Mercialys SA REIT | 35,306 | 310 | |||||||||
1,816 | |||||||||||
Germany (5.1%) | |||||||||||
ADLER Group SA (b) | 1,541 | 54 | |||||||||
Alstria Office AG REIT | 17,312 | 315 | |||||||||
Deutsche Wohnen SE | 13,770 | 735 | |||||||||
LEG Immobilien AG | 2,280 | 354 | |||||||||
Vonovia SE | 17,075 | 1,247 | |||||||||
2,705 | |||||||||||
Hong Kong (7.3%) | |||||||||||
CK Asset Holdings Ltd. | 37,500 | 192 | |||||||||
ESR Cayman Ltd. (b) | 63,400 | 228 | |||||||||
Hang Lung Properties Ltd. | 74,000 | 195 | |||||||||
Hongkong Land Holdings Ltd. | 97,600 | 403 | |||||||||
Link REIT | 74,175 | 674 | |||||||||
New World Development Co. Ltd. | 65,146 | 303 |
Shares | Value (000) | ||||||||||
Sun Hung Kai Properties Ltd. | 77,393 | $ | 990 | ||||||||
Swire Properties Ltd. | 177,900 | 517 | |||||||||
Wharf Real Estate Investment Co., Ltd. | 78,420 | 407 | |||||||||
3,909 | |||||||||||
Ireland (0.7%) | |||||||||||
Hibernia REIT PLC | 266,377 | 374 | |||||||||
Japan (9.9%) | |||||||||||
Activia Properties, Inc. REIT | 17 | 72 | |||||||||
Advance Residence Investment Corp. REIT | 63 | 189 | |||||||||
Daiwa Office Investment Corp. REIT (c) | 18 | 114 | |||||||||
GLP J-REIT | 196 | 309 | |||||||||
Hulic Co., Ltd. (c) | 5,200 | 57 | |||||||||
Japan Hotel Investment Corp. REIT | 136 | 70 | |||||||||
Japan Prime Realty Investment Corp. REIT (c) | 13 | 43 | |||||||||
Japan Real Estate Investment Corp. REIT | 69 | 399 | |||||||||
Japan Retail Fund Investment Corp. REIT | 88 | 160 | |||||||||
Kenedix Office Investment Corp. REIT | 9 | 61 | |||||||||
LaSalle Logiport REIT | 57 | 92 | |||||||||
Mitsubishi Estate Co., Ltd. | 47,700 | 767 | |||||||||
Mitsubishi Estate Logistics Investment Corp. REIT | 25 | 104 | |||||||||
Mitsui Fudosan Co., Ltd. | 37,300 | 781 | |||||||||
Mitsui Fudosan Logistics Park, Inc. REIT | 57 | 289 | |||||||||
Mori Trust Sogo REIT, Inc. | 45 | 58 | |||||||||
Nippon Building Fund, Inc. REIT | 101 | 586 | |||||||||
Nippon Prologis, Inc. REIT | 46 | 144 | |||||||||
Nomura Real Estate Master Fund, Inc. REIT | 166 | 237 | |||||||||
Orix, Inc. J-REIT | 30 | 50 | |||||||||
Sumitomo Realty & Development Co., Ltd. | 17,900 | 553 | |||||||||
United Urban Investment Corp. REIT | 101 | 125 | |||||||||
5,260 | |||||||||||
Malta (0.0%) | |||||||||||
BGP Holdings PLC (b)(d) | 5,886,464 | 9 | |||||||||
Netherlands (0.9%) | |||||||||||
Eurocommercial Properties N.V. CVA REIT (b) | 15,173 | 284 | |||||||||
NSI N.V. REIT | 4,883 | 195 | |||||||||
479 | |||||||||||
Norway (0.2%) | |||||||||||
Entra ASA (c) | 2,557 | 58 | |||||||||
Norwegian Property ASA | 16,225 | 25 | |||||||||
83 | |||||||||||
Singapore (1.7%) | |||||||||||
Ascendas REIT | 40,532 | 92 | |||||||||
CapitaLand Integrated Commercial Trust REIT | 75,342 | 123 | |||||||||
Frasers Logistics & Commercial Trust REIT | 48,600 | 52 | |||||||||
Keppel DC REIT | 122,000 | 260 | |||||||||
Mapletree Commercial Trust REIT | 82,912 | 133 | |||||||||
Mapletree Industrial Trust REIT | 70,300 | 154 | |||||||||
Mapletree Logistics Trust REIT | 53,163 | 81 | |||||||||
895 |
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Global Real Estate Portfolio
Shares | Value (000) | ||||||||||
Spain (1.2%) | |||||||||||
Inmobiliaria Colonial Socimi SA REIT | 21,432 | $ | 212 | ||||||||
Merlin Properties Socimi SA REIT | 45,932 | 438 | |||||||||
650 | |||||||||||
Sweden (1.3%) | |||||||||||
Atrium Ljungberg AB, Class B | 4,816 | 102 | |||||||||
Castellum AB | 2,768 | 70 | |||||||||
Fabege AB | 17,067 | 270 | |||||||||
Hufvudstaden AB, Class A | 12,909 | 213 | |||||||||
Kungsleden AB | 4,704 | 52 | |||||||||
707 | |||||||||||
Switzerland (0.5%) | |||||||||||
PSP Swiss Property AG (Registered) | 1,873 | 250 | |||||||||
United Kingdom (5.9%) | |||||||||||
British Land Co., PLC (The) REIT | 109,210 | 731 | |||||||||
Capital & Counties Properties PLC | 12,308 | 25 | |||||||||
Derwent London PLC REIT | 8,281 | 352 | |||||||||
Grainger PLC | 21,462 | 84 | |||||||||
Great Portland Estates PLC REIT | 37,195 | 340 | |||||||||
Hammerson PLC REIT | 722,010 | 244 | |||||||||
Helical PLC | 97 | 1 | |||||||||
Land Securities Group PLC REIT | 77,978 | 720 | |||||||||
Segro PLC REIT | 21,725 | 282 | |||||||||
St. Modwen Properties PLC | 22,784 | 125 | |||||||||
Tritax Big Box PLC REIT | 55,010 | 126 | |||||||||
Urban & Civic PLC | 19,802 | 93 | |||||||||
Workspace Group PLC REIT | 2,827 | 30 | |||||||||
3,153 | |||||||||||
United States (53.6%) | |||||||||||
Alexandria Real Estate Equities, Inc. REIT | 1,106 | 197 | |||||||||
American Campus Communities, Inc. REIT | 8,109 | 347 | |||||||||
AvalonBay Communities, Inc. REIT | 9,377 | 1,504 | |||||||||
Boston Properties, Inc. REIT | 9,113 | 861 | |||||||||
Brixmor Property Group, Inc. REIT | 36,513 | 604 | |||||||||
Camden Property Trust REIT | 8,905 | 890 | |||||||||
Cousins Properties, Inc. REIT | 13,694 | 459 | |||||||||
CubeSmart REIT | 19,951 | 671 | |||||||||
Digital Realty Trust, Inc. REIT | 10,892 | 1,520 | |||||||||
Duke Realty Corp. REIT | 14,777 | 591 | |||||||||
Equity Lifestyle Properties, Inc. REIT | 9,421 | 597 | |||||||||
Equity Residential REIT | 20,730 | 1,229 | |||||||||
Essex Property Trust, Inc. REIT | 3,101 | 736 | |||||||||
First Industrial Realty Trust, Inc. REIT | 1,911 | 80 | |||||||||
Gaming and Leisure Properties, Inc. REIT | 13,704 | 581 | |||||||||
Healthcare Realty Trust, Inc. REIT | 21,635 | 640 | |||||||||
Healthpeak Properties, Inc. REIT | 39,257 | 1,187 | |||||||||
Host Hotels & Resorts, Inc. REIT | 39,945 | 584 | |||||||||
Hudson Pacific Properties, Inc. REIT | 11,340 | 272 | |||||||||
Invitation Homes, Inc. REIT | 41,148 | 1,222 | |||||||||
JBG SMITH Properties REIT | 18,690 | 584 | |||||||||
Kilroy Realty Corp. REIT | 11,316 | 650 | |||||||||
Mack-Cali Realty Corp. REIT | 11,202 | 140 |
Shares | Value (000) | ||||||||||
Medical Properties Trust, Inc. REIT | 26,999 | $ | 588 | ||||||||
NETSTREIT Corp. REIT | 31,143 | 607 | |||||||||
Prologis, Inc. REIT | 27,369 | 2,728 | |||||||||
Public Storage REIT | 8,779 | 2,027 | |||||||||
QTS Realty Trust, Inc., Class A REIT | 4,750 | 294 | |||||||||
Regency Centers Corp. REIT | 9,691 | 442 | |||||||||
RLJ Lodging Trust REIT | 39,248 | 555 | |||||||||
Sabra Health Care, Inc. REIT | 11,981 | 208 | |||||||||
Simon Property Group, Inc. REIT | 17,087 | 1,457 | |||||||||
SL Green Realty Corp. REIT | 10,048 | 599 | |||||||||
Sunstone Hotel Investors, Inc. REIT | 53,380 | 605 | |||||||||
Ventas, Inc. REIT | 17,741 | 870 | |||||||||
VEREIT, Inc. REIT | 23,597 | 892 | |||||||||
Weingarten Realty Investors REIT | 24,364 | 528 | |||||||||
28,546 | |||||||||||
Total Common Stocks (Cost $42,328) | 52,795 | ||||||||||
Short-Term Investments (1.4%) | |||||||||||
Securities held as Collateral on Loaned Securities (1.4%) | |||||||||||
Investment Company (1.2%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) | 618,151 | 618 | |||||||||
Face Amount (000) | |||||||||||
Repurchase Agreements (0.2%) | |||||||||||
Barclays Capital, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $19; fully collateralized by a U.S. Government obligation; 1.63% due 11/15/22; valued at $19) | $ | 19 | 19 | ||||||||
HSBC Securities USA, Inc., (0.05%, dated 12/31/20, due 1/4/21; proceeds $73; fully collateralized by a U.S. Government obligation; 0.15% due 10/31/22; valued at $75) | 73 | 73 | |||||||||
Merrill Lynch & Co., Inc., (0.06%, 12/31/20, due 1/4/21; proceeds $8; fully collateralized by a U.S. Government obligation; 2.50% due 5/15/46; valued at $8) | 8 | 8 | |||||||||
100 | |||||||||||
Total Short-Term Investments (Cost $718) | 718 | ||||||||||
Total Investments (100.5%) (Cost $43,046) Including $853 of Securities Loaned (e)(f) | 53,513 | ||||||||||
Liabilities in Excess of Other Assets (-0.5%) | (259 | ) | |||||||||
Net Assets (100.0%) | $ | 53,254 |
Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.
(a) Security trades on the Hong Kong exchange.
(b) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Global Real Estate Portfolio
(c) All or a portion of this security was on loan at December 31, 2020.
(d) At December 31, 2020, the Fund held a fair valued security valued at approximately $9,000, representing less than 0.05% of net assets. This security has been fair valued as determined in good faith under procedures established by and under the general supervision of the Company's (as defined herein) Directors.
(e) The approximate fair value and percentage of net assets, $23,112,000 and 43.4%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.
(f) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $46,992,000. The aggregate gross unrealized appreciation is approximately $9,978,000 and the aggregate gross unrealized depreciation is approximately $3,457,000, resulting in net unrealized appreciation of approximately $6,521,000.
CVA Certificaten Van Aandelen.
REIT Real Estate Investment Trust.
Portfolio Composition*
Classification | Percentage of Total Investments | ||||||
Diversified | 26.3 | % | |||||
Residential | 17.9 | ||||||
Office | 14.5 | ||||||
Retail | 13.2 | ||||||
Industrial | 11.1 | ||||||
Health Care | 6.6 | ||||||
Other** | 5.3 | ||||||
Self Storage | 5.1 | ||||||
Total Investments | 100.0 | % |
* Percentages indicated are based upon total investments (excluding Securities held as Collateral on Loaned Securities) as of December 31, 2020.
** Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Real Estate Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $42,428) | $ | 52,895 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $618) | 618 | ||||||
Total Investments in Securities, at Value (Cost $43,046) | 53,513 | ||||||
Foreign Currency, at Value (Cost $238) | 239 | ||||||
Receivable for Investments Sold | 404 | ||||||
Dividends Receivable | 256 | ||||||
Tax Reclaim Receivable | 38 | ||||||
Receivable for Fund Shares Sold | 3 | ||||||
Receivable from Affiliate | — | @ | |||||
Receivable from Securities Lending Income | — | @ | |||||
Other Assets | 11 | ||||||
Total Assets | 54,464 | ||||||
Liabilities: | |||||||
Collateral on Securities Loaned, at Value | 718 | ||||||
Payable for Investments Purchased | 233 | ||||||
Bank Overdraft | 107 | ||||||
Payable for Fund Shares Redeemed | 29 | ||||||
Payable for Custodian Fees | 27 | ||||||
Payable for Professional Fees | 20 | ||||||
Deferred Capital Gain Country Tax | 20 | ||||||
Payable for Servicing Fees | 18 | ||||||
Payable for Distribution Fees — Class II Shares | 11 | ||||||
Payable for Advisory Fees | 9 | ||||||
Payable for Administration Fees | 4 | ||||||
Payable for Transfer Agency Fees | 1 | ||||||
Other Liabilities | 13 | ||||||
Total Liabilities | 1,210 | ||||||
NET ASSETS | $ | 53,254 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 51,913 | |||||
Total Distributable Earnings | 1,341 | ||||||
Net Assets | $ | 53,254 | |||||
CLASS II: | |||||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 6,222,016 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 8.56 | |||||
(1) Including: | |||||||
Securities on Loan, at Value: | $ | 853 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Real Estate Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Dividends from Securities of Unaffiliated Issuers (Net of $80 of Foreign Taxes Withheld) | $ | 1,656 | |||||
Dividends from Security of Affiliated Issuer (Note H) | 1 | ||||||
Income from Securities Loaned — Net | 1 | ||||||
Total Investment Income | 1,658 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 422 | ||||||
Distribution Fees — Class II Shares (Note E) | 132 | ||||||
Professional Fees | 126 | ||||||
Servicing Fees (Note D) | 90 | ||||||
Custodian Fees (Note G) | 82 | ||||||
Administration Fees (Note C) | 42 | ||||||
Shareholder Reporting Fees | 25 | ||||||
Pricing Fees | 11 | ||||||
Directors' Fees and Expenses | 5 | ||||||
Transfer Agency Fees (Note F) | 5 | ||||||
Other Expenses | 14 | ||||||
Total Expenses | 954 | ||||||
Waiver of Advisory Fees (Note B) | (294 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (1 | ) | |||||
Net Expenses | 659 | ||||||
Net Investment Income | 999 | ||||||
Realized Gain (Loss): | |||||||
Investments Sold (Net of $14 of Capital Gain Country Tax) | (5,633 | ) | |||||
Foreign Currency Translation | 18 | ||||||
Net Realized Loss | (5,615 | ) | |||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments (Net of Decrease in Deferred Capital Gain Country Tax of $5) | (5,996 | ) | |||||
Foreign Currency Translation | (1 | ) | |||||
Net Change in Unrealized Appreciation (Depreciation) | (5,997 | ) | |||||
Net Realized Loss and Change in Unrealized Appreciation (Depreciation) | (11,612 | ) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (10,613 | ) |
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Real Estate Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 999 | $ | 1,191 | |||||||
Net Realized Gain (Loss) | (5,615 | ) | 2,682 | ||||||||
Net Change in Unrealized Appreciation (Depreciation) | (5,997 | ) | 7,870 | ||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (10,613 | ) | 11,743 | ||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class II | (3,403 | ) | (5,238 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class II: | |||||||||||
Subscribed | 7,643 | 6,093 | |||||||||
Distributions Reinvested | 3,403 | 5,238 | |||||||||
Redeemed | (14,202 | ) | (14,161 | ) | |||||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (3,156 | ) | (2,830 | ) | |||||||
Total Increase (Decrease) in Net Assets | (17,172 | ) | 3,675 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 70,426 | 66,751 | |||||||||
End of Period | $ | 53,254 | $ | 70,426 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class II: | |||||||||||
Shares Subscribed | 974 | 571 | |||||||||
Shares Issued on Distributions Reinvested | 464 | 498 | |||||||||
Shares Redeemed | (1,735 | ) | (1,313 | ) | |||||||
Net Decrease in Class II Shares Outstanding | (297 | ) | (244 | ) |
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Global Real Estate Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.80 | $ | 9.87 | $ | 11.09 | $ | 10.36 | $ | 10.18 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.16 | 0.18 | 0.25 | 0.24 | 0.16 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | (1.86 | ) | 1.58 | (1.13 | ) | 0.75 | 0.16 | ||||||||||||||||
Total from Investment Operations | (1.70 | ) | 1.76 | (0.88 | ) | 0.99 | 0.32 | ||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.37 | ) | (0.29 | ) | (0.34 | ) | (0.26 | ) | (0.14 | ) | |||||||||||||
Net Realized Gain | (0.17 | ) | (0.54 | ) | — | — | — | ||||||||||||||||
Total Distributions | (0.54 | ) | (0.83 | ) | (0.34 | ) | (0.26 | ) | (0.14 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 8.56 | $ | 10.80 | $ | 9.87 | $ | 11.09 | $ | 10.36 | |||||||||||||
Total Return(3) | (14.85 | )% | 18.06 | % | (8.20 | )% | 9.71 | % | 3.12 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 53,254 | $ | 70,426 | $ | 66,751 | $ | 83,625 | $ | 86,247 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.81 | % | 1.64 | % | 1.66 | % | 1.69 | % | 1.60 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.25 | %(4) | 1.25 | %(4) | 1.33 | %(4)(5) | 1.40 | %(4) | 1.40 | %(4) | |||||||||||||
Ratio of Net Investment Income | 1.89 | %(4) | 1.67 | %(4) | 2.37 | %(4) | 2.26 | %(4) | 1.54 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(6) | 0.00 | %(6) | 0.00 | %(6) | 0.00 | %(6) | 0.00 | %(6) | |||||||||||||
Portfolio Turnover Rate | 53 | % | 24 | % | 36 | % | 34 | % | 24 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective July 1, 2018, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.25% for Class II shares. Prior to July 1, 2018, the maximum ratio was 1.40% for Class II shares.
(6) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Global Real Estate Portfolio. The Fund seeks to provide current income and capital appreciation. The Fund currently offers Class II shares only, although Class I shares may be offered in the future.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last
reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Limited ("MSIM Limited") and Morgan Stanley Investment Management Company ("MSIM Company") (together, the "Sub-Advisers"), each a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (4) when market quotations are not readily available, including circumstances under which the Adviser or the Sub-Advisers determine that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("NYSE"). If developments occur during such periods that are expected to materially affect the value of such
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (5) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (6) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The Fund invests a significant portion of its assets in securities of REITs. The market's perception of prospective declines in private real estate values and other financial assets may result in increased volatility of market prices that can negatively impact the valuation of certain issuers held by the Fund.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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.
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The following is a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Diversified | $ | 3,585 | $ | 10,308 | $ | — | $ | 13,893 | |||||||||||
Health Care | 3,493 | — | — | 3,493 | |||||||||||||||
Industrial | 3,987 | 1,857 | — | 5,844 | |||||||||||||||
Industrial/Office Mixed | — | 368 | — | 368 | |||||||||||||||
Lodging/Resorts | 1,744 | 70 | — | 1,814 | |||||||||||||||
Office | 3,038 | 4,642 | — | 7,680 | |||||||||||||||
Residential | 6,525 | 2,905 | 9 | 9,439 | |||||||||||||||
Retail | 4,023 | 2,962 | — | 6,985 | |||||||||||||||
Self Storage | 2,698 | — | — | 2,698 | |||||||||||||||
Specialty | 581 | — | — | 581 | |||||||||||||||
Total Common Stocks | 29,674 | 23,112 | 9 | 52,795 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 618 | — | — | 618 | |||||||||||||||
Repurchase Agreements | — | 100 | — | 100 | |||||||||||||||
Total Short-Term Investments | 618 | 100 | — | 718 | |||||||||||||||
Total Assets | $ | 30,292 | $ | 23,212 | $ | 9 | $ | 53,513 |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Common Stock (000) | |||||||
Beginning Balance | $ | 9 | |||||
Purchases | — | ||||||
Sales | — | ||||||
Amortization of discount | — | ||||||
Transfers in | — | ||||||
Transfers out | — | ||||||
Corporate actions | — | ||||||
Change in unrealized appreciation (depreciation) | — | @ | |||||
Realized gains (losses) | — | ||||||
Ending Balance | $ | 9 | |||||
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2020 | $ | — | @ |
@ Value is less than $500.
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of December 31, 2020:
Fair Value at December 31, 2020 (000) | Valuation Technique | Unobservable Input | Amount* | Impact to Valuation from an Increase in Input** | |||||||||||||||||||
Common Stock | $ | 9 | Market Transaction Method | Transaction Valuation | $ | 0.001 | Increase | ||||||||||||||||
| Discount for Lack of Marketability | 50.0 | % | Decrease |
* Amount is indicative of the weighted average.
** Represents the expected directional change in the fair value of the Level 3 investments that would result from an increase in the corresponding input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs could result in significantly higher or lower fair value measurements.
3. Repurchase Agreements: The Fund may enter into repurchase agreements under which the Fund lends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds
one business day, the value of the collateral is marked-to-market on a daily basis to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
to the agreement, realization of the collateral proceeds may be subject to cost and delays. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements.
4. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange
rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
5. Securities Lending: The Fund lends securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund would receive cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned — Net" in the Fund's Statement of Operations. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund has the right under the securities lending agreement to recover the securities from the borrower on demand.
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||
Gross Asset Amounts Presented in the Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | ||||||||||||
$ | 853 | (a) | $ | — | $ | (853 | )(b)(c) | $ | 0 |
(a) Represents market value of loaned securities at year end.
(b) The Fund received cash collateral of approximately $718,000, which was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. In addition, the Fund received non-cash collateral of approximately $193,000 in the form of U.S. Government obligations, which the Fund cannot sell or repledge, and accordingly are not reflected in the Portfolio of Investments.
(c) The actual collateral received is greater than the amount shown here due to overcollateralization.
FASB ASC 860, "Transfers & Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures", is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged and the remaining contractual maturity of those transactions as of December 31, 2020:
Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||
Overnight and Continuous (000) | <30 days (000) | Between 30 & 90 days (000) | >90 days (000) | Total (000) | |||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||
Common Stocks | $ | 718 | $ | — | $ | — | $ | — | $ | 718 | |||||||||||||
Total Borrowings | $ | 718 | $ | — | $ | — | $ | — | $ | 718 | |||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 718 |
6. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
7. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
The Fund owns shares of REITs which report information on the source of their distributions annually in the following calendar year. A portion of distributions received from REITs during the year is estimated to be a return of capital and is recorded as a reduction of their cost.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
8. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory/Sub-Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at an annual rate of 0.80% of the daily net assets of the Fund.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that the total annual Fund operating expenses, excluding certain investment related expenses, taxes,
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
interest and other extraordinary expenses (including litigation), will not exceed 1.25% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $294,000 of advisory fees were waived pursuant to this arrangement.
The Adviser has entered into Sub-Advisory Agreements with the Sub-Advisers, each a wholly-owned subsidiary of Morgan Stanley. The Sub-Advisers provide the Fund with advisory services subject to the overall supervision of the Adviser and the Company's Officers and Directors. The Adviser pays the Sub-Advisers on a monthly basis a portion of the net advisory fees the Adviser receives from the Fund.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer
Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $27,859,000 and $32,004,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Treasury Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $1,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 473 | $ | 10,876 | $ | 10,731 | $ | 1 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 618 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for
tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 2,346 | $ | 1,057 | $ | 1,979 | $ | 3,259 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
Permanent differences, due to an adjustment to prior period equalization debits, resulted in the following reclassifications among the components of net assets at December 31, 2020:
Total Distributable Earnings (000) | Paid-in Capital (000) | ||||||
$ | 5 | $ | (5 | ) |
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 1,434 | $ | — |
At December 31, 2020, the Fund had available for federal income tax purposes unused short-term and long-term capital losses of approximately $520,000 and $6,086,000, respectively, that do not have an expiration date.
To the extent that capital loss carryforwards are used to offset any future capital gains realized, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders.
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 85.6%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak
could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Global Real Estate Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Global Real Estate Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Global Real Estate Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020.
The Fund designated and paid approximately $1,057,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Sub-Advisers
Morgan Stanley Investment Management Limited
25 Cabot Square, Canary Wharf
London, E14 4QA, England
Morgan Stanley Investment Management Company
23 Church Street
16-01 Capital Square, Singapore 049481
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFGREANN
3386941 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Strategist Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Consolidated Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Consolidated Portfolio of Investments | 7 | ||||||
Consolidated Statement of Assets and Liabilities | 37 | ||||||
Consolidated Statement of Operations | 38 | ||||||
Consolidated Statements of Changes in Net Assets | 39 | ||||||
Consolidated Financial Highlights | 40 | ||||||
Notes to Consolidated Financial Statements | 42 | ||||||
Report of Independent Registered Public Accounting Firm | 55 | ||||||
Liquidity Risk Management Program | 56 | ||||||
Federal Tax Notice | 57 | ||||||
Director and Officer Information | 58 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Expense Example (unaudited)
Global Strategist Portfolio
As a shareholder of the Global Strategist Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Global Strategist Portfolio Class I | $ | 1,000.00 | $ | 1,181.70 | $ | 1,020.71 | $ | 4.83 | $ | 4.47 | 0.88 | % | |||||||||||||||
Global Strategist Portfolio Class II | 1,000.00 | 1,181.40 | 1,020.21 | 5.37 | 4.98 | 0.98 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Global Strategist Portfolio
The Fund seeks total return.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 10.92%, net of fees, and 10.85%, net of fees, for Class II shares. The Fund's Class I and Class II shares underperformed the Fund's benchmark, the MSCI All Country World Index (the "Index"), which returned 16.25%, and underperformed the Customized MSIM Global Allocation Index (the "Customized Index"), which returned 14.05%. The Fund and benchmark index performance is in U.S. dollar ("USD") terms, unless otherwise noted.
Factors Affecting Performance*(i)
• Global markets experienced three phases in 2020.
o The first phase was characterized a substantial sell-off in the first quarter of 2020, as the global COVID-19 pandemic caused major economies around the world to grind to a near-halt. From mid-February to mid-March, global equities fell by over –30% (as measured by the Index) and the VIX index, a measure of stock price volatility, broke above 80 in mid-March, a level it had not reached since 2008. Market leadership during this first phase came from high quality and relatively safe assets.
o The sharp decline in activity and the markets prompted policy makers to come out forcefully with fiscal and monetary support, which ushered in the second phase of market performance, the rebound, in both economic growth and in the performance of risky financial assets. Market leadership in this second phase came from high growth stocks such as those in the technology, communication services and consumer discretionary sectors.
o The third and final phase, the vaccine rally, began in early November 2020 when global pharmaceutical companies announced encouraging news about COVID-19 vaccines, allowing many countries to roll out initial vaccination programs. From the beginning of this phase through year-end, value and cyclicality led markets.
• Global equities ended the year up +14.2% (the Index in local currency terms) in a volatile year for financial markets. U.S. equities led regionally (S&P 500® Index
+18.4%), supported by bold government stimulus, positive economic surprises, and a presidential election result that was seen as market positive. Joe Biden was elected the 46th U.S. president in November, and the apparent lack of a "blue sweep" was interpreted by markets to mean legislative gridlock, which would prevent profligate spending and aggressive regulation. Positive performance was particularly driven by U.S. mega-cap and growth stocks that have dominated for much of the last market cycle. Emerging market (EM) equity performance was not far behind the U.S., with the MSCI EM Index up +18.3% in USD, helped by in part by U.S. dollar weakness (–6.7% DXY Index), and the overall risk-on environment. Tech-heavy countries like Korea (+45%), Taiwan (+42%) and China (+30%) were the strongest performers within EM (country returns represented by MSCI country indexes). Eurozone equities rose +11.4% (Eurostoxx 50 Index in euro terms). The region managed to contain the COVID-19 virus relatively early on while many individual countries announced fiscal stimulus plans. But bold coordinated policy support proved to be more difficult to achieve, and the region began to experience a second wave in the fourth quarter, prompting renewed lockdowns. A last-minute Brexit deal helped to alleviate uncertainty and avoid the possibility of a no-deal Brexit.
• Prices on relatively safe government bonds were higher in the first quarter of 2020, but the rally stalled for the remainder of the year. The J.P. Morgan Global Government Bond Index rose +5.6%. Even as economic data improved and policymakers came out with substantial support, yields did not rise in step with equity prices in most regions for most of the year, reflecting lingering concerns as COVID-19 cases remained elevated. U.S. yields, however, began to rise in the fourth quarter of 2020, with the yield curve steepening. The U.S. 10-year Treasury yield fell –100 basis points (bps) for the year as a whole (even after rising +23 bps in the fourth quarter), ending at 0.91%, while the 2-year fell –145 bps to 0.12%. U.S. inflation breakevens rose +22 bps to 2.01%, breaching 2.0% for the first time since 2018. Credit spread
* Certain of the Fund's investment themes may, in whole or part, be implemented through the use of derivatives, including the purchase and sale of futures, options, swaps, structured investments (including commodity-linked notes) and other related instruments and techniques. The Fund may also invest in foreign currency forward exchange contracts, which are also derivatives, in connection with its investments in foreign securities. The Fund may use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. As a result, the use of derivatives had a material effect on the Fund's performance during the period.
(i) Source: Morgan Stanley Investment Management (MSIM) Global Multi-Asset Team analysis; market data sourced from Bloomberg.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Strategist Portfolio
on riskier debt followed a similar pattern to equities, widening sharply in the first quarter then rebounding with overall sentiment in the remainder of the year. U.S. high yield bonds suffered a major sell-off before the U.S. announced a comprehensive economic support package that included support for high yield markets. U.S. high yield spreads shot upward from 336 bps at the beginning of the year to 1,100 bps on March 23, 2020, before settling back down to 360 bps by the end of the year, ending just +24 bps above where they began 2020 (Bloomberg Barclays U.S. High Yield Index). Emerging market hard currency bond spreads more than doubled during the sell-off (widening +384 bps to 662 bps on March 23, 2020), before falling back down to just below 325 bps, ending the year just +46 bps above where they began 2020 (J.P. Morgan Emerging Markets Bond Index Global).
• The U.S. dollar weakened by –6.7% for 2020 as a whole (after initially climbing by +6.7% at the peak of U.S. dollar funding concerns in late-March). From the peak, the U.S. dollar fell by –12.5%, as economic data stabilized globally and U.S. policymakers announced aggressive fiscal and monetary activism. Relatively safe reserve currencies were among the largest gainers versus the U.S. dollar, with the Swiss franc up +9.4% and the euro up +8.9%. In addition, the Chinese renminbi rose by +6.7% versus the U.S. dollar, as China managed to contain the COVID-19 virus early on and reopen its economy, thus experiencing a strong recovery while most other major economic regions struggled with second waves and renewed lockdowns.
• Commodity prices overall collapsed –42% during the first quarter of 2020 and only partially regained ground in the remainder of the year, ending 2020 still down –24% (S&P GSCI Index). Brent oil prices fell by over 65% in the first quarter from $66 per barrel at the start of the year to just over $21 per barrel, before rebounding by nearly 150%, ending just above $50 per barrel on expectations for demand improvement associated with a return to more normal economic activity. Gold has been among the best performing assets in 2020, given its relative safe-haven status and profligate global monetary and fiscal policy, and is up over +25% this year.
• The Fund's asset allocation mix of an average overweight in equities, an underweight in fixed income and an overweight in cash had a negative impact on performance.
• Active positions within equities detracted from performance. Detractors included overweight positions in our Value Recovery theme, such as overweights in value vs.
anti-value and momentum stocks in the U.S. and overweights in value vs. anti-value and low-volatility stocks in Europe. Overweights in Japanese real estate stocks vs. Japanese equities and in U.S. airlines vs. U.S. equities also detracted. Contributors during the period included overweight positions in global auto stocks vs. global equities and an overweight in U.S. housing and homebuilders stocks vs. U.S. equities. An overweight in U.S. industrials vs. U.S. equities and a directional overweight in U.S. equities also contributed to performance.
• Active positions within fixed income contributed to performance. Contributors included overweight positions in U.S. inflation breakevens, in Mexico 10-year bonds vs. U.S. 10-year Treasuries, and in Greek 10-year bonds vs. Italy 10-year bonds. Detractors during the period included an underweight in U.S. 30-year and 10-year Treasuries, and in Argentine 10-year bonds vs. U.S. 10-year Treasuries.
• Active positions within commodities had a positive impact on performance, as overweight positions in gold and oil contributed.
• Active currency positions detracted from performance. Detractors during the period included overweights in the Mexican peso vs. the U.S. dollar, in the British pound vs. the U.S. dollar, and in the Brazilian real vs. emerging market currencies. Contributors included overweight positions in defensive currencies and in the Chinese renminbi, both vs. the U.S. dollar.
Management Strategies(ii)
• If 2020 was the year of living with the COVID-19 virus, we expect 2021 will be about the return to normalcy. We expect U.S. herd immunity will be reached in the second quarter, with the virus fully conquered by the third quarter and most other developed countries less than a couple of months behind. Emerging markets may take six to 12 months longer to achieve immunity. In the meantime, the virus will likely continue to disrupt economic activity and many signs of euphoria (including GMA equity sentiment indicators, enthusiasm for initial public offerings and special purpose acquisition companies known as SPACs, the performance of highly speculative assets such as loss-making companies) all indicate increased risk for
(ii) Source: Morgan Stanley Investment Management (MSIM) Global Multi-Asset Team analysis; market data sourced from Bloomberg; consensus estimates sourced from Thomson Reuters I/B/E/S.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Strategist Portfolio
equities. A significant correction triggered by higher yields is now our base case for the first quarter of 2021.
• For 2021 as a whole, we believe the combination of reopening, monetary and fiscal stimulus, and pent-up demand will supercharge growth and allow many countries to close their output gaps in 2021 and 2022. We expect global growth of 7.3%, and expect the U.S. economy to grow by 6.5% to 9.0% next year, nearly double the consensus' expectation, and as a result, the U.S. output gap to close by summer 2021 and Europe's to close two quarters later.
• If the output gap closes in 2021 with the support of monetary and fiscal policy, inflation is unlikely to stay depressed for as long as it did during the 2010s. In contrast to the Global Financial Crisis (GFC), the world is not facing the long hangover of a balance sheet recession. In addition, the outcome of the Georgia run-off elections (resulting in a Democratic president, Senate, and House) could mean further fiscal stimulus. We expect inflation to reach 1.75% at the end of 2021 and 2.0% by early 2022. We expect the Fed will not raise rates until six to 12 months after inflation is above 2% and the economy is back at maximum employment, which may not occur until 2022 or 2023. This would mean that long-term government bond yields, which almost everyone expects to rise very modestly in 2021, could surprise on the upside. Our target for 10-year yields is 1.65% by end of 2021, and we note this could prove too conservative and might be achieved by mid-year.
• We expect only modest returns for global equities despite very strong earnings per share (EPS) growth in 2021 due to very high starting valuations and rising bond yields. After shrinking –17% in 2020, we expect global profits to rise +35% in 2021, with bigger rebounds in the worst-hit regions in 2020. For example, in the eurozone, where corporate profits shrank –35% in 2020, we expect them to rise +63% in 2021. In principle, big rebounds in profits should be positive for stock markets. However, stocks massively re-rated in 2020, from 19x trailing EPS to 26x today (or 16.5x to 20x in forward price-to-earnings terms). We expect multiple compression to more reasonable levels around 17-18x forward EPS — a typical pattern in the second year of a recovery.
• Modest returns for broad equity indices in 2021 will likely hide substantial performance differentials at the region, sector, and style level, similar to 2020. Expensively-valued stocks of fast-growing companies had spectacular returns in 2020. Russell 1000® Growth Index stocks returned +37% while Russell 1000 Value Index stocks were flat (on a price return basis). On top of the prior nine years of strong performance, Growth's cumulative price return for the decade is now +322% (versus +111% for Value). We saw a similar bifurcation in the performance of countries and regions, with the U.S. and China massively outperforming Japan and the eurozone, both last year and over the past decade. This bifurcated performance between Anti-Value (high multiple stocks) and Value (low multiple stocks) has resulted in one of the widest valuation gaps between the two that we have ever seen. Anti-Value stocks now trade at 43x forward earnings, a 272% premium to Value stocks' 11.6x (versus the historical premium of 138%). This kind of valuation premium for highly valued stocks might have been justified when the global economy was collapsing. But as the world goes back to normal, the premium for highly valued stocks should also return to normal.
• We remain modestly overweight global equities, and would expect to trim this and may rotate into a small underweight at some point during the first quarter of 2021. The majority of the risk in our portfolios is allocated to Value-related positions around the world. Our regional allocations are broadly a reflection of this view, with underweights in U.S. and China equities, and overweights in eurozone, Japanese and emerging markets ex-China equities. In addition, we expect the U.S. dollar to continue to weaken as the U.S. borrows from the rest of the world at real interest rates that will likely continue to fall as inflation rises. We also expect commodities and commodity stocks to outperform and have positioned accordingly. Given the negative carry on underweight positions in U.S. Treasuries, we are positioned with long-end yield curve steepeners and overweight positions in inflation breakevens.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Global Strategist Portfolio
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the MSCI All Country World Index(1) and the Customized MSIM Global Allocation Index(2)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(3) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(6) | ||||||||||||||||
Fund – Class I(4) | 10.92 | % | 8.41 | % | 6.17 | % | 4.53 | % | |||||||||||
MSCI All Country World Index | 16.25 | 12.26 | 9.13 | 6.96 | |||||||||||||||
Customized MSIM Global Allocation Index | 14.05 | 9.39 | 6.36 | N/A | |||||||||||||||
Fund – Class II(5) | 10.85 | 8.31 | — | 6.15 | |||||||||||||||
MSCI All Country World Index | 16.25 | 12.26 | — | 9.43 | |||||||||||||||
Customized MSIM Global Allocation Index | 14.05 | 9.39 | — | 6.51 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The MSCI All Country World Index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. Returns, including periods prior to January 1, 2001, are calculated using the return data of the MSCI All Country World Index (gross dividends) through December 31, 2000 and the return data of the MSCI All Country World Index (net dividends) after December 31, 2000. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) The Customized MSIM Global Allocation Index is a performance linked benchmark comprised of 60% MSCI All Country World Index and 40% Bloomberg Barclays Global Aggregate Index for periods after May 31, 2017. Prior to May 31, 2017, the Customized MSIM Global Allocation Index consisted of 60% MSCI All Country World Index (benchmark that measures the equity market performance of developed and emerging markets), 30% Bloomberg Barclays Global Aggregate Index (benchmark that provides a broadbased measure of the global investment grade fixed-rate debt markets), 5% S&P GSCI Light Energy Index (benchmark for investment performance in the energy commodity market) and 5% ICE BofA U.S. Dollar 1-Month LIBID Average Index (benchmark that tracks the performance of a basket of synthetic assets paying LIBID to a stated maturity). The Customized MSIM Global Allocation Index was added as the Fund benchmark on October 2, 2013 and is provided for comparative purposes only. The Index is unmanaged and its 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) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(4) Commenced operations on January 2, 1997.
(5) Commenced offering on March 15, 2011.
(6) For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments
Global Strategist Portfolio
Face Amount (000) | Value (000) | ||||||||||
Fixed Income Securities (38.7%) | |||||||||||
Agency Adjustable Rate Mortgage (0.0%) | |||||||||||
United States (0.0%) | |||||||||||
Federal Home Loan Mortgage Corporation, Conventional Pool: 12 Month USD LIBOR + 1.62%, 3.10%, 7/1/45 (Cost $18) | $ | 18 | $ | 18 | |||||||
Agency Fixed Rate Mortgages (2.7%) | |||||||||||
United States (2.7%) | |||||||||||
Federal Home Loan Mortgage Corporation, Conventional Pool: 4.50%, 1/1/49 | 53 | 57 | |||||||||
Gold Pools: 3.50%, 2/1/45 - 6/1/45 | 293 | 321 | |||||||||
4.50%, 1/1/49 | 32 | 34 | |||||||||
Federal National Mortgage Association, Conventional Pools: | |||||||||||
4.00%, 11/1/41 - 1/1/46 | 287 | 319 | |||||||||
4.50%, 3/1/41 - 11/1/44 | 149 | 166 | |||||||||
5.00%, 1/1/41 - 3/1/41 | 52 | 60 | |||||||||
6.00%, 1/1/38 | 10 | 12 | |||||||||
6.50%, 8/1/38 | 2 | 2 | |||||||||
February TBA: 2.00%, 2/1/51 (a) | 300 | 311 | |||||||||
January TBA: 3.00%, 1/1/51 (a) | 520 | 545 | |||||||||
3.50%, 1/1/51 (a) | 900 | 951 | |||||||||
Government National Mortgage Association, Various Pools: 4.00%, 7/15/44 | 26 | 28 | |||||||||
5.00%, 2/20/49 - 3/20/49 | 35 | 39 | |||||||||
Total Agency Fixed Rate Mortgages (Cost $2,799) | 2,845 | ||||||||||
Asset-Backed Securities (0.5%) | |||||||||||
United States (0.5%) | |||||||||||
Freed ABS Trust, 3.06%, 3/18/27 (b) | 100 | 102 | |||||||||
Louisiana Public Facilities Authority, 3 Month USD LIBOR + 0.90%, 1.11%, 4/26/27 (c) | 7 | 7 | |||||||||
New Century Home Equity Loan Trust, 1 Month USD LIBOR + 1.35%, 1.50%, 3/25/33 (c) | 73 | 72 | |||||||||
North Carolina State Education Assistance Authority, 3 Month USD LIBOR + 0.80%, 1.01%, 7/25/25 (c) | 9 | 9 | |||||||||
NovaStar Mortgage Funding Trust, 1 Month USD LIBOR + 1.58%, 1.72%, 12/25/34 (c) | 75 | 74 | |||||||||
Renaissance Home Equity Loan Trust, 1 Month USD LIBOR + 0.76%, 0.91%, 12/25/32 (c) | 83 | 79 | |||||||||
SLM Student Loan Trust, 3 Month EURIBOR + 0.55%, 0.04%, 7/25/39 (c) | EUR | 100 | 117 | ||||||||
Total Asset-Backed Securities (Cost $450) | 460 |
Face Amount (000) | Value (000) | ||||||||||
Commercial Mortgage-Backed Securities (0.6%) | |||||||||||
United Kingdom (0.1%) | |||||||||||
Taurus DAC, 3 Month GBP LIBOR + 1.10%, 1.15%, 5/22/28 (c) | GBP | 92 | $ | 122 | |||||||
United States (0.5%) | |||||||||||
COMM Mortgage Trust, 3.28%, 1/10/46 | $ | 45 | 47 | ||||||||
3.96%, 3/10/47 | 144 | 158 | |||||||||
4.74%, 7/15/47 (b)(c) | 100 | 85 | |||||||||
Commercial Mortgage Pass-Through Certificates, 4.24%, 2/10/47 (c) | 77 | 85 | |||||||||
UBS-Barclays Commercial Mortgage Trust, 3.53%, 5/10/63 | 40 | 41 | |||||||||
WFRBS Commercial Mortgage Trust, 5.02%, 9/15/46 (b)(c) | 140 | 110 | |||||||||
526 | |||||||||||
Total Commercial Mortgage-Backed Securities (Cost $662) | 648 | ||||||||||
Corporate Bonds (11.6%) | |||||||||||
Australia (0.3%) | |||||||||||
Macquarie Bank Ltd., 6.63%, 4/7/21 (b) | 85 | 86 | |||||||||
Macquarie Group Ltd., 4.15%, 3/27/24 (b) | 50 | 54 | |||||||||
Transurban Finance Co. Pty Ltd., 2.00%, 8/28/25 | EUR | 100 | 133 | ||||||||
Westpac Banking Corp., 2.67%, 11/15/35 | $ | 25 | 26 | ||||||||
299 | |||||||||||
Belgium (0.1%) | |||||||||||
Anheuser-Busch InBev SA, 2.75%, 3/17/36 | EUR | 75 | 116 | ||||||||
Canada (0.5%) | |||||||||||
Enbridge, Inc., 2.50%, 1/15/25 | $ | 50 | 54 | ||||||||
Province of British Columbia Canada, 2.00%, 10/23/22 | 260 | 268 | |||||||||
Province of Ontario Canada, 2.30%, 6/15/26 | 230 | 251 | |||||||||
573 | |||||||||||
China (0.2%) | |||||||||||
Baidu, Inc., 2.88%, 7/6/22 | 200 | 206 | |||||||||
Colombia (0.1%) | |||||||||||
Ecopetrol SA, 5.88%, 9/18/23 | 120 | 134 | |||||||||
France (0.8%) | |||||||||||
Banque Federative du Credit Mutuel SA, 1.75%, 12/19/24 | EUR | 100 | 145 | ||||||||
BNP Paribas SA, 1.13%, 6/11/26 | 125 | 160 | |||||||||
BPCE SA, 5.15%, 7/21/24 (b) | $ | 200 | 228 |
The accompanying notes are an integral part of the consolidated financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Face Amount (000) | Value (000) | ||||||||||
Corporate Bonds (cont'd) | |||||||||||
Orange SA, 5.00%, 10/1/26 (d) | EUR | 100 | $ | 148 | |||||||
TOTAL SA, 3.88%, 5/18/22 (d) | 100 | 128 | |||||||||
809 | |||||||||||
Germany (0.9%) | |||||||||||
Bayer US Finance II LLC, 3.88%, 12/15/23 (b) | $ | 200 | 218 | ||||||||
Daimler Finance North America LLC, 2.70%, 6/14/24 (b) | 150 | 161 | |||||||||
Deutsche Telekom International Finance BV, 3.60%, 1/19/27 (b) | 150 | 169 | |||||||||
Kreditanstalt fuer Wiederaufbau, 1.13%, 9/15/32 | EUR | 190 | 270 | ||||||||
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen, 6.00%, 5/26/41 | 100 | 125 | |||||||||
943 | |||||||||||
India (0.2%) | |||||||||||
ONGC Videsh Vankorneft Pte Ltd., 3.75%, 7/27/26 | $ | 200 | 217 | ||||||||
Ireland (0.1%) | |||||||||||
Avolon Holdings Funding Ltd., 2.88%, 2/15/25 (b) | 50 | 51 | |||||||||
Israel (0.0%) | |||||||||||
Teva Pharmaceutical Finance Netherlands III BV, 2.20%, 7/21/21 | 32 | 32 | |||||||||
Italy (0.1%) | |||||||||||
Intesa Sanpaolo SpA, 6.50%, 2/24/21 (b) | 100 | 101 | |||||||||
Korea, Republic of (0.4%) | |||||||||||
Korea Electric Power Corp., 2.50%, 6/24/24 (b) | 200 | 212 | |||||||||
Korea Hydro & Nuclear Power Co., Ltd., 3.75%, 7/25/23 (b) | 200 | 216 | |||||||||
428 | |||||||||||
Netherlands (0.1%) | |||||||||||
ASR Nederland N.V., 5.00%, 9/30/24 (d) | EUR | 100 | 138 | ||||||||
Saudi Arabia (0.2%) | |||||||||||
Saudi Arabian Oil Co., 3.50%, 4/16/29 | $ | 200 | 223 | ||||||||
Spain (0.5%) | |||||||||||
Banco Santander SA, 3.13%, 1/19/27 | EUR | 100 | 140 | ||||||||
5.18%, 11/19/25 | $ | 200 | 235 | ||||||||
CaixaBank SA, 0.75%, 4/18/23 | EUR | 100 | 124 | ||||||||
499 |
Face Amount (000) | Value (000) | ||||||||||
Switzerland (0.9%) | |||||||||||
Credit Suisse Group AG, 2.19%, 6/5/26 (b) | $ | 500 | $ | 523 | |||||||
Syngenta Finance N.V., 4.44%, 4/24/23 (b) | 200 | 210 | |||||||||
UBS Group AG, 3.49%, 5/23/23 (b) | 200 | 208 | |||||||||
941 | |||||||||||
United Arab Emirates (0.4%) | |||||||||||
ADCB Finance Cayman Ltd., 4.00%, 3/29/23 (b) | 200 | 214 | |||||||||
Galaxy Pipeline Assets Bidco Ltd., 2.63%, 3/31/36 (b) | 225 | 234 | |||||||||
448 | |||||||||||
United Kingdom (1.4%) | |||||||||||
BAT Capital Corp., 3.56%, 8/15/27 | 125 | 139 | |||||||||
BP Capital Markets PLC, 2.50%, 11/6/22 | 100 | 104 | |||||||||
Heathrow Funding Ltd., 4.88%, 7/15/23 (b) | 100 | 102 | |||||||||
HSBC Holdings PLC, 2.26%, 11/13/26 | 100 | 146 | |||||||||
4.25%, 3/14/24 | 200 | 221 | |||||||||
Lloyds Banking Group PLC, 2.25%, 10/16/24 | GBP | 100 | 143 | ||||||||
Nationwide Building Society, 3.77%, 3/8/24 (b) | $ | 200 | 213 | ||||||||
Natwest Group PLC, 3.88%, 9/12/23 | 200 | 217 | |||||||||
NGG Finance PLC, 5.63%, 6/18/73 | GBP | 100 | 157 | ||||||||
1,442 | |||||||||||
United States (4.4%) | |||||||||||
AbbVie, Inc., 3.20%, 11/21/29 | $ | 100 | 112 | ||||||||
Air Lease Corp., 2.30%, 2/1/25 | 75 | 78 | |||||||||
Amazon.com, Inc., 4.25%, 8/22/57 | 50 | 71 | |||||||||
American International Group, Inc., 4.88%, 6/1/22 | 50 | 53 | |||||||||
Apple, Inc., 2.50%, 2/9/22 | 200 | 205 | |||||||||
AT&T, Inc., 1.80%, 9/5/26 | EUR | 100 | 133 | ||||||||
2.90%, 12/4/26 | $ | 100 | 152 | ||||||||
Bank of America Corp., MTN 4.00%, 1/22/25 | 175 | 197 | |||||||||
Boeing Co. (The), 5.15%, 5/1/30 | 50 | 61 | |||||||||
Campbell Soup Co., 2.38%, 4/24/30 | 50 | 53 |
The accompanying notes are an integral part of the consolidated financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Face Amount (000) | Value (000) | ||||||||||
Corporate Bonds (cont'd) | |||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital, 5.75%, 4/1/48 | $ | 50 | $ | 66 | |||||||
Chubb INA Holdings, Inc., 0.88%, 6/15/27 | EUR | 100 | 129 | ||||||||
Cigna Corp., 3.88%, 10/15/47 | $ | 50 | 59 | ||||||||
Citigroup, Inc., 2.67%, 1/29/31 | 22 | 24 | |||||||||
2.98%, 11/5/30 | 13 | 14 | |||||||||
4.41%, 3/31/31 | 12 | 15 | |||||||||
5.50%, 9/13/25 | 75 | 90 | |||||||||
Comcast Corp., 1.95%, 1/15/31 | 125 | 128 | |||||||||
Crown Castle International Corp., 3.30%, 7/1/30 | 25 | 28 | |||||||||
Deere & Co., 3.10%, 4/15/30 | 25 | 29 | |||||||||
Diamondback Energy, Inc., 2.88%, 12/1/24 | 100 | 105 | |||||||||
Emerson Electric Co., 1.25%, 10/15/25 | EUR | 125 | 163 | ||||||||
Energy Transfer Operating LP, 2.90%, 5/15/25 | $ | 150 | 159 | ||||||||
Enterprise Products Operating LLC, 3.95%, 1/31/60 | 50 | 56 | |||||||||
Ford Motor Credit Co. LLC, 3.09%, 1/9/23 | 200 | 204 | |||||||||
Fox Corp., 4.71%, 1/25/29 | 50 | 61 | |||||||||
Georgia-Pacific LLC, 2.30%, 4/30/30 (b) | 75 | 80 | |||||||||
Goldman Sachs Group, Inc. (The), 2.88%, 10/31/22 | 75 | 76 | |||||||||
HCA, Inc., 5.50%, 6/15/47 | 25 | 33 | |||||||||
HSBC USA, Inc., 3.50%, 6/23/24 | 100 | 110 | |||||||||
JPMorgan Chase & Co., 3.70%, 5/6/30 | 75 | 87 | |||||||||
Las Vegas Sands Corp., 3.20%, 8/8/24 | 25 | 26 | |||||||||
3.50%, 8/18/26 | 50 | 53 | |||||||||
Level 3 Financing, Inc., 3.40%, 3/1/27 (b) | 100 | 109 | |||||||||
Metropolitan Life Global Funding I, 2.95%, 4/9/30 (b) | 150 | 169 | |||||||||
NextEra Energy Capital Holdings, Inc., 2.25%, 6/1/30 | 100 | 105 | |||||||||
NIKE, Inc., 2.85%, 3/27/30 | 50 | 57 | |||||||||
NVIDIA Corp., 2.85%, 4/1/30 | 75 | 84 | |||||||||
Occidental Petroleum Corp., 3.20%, 8/15/26 | 35 | 33 | |||||||||
5.55%, 3/15/26 | 75 | 78 |
Face Amount (000) | Value (000) | ||||||||||
Oracle Corp., 3.85%, 4/1/60 | $ | 50 | $ | 62 | |||||||
Pacific Gas and Electric Co., 2.50%, 2/1/31 | 50 | 50 | |||||||||
PepsiCo, Inc., 2.63%, 4/28/26 | EUR | 100 | 140 | ||||||||
Prologis Euro Finance LLC, 1.88%, 1/5/29 | 100 | 138 | |||||||||
Synchrony Bank, 3.00%, 6/15/22 | $ | 250 | 258 | ||||||||
Union Pacific Corp., 3.84%, 3/20/60 | 50 | 62 | |||||||||
Verizon Communications, Inc., 4.67%, 3/15/55 | 43 | 58 | |||||||||
Walt Disney Co. (The), 2.65%, 1/13/31 | 100 | 110 | |||||||||
Wells Fargo & Co., 2.57%, 2/11/31 | 75 | 80 | |||||||||
2.88%, 10/30/30 | 50 | 55 | |||||||||
4,558 | |||||||||||
Total Corporate Bonds (Cost $11,332) | 12,158 | ||||||||||
Mortgages — Other (0.6%) | |||||||||||
United States (0.6%) | |||||||||||
Federal Home Loan Mortgage Corporation, 3.00%, 9/25/45 - 5/25/47 | 242 | 245 | |||||||||
3.50%, 5/25/45 - 7/25/46 | 104 | 106 | |||||||||
4.00%, 5/25/45 | 9 | 10 | |||||||||
Seasoned Credit Risk Transfer Trust, 3.00%, 11/25/57 - 10/25/58 | 258 | 277 | |||||||||
4.00%, 10/25/58 | 21 | 24 | |||||||||
Total Mortgages — Other (Cost $627) | 662 | ||||||||||
Sovereign (19.3%) | |||||||||||
Australia (1.0%) | |||||||||||
Australia Government Bond, 0.25%, 11/21/25 | AUD | 610 | 469 | ||||||||
2.50%, 5/21/30 | 480 | 423 | |||||||||
2.75%, 11/21/29 | 150 | 134 | |||||||||
3.00%, 3/21/47 | 60 | 57 | |||||||||
1,083 | |||||||||||
Austria (0.1%) | |||||||||||
Republic of Austria Government Bond, 0.00%, 2/20/30 (b) | EUR | 60 | 76 | ||||||||
2.10%, 12/31/99 (b) | 12 | 33 | |||||||||
109 | |||||||||||
Belgium (0.4%) | |||||||||||
Kingdom of Belgium Government Bond, 0.90%, 6/22/29 (b) | 30 | 41 | |||||||||
1.70%, 6/22/50 (b) | 80 | 136 | |||||||||
1.90%, 6/22/38 (b) | 140 | 227 | |||||||||
404 | |||||||||||
Brazil (1.7%) | |||||||||||
Brazil Letras do Tesouro Nacional, 0.00%, 1/1/24 | BRL | 11,000 | 1,814 |
The accompanying notes are an integral part of the consolidated financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Face Amount (000) | Value (000) | ||||||||||
Sovereign (cont'd) | |||||||||||
Canada (1.3%) | |||||||||||
Canadian Government Bond, 2.25%, 6/1/29 | CAD | 1,260 | $ | 1,126 | |||||||
Province of Quebec Canada, 1.35%, 5/28/30 | 210 | 213 | |||||||||
1,339 | |||||||||||
China (1.1%) | |||||||||||
China Development Bank, 3.07%, 3/10/30 | CNY | 1,200 | 176 | ||||||||
China Government Bond, 3.13%, 11/21/29 | 4,990 | 757 | |||||||||
3.86%, 7/22/49 | 1,430 | 222 | |||||||||
1,155 | |||||||||||
Denmark (0.1%) | |||||||||||
Denmark Government Bond, 0.50%, 11/15/27 | DKK | 570 | 100 | ||||||||
Finland (0.1%) | |||||||||||
Finland Government Bond, 1.13%, 4/15/34 (b) | EUR | 60 | 87 | ||||||||
France (0.9%) | |||||||||||
French Republic Government Bond OAT, 0.00%, 11/25/29 | 440 | 557 | |||||||||
2.00%, 5/25/48 (b) | 230 | 410 | |||||||||
967 | |||||||||||
Germany (0.9%) | |||||||||||
Bundesrepublik Deutschland Bundesanleihe, 0.25%, 2/15/29 | 250 | 329 | |||||||||
4.25%, 7/4/39 | 50 | 115 | |||||||||
4.75%, 7/4/34 | 50 | 106 | |||||||||
State of North Rhine-Westphalia Germany, 1.65%, 2/22/38 | 240 | 376 | |||||||||
926 | |||||||||||
Greece (2.5%) | |||||||||||
Hellenic Republic Government Bond, 3.75%, 1/30/28 | 1,759 | 2,646 | |||||||||
Hungary (0.0%) | |||||||||||
Hungary Government Bond, 3.00%, 8/21/30 | HUF | 4,000 | 15 | ||||||||
Indonesia (0.3%) | |||||||||||
Indonesia Government International Bond, 1.75%, 4/24/25 | EUR | 130 | 168 | ||||||||
Indonesia Treasury Bond, 8.25%, 5/15/29 | IDR | 753,000 | 62 | ||||||||
8.38%, 3/15/34 | 880,000 | 73 | |||||||||
303 | |||||||||||
Italy (1.0%) | |||||||||||
Italy Buoni Poliennali Del Tesoro, 1.40%, 5/26/25 (b) | EUR | 100 | 129 | ||||||||
1.75%, 7/1/24 | 455 | 595 | |||||||||
2.45%, 9/1/50 (b) | 220 | 336 | |||||||||
1,060 |
Face Amount (000) | Value (000) | ||||||||||
Japan (4.1%) | |||||||||||
Japan Government Five Year Bond, 0.10%, 12/20/23 | JPY | 59,000 | $ | 575 | |||||||
Japan Government Ten Year Bond, 0.10%, 6/20/26 - 6/20/29 | 165,000 | 1,617 | |||||||||
Japan Government Thirty Year Bond, 0.30%, 6/20/46 | 45,000 | 412 | |||||||||
0.40%, 9/20/49 | 30,000 | 274 | |||||||||
1.70%, 6/20/33 | 53,000 | 612 | |||||||||
2.00%, 9/20/40 | 63,000 | 796 | |||||||||
4,286 | |||||||||||
Korea, Republic of (0.4%) | |||||||||||
Export-Import Bank of Korea, 2.38%, 6/25/24 | $ | 200 | 212 | ||||||||
Korea International Bond, 2.00%, 6/19/24 | 200 | 209 | |||||||||
421 | |||||||||||
Malaysia (0.3%) | |||||||||||
Malaysia Government Bond, 3.89%, 8/15/29 | MYR | 400 | 109 | ||||||||
Petronas Capital Ltd., 3.50%, 3/18/25 (b) | 200 | 222 | |||||||||
331 | |||||||||||
Mexico (0.5%) | |||||||||||
Mexican Bonos, Series M 7.50%, 6/3/27 | MXN | 1,700 | 97 | ||||||||
7.75%, 5/29/31 | 1,000 | 59 | |||||||||
8.50%, 5/31/29 | 800 | 49 | |||||||||
Mexico Government International Bond, 4.50%, 4/22/29 | 200 | 235 | |||||||||
Petroleos Mexicanos, 6.95%, 1/28/60 | $ | 20 | 19 | ||||||||
459 | |||||||||||
Netherlands (0.3%) | |||||||||||
Netherlands Government Bond, 0.00%, 7/15/30 (b) | 170 | 217 | |||||||||
2.75%, 1/15/47 (b) | 20 | 44 | |||||||||
261 | |||||||||||
New Zealand (0.2%) | |||||||||||
New Zealand Government Bond, 2.75%, 4/15/37 | NZD | 70 | 59 | ||||||||
3.00%, 4/20/29 | 220 | 186 | |||||||||
245 | |||||||||||
Norway (0.0%) | |||||||||||
Norway Government Bond, 1.38%, 8/19/30 (b) | NOK | 200 | 24 | ||||||||
Poland (0.1%) | |||||||||||
Republic of Poland Government Bond, 2.50%, 7/25/27 | PLN | 210 | 63 | ||||||||
Portugal (0.1%) | |||||||||||
Portugal Obrigacoes do Tesouro OT, 0.70%, 10/15/27 (b) | EUR | 100 | 130 |
The accompanying notes are an integral part of the consolidated financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Face Amount (000) | Value (000) | ||||||||||
Sovereign (cont'd) | |||||||||||
Russia (0.1%) | |||||||||||
Russian Federal Bond — OFZ, 7.95%, 10/7/26 | RUB | 5,400 | $ | 82 | |||||||
Spain (0.6%) | |||||||||||
Spain Government Bond, 1.25%, 10/31/30 (b) | EUR | 370 | 505 | ||||||||
2.70%, 10/31/48 (b) | 40 | 72 | |||||||||
3.45%, 7/30/66 (b) | 21 | 47 | |||||||||
624 | |||||||||||
Sweden (0.1%) | |||||||||||
Sweden Government Bond, 0.75%, 5/12/28 | SEK | 670 | 87 | ||||||||
United Kingdom (1.1%) | |||||||||||
United Kingdom Gilt, 0.63%, 10/22/50 | GBP | 220 | 291 | ||||||||
1.63%, 10/22/28 | 190 | 292 | |||||||||
3.50%, 1/22/45 | 140 | 309 | |||||||||
4.25%, 9/7/39 | 130 | 293 | |||||||||
1,185 | |||||||||||
Total Sovereign (Cost $17,986) | 20,206 | ||||||||||
Supranational (1.0%) | |||||||||||
European Investment Bank, 0.20%, 7/15/24 | 190 | 239 | |||||||||
International Bank for Reconstruction & Development, SOFR + 0.43%, 0.51%, 8/19/27 (c) | 280 | 280 | |||||||||
2.20%, 2/27/24 | 620 | 507 | |||||||||
Total Supranational (Cost $938) | 1,026 | ||||||||||
U.S. Treasury Securities (2.4%) | |||||||||||
United States (2.4%) | |||||||||||
U.S. Treasury Bonds, 1.13%, 5/15/40 | $ | 750 | 712 | ||||||||
1.25%, 5/15/50 | 320 | 290 | |||||||||
2.13%, 5/15/25 | 310 | 335 | |||||||||
2.50%, 2/15/45 | 340 | 406 | |||||||||
2.88%, 8/15/28 | 250 | 291 | |||||||||
3.13%, 5/15/48 | 360 | 483 | |||||||||
Total U.S. Treasury Securities (Cost $2,502) | 2,517 | ||||||||||
Total Fixed Income Securities (Cost $37,314) | 40,540 | ||||||||||
Shares | |||||||||||
Common Stocks (41.4%) | |||||||||||
Australia (0.8%) | |||||||||||
AGL Energy Ltd. | 461 | 4 | |||||||||
Alumina Ltd. | 4,524 | 6 | |||||||||
Amcor PLC CDI | 1,119 | 13 | |||||||||
AMP Ltd. | 3,700 | 4 | |||||||||
ASX Ltd. | 200 | 11 | |||||||||
Australia & New Zealand Banking Group Ltd. | 2,695 | 47 | |||||||||
BHP Group Ltd. | 1,911 | 62 | |||||||||
Brambles Ltd. | 1,258 | 10 |
Shares | Value (000) | ||||||||||
CIMIC Group Ltd. (e) | 211 | $ | 4 | ||||||||
Coca-Cola Amatil Ltd. | 317 | 3 | |||||||||
Coles Group Ltd. | 792 | 11 | |||||||||
Commonwealth Bank of Australia | 856 | 54 | |||||||||
CSL Ltd. | 327 | 72 | |||||||||
Evolution Mining Ltd. | 6,478 | 25 | |||||||||
Fortescue Metals Group Ltd. | 1,164 | 21 | |||||||||
Gold Road Resources Ltd. (e) | 3,337 | 3 | |||||||||
GPT Group (The) REIT | 3,384 | 12 | |||||||||
Incitec Pivot Ltd. (e) | 2,326 | 4 | |||||||||
Insurance Australia Group Ltd. | 2,206 | 8 | |||||||||
Macquarie Group Ltd. | 294 | 31 | |||||||||
National Australia Bank Ltd. | 2,597 | 45 | |||||||||
Newcrest Mining Ltd. | 3,104 | 62 | |||||||||
Northern Star Resources Ltd. | 2,799 | 27 | |||||||||
OneMarket Ltd. (e) | 137 | — | |||||||||
Orica Ltd. | 495 | 6 | |||||||||
Origin Energy Ltd. | 1,182 | 4 | |||||||||
Orora Ltd. | 1,212 | 3 | |||||||||
Perseus Mining Ltd. (e) | 4,435 | 4 | |||||||||
QBE Insurance Group Ltd. | 1,739 | 11 | |||||||||
Ramelius Resources Ltd. | 3,053 | 4 | |||||||||
Regis Resources Ltd. | 1,921 | 6 | |||||||||
Resolute Mining Ltd. (e) | 4,099 | 3 | |||||||||
Rio Tinto Ltd. | 318 | 28 | |||||||||
Santos Ltd. | 1,032 | 5 | |||||||||
Saracen Mineral Holdings Ltd. (e) | 4,193 | 15 | |||||||||
Scentre Group REIT | 4,625 | 10 | |||||||||
Shopping Centres Australasia Property Group REIT | 338 | 1 | |||||||||
Silver Lake Resources Ltd. (e) | 3,313 | 5 | |||||||||
South32 Ltd. (ASX) | 2,870 | 6 | |||||||||
South32 Ltd. (LSE) | 7,996 | 15 | |||||||||
St. Barbara Ltd. | 2,658 | 5 | |||||||||
Star Entertainment Grp Ltd. (The) | 225 | 1 | |||||||||
Stockland REIT | 3,868 | 13 | |||||||||
Suncorp Group Ltd. | 1,221 | 9 | |||||||||
Sydney Airport (e) | 452 | 2 | |||||||||
Tabcorp Holdings Ltd. | 224 | 1 | |||||||||
Telstra Corp., Ltd. | 3,079 | 7 | |||||||||
Transurban Group | 1,371 | 15 | |||||||||
Treasury Wine Estates Ltd. | 803 | 6 | |||||||||
Wesfarmers Ltd. | 792 | 31 | |||||||||
Westpac Banking Corp. | 2,253 | 34 | |||||||||
Woodside Petroleum Ltd. | 550 | 10 | |||||||||
Woolworths Group Ltd. | 934 | 28 | |||||||||
827 | |||||||||||
Austria (0.0%) | |||||||||||
Erste Group Bank AG (e) | 315 | 10 | |||||||||
IMMOFINANZ AG (e) | 56 | 1 | |||||||||
Verbund AG | 75 | 6 | |||||||||
voestalpine AG | 158 | 6 | |||||||||
23 |
The accompanying notes are an integral part of the consolidated financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
Belgium (0.1%) | |||||||||||
Ageas | 219 | $ | 12 | ||||||||
Anheuser-Busch InBev SA N.V. | 525 | 37 | |||||||||
Colruyt SA | 71 | 4 | |||||||||
Groupe Bruxelles Lambert SA | 119 | 12 | |||||||||
KBC Group N.V. (e) | 89 | 6 | |||||||||
Solvay SA | 57 | 7 | |||||||||
Umicore SA | 254 | 12 | |||||||||
90 | |||||||||||
Canada (1.3%) | |||||||||||
Agnico-Eagle Mines Ltd. (NYSE) | 719 | 51 | |||||||||
Agnico Eagle Mines Ltd. (TSX) | 100 | 7 | |||||||||
Alamos Gold, Inc., Class A | 1,462 | 13 | |||||||||
B2Gold Corp. | 3,910 | 22 | |||||||||
Bank of Montreal | 176 | 13 | |||||||||
Bank of Nova Scotia (The) | 267 | 14 | |||||||||
Barrick Gold Corp. (LSE) | 1,449 | 34 | |||||||||
Barrick Gold Corp. (NYSE) | 22,005 | 501 | |||||||||
BCE, Inc. | 200 | 9 | |||||||||
Blackberry Ltd. (e) | 176 | 1 | |||||||||
Brookfield Asset Management, Inc., Class A | 363 | 15 | |||||||||
Brookfield Business Partners LP | 20 | 1 | |||||||||
Cameco Corp. | 76 | 1 | |||||||||
Canadian Imperial Bank of Commerce | 76 | 6 | |||||||||
Canadian National Railway Co. | 162 | 18 | |||||||||
Canadian Natural Resources Ltd. | 262 | 6 | |||||||||
Canadian Pacific Railway Ltd. | 100 | 35 | |||||||||
Cenovus Energy, Inc. | 362 | 2 | |||||||||
Centerra Gold, Inc. | 1,124 | 13 | |||||||||
Crescent Point Energy Corp. | 286 | 1 | |||||||||
Dundee Precious Metals, Inc. | 675 | 5 | |||||||||
Eldorado Gold Corp. (e) (NYSE) | 653 | 9 | |||||||||
Eldorado Gold Corp. (e) (TSX) | 94 | 1 | |||||||||
Enbridge, Inc. (NYSE) | 438 | 14 | |||||||||
Enbridge, Inc. (TSX) | 257 | 8 | |||||||||
Endeavour Mining Corp. (e) | 615 | 14 | |||||||||
Equinox Gold Corp. (e) | 903 | 9 | |||||||||
First Majestic Silver Corp. (e) | 817 | 11 | |||||||||
Fortuna Silver Mines, Inc. (e) | 699 | 6 | |||||||||
Franco-Nevada Corp. | 503 | 63 | |||||||||
George Weston Ltd. | 17 | 1 | |||||||||
IAMGOLD Corp. (e) | 1,785 | 7 | |||||||||
Imperial Oil Ltd. | 95 | 2 | |||||||||
K92 Mining, Inc. (e) | 815 | 5 | |||||||||
Kinross Gold Corp. (TSX) | 252 | 2 | |||||||||
Kinross Gold Corp. (NYSE) | 4,710 | 35 | |||||||||
Kirkland Lake Gold Ltd. | 1,014 | 42 | |||||||||
Loblaw Cos., Ltd. | 129 | 6 | |||||||||
Magna International, Inc. | 652 | 46 | |||||||||
Manulife Financial Corp. | 381 | 7 | |||||||||
National Bank of Canada | 300 | 17 | |||||||||
New Gold, Inc. (e) | 2,522 | 5 | |||||||||
Nutrien Ltd. | 229 | 11 |
Shares | Value (000) | ||||||||||
Obsidian Energy Ltd. (e) | 71 | $ | — | @ | |||||||
OceanaGold Corp. (e) | 2,348 | 5 | |||||||||
Osisko Gold Royalties Ltd. | 623 | 8 | |||||||||
Pan American Silver Corp. | 793 | 27 | |||||||||
Power Corp. of Canada | 71 | 2 | |||||||||
PrairieSky Royalty Ltd. | 19 | — | @ | ||||||||
Pretium Resources, Inc. (e) | 705 | 8 | |||||||||
Rogers Communications, Inc., Class B | 181 | 8 | |||||||||
Royal Bank of Canada | 152 | 12 | |||||||||
Sandstorm Gold Ltd. (e) | 711 | 5 | |||||||||
Silvercorp Metals, Inc. | 653 | 4 | |||||||||
SSR Mining, Inc. (e) | 819 | 16 | |||||||||
Sun Life Financial, Inc. | 267 | 12 | |||||||||
Suncor Energy, Inc. | 333 | 6 | |||||||||
TC Energy Corp. | 71 | 3 | |||||||||
Teck Resources Ltd., Class B | 276 | 5 | |||||||||
Teranga Gold Corp. (e) | 625 | 7 | |||||||||
Thomson Reuters Corp. | 263 | 22 | |||||||||
Torex Gold Resources, Inc. (e) | 317 | 5 | |||||||||
Toronto-Dominion Bank (The) | 229 | 13 | |||||||||
Wesdome Gold Mines Ltd. (e) | 527 | 4 | |||||||||
Wheaton Precious Metals Corp. (LSE) | 181 | 8 | |||||||||
Wheaton Precious Metals Corp. (NYSE) | 1,166 | 49 | |||||||||
Yamana Gold, Inc. (LSE) | 357 | 2 | |||||||||
Yamana Gold, Inc. (NYSE) | 3,570 | 20 | |||||||||
1,340 | |||||||||||
China (0.2%) | |||||||||||
BAIC Motor Corp., Ltd. H Shares (f) | 3,500 | 1 | |||||||||
Brilliance China Automotive Holdings Ltd. (f) | 5,941 | 5 | |||||||||
BYD Co., Ltd. H Shares (f) | 1,445 | 38 | |||||||||
China Common Rich Renewable Energy Investments Ltd. (e) | 18,000 | — | |||||||||
Dongfeng Motor Group Co., Ltd. H Shares (f) | 2,835 | 3 | |||||||||
Fuyao Glass Industry Group Co. Ltd. (f) | 851 | 5 | |||||||||
Geely Automobile Holdings Ltd. (f) | 9,755 | 33 | |||||||||
Great Wall Motor Co., Ltd. H Shares (f) | 5,198 | 18 | |||||||||
Guangzhou Automobile Group Co., Ltd. H Shares (f) | 5,941 | 7 | |||||||||
NIO, Inc. ADR (e) | 1,232 | 60 | |||||||||
Wharf Holdings Ltd. (The) (f) | 1,400 | 4 | |||||||||
Yum China Holdings, Inc. | 456 | 26 | |||||||||
200 | |||||||||||
Denmark (0.4%) | |||||||||||
AP Moller — Maersk A/S Series A | 5 | 10 | |||||||||
AP Moller — Maersk A/S Series B | 9 | 20 | |||||||||
Danske Bank A/S (e) | 601 | 10 | |||||||||
Drilling Co of 1972 A/S (The) (e) | 30 | 1 | |||||||||
DSV Panalpina A/S | 313 | 53 | |||||||||
Novo Nordisk A/S Series B | 3,395 | 237 | |||||||||
Novozymes A/S Series B | 276 | 16 | |||||||||
Vestas Wind Systems A/S | 323 | 76 | |||||||||
423 |
The accompanying notes are an integral part of the consolidated financial statements.
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
Finland (0.1%) | |||||||||||
Elisa Oyj | 163 | $ | 9 | ||||||||
Fortum Oyj | 382 | 9 | |||||||||
Kone Oyj, Class B | 343 | 28 | |||||||||
Metso Oyj | 516 | 5 | |||||||||
Neles Oyj | 120 | 2 | |||||||||
Nokia Oyj (e) | 3,329 | 13 | |||||||||
Nokian Renkaat Oyj | 141 | 5 | |||||||||
Nordea Bank Abp (e) (OMXH) | 35 | — | @ | ||||||||
Nordea Bank Abp (e) (SSE) | 3,363 | 28 | |||||||||
Sampo Oyj, Class A | 355 | 15 | |||||||||
Stora Enso Oyj, Class R | 588 | 11 | |||||||||
UPM-Kymmene Oyj | 325 | 12 | |||||||||
Valmet Oyj | 120 | 4 | |||||||||
Wartsila Oyj Abp | 513 | 5 | |||||||||
146 | |||||||||||
France (1.3%) | |||||||||||
Accor SA (e) | 3,285 | 119 | |||||||||
Aeroports de Paris (e) | 32 | 4 | |||||||||
Air Liquide SA | 366 | 60 | |||||||||
Airbus SE (e) | 396 | 43 | |||||||||
Alstom SA (e) | 238 | 14 | |||||||||
ArcelorMittal SA (e) | 262 | 6 | |||||||||
AXA SA | 1,795 | 43 | |||||||||
BNP Paribas SA (e) | 1,161 | 61 | |||||||||
Bouygues SA | 208 | 9 | |||||||||
Capgemini SE | 195 | 30 | |||||||||
Carrefour SA | 436 | 8 | |||||||||
CGG SA (e) | 5 | — | @ | ||||||||
Cie de Saint-Gobain (e) | 408 | 19 | |||||||||
Cie Generale des Etablissements Michelin SCA | 485 | 62 | |||||||||
Covivio REIT | 31 | 3 | |||||||||
Credit Agricole SA (e) | 1,522 | 19 | |||||||||
Danone SA | 432 | 28 | |||||||||
Electricite de France SA (e) | 328 | 5 | |||||||||
Engie SA (e) | 1,158 | 18 | |||||||||
EssilorLuxottica SA | 178 | 28 | |||||||||
Faurecia SE (e) | 125 | 6 | |||||||||
Gecina SA REIT | 22 | 3 | |||||||||
Getlink SE (e) | 557 | 10 | |||||||||
Hermes International | 23 | 25 | |||||||||
Klepierre SA REIT | 187 | 4 | |||||||||
L'Oreal SA | 246 | 94 | |||||||||
Legrand SA | 114 | 10 | |||||||||
LVMH Moet Hennessy Louis Vuitton SE | 185 | 116 | |||||||||
Orange SA | 1,686 | 20 | |||||||||
Pernod Ricard SA | 206 | 40 | |||||||||
Peugeot SA (e) | 1,169 | 32 | |||||||||
Publicis Groupe SA | 183 | 9 | |||||||||
Renault SA (e) | 194 | 9 | |||||||||
Safran SA (e) | 147 | 21 | |||||||||
Sanofi | 455 | 44 | |||||||||
Schneider Electric SE | 459 | 66 |
Shares | Value (000) | ||||||||||
SES SA | 360 | $ | 3 | ||||||||
Societe Generale SA (e) | 868 | 18 | |||||||||
Sodexo SA | 160 | 14 | |||||||||
Thales SA | 92 | 8 | |||||||||
TOTAL SE | 1,305 | 56 | |||||||||
Unibail-Rodamco-Westfield REIT | 52 | 4 | |||||||||
Unibail-Rodamco-Westfield REIT CDI | 1,000 | 4 | |||||||||
Valeo SA | 369 | 15 | |||||||||
Vallourec SA (e) | 2 | — | @ | ||||||||
Veolia Environnement SA | 344 | 9 | |||||||||
Vinci SA | 487 | 49 | |||||||||
Vivendi SA | 1,030 | 33 | |||||||||
1,301 | |||||||||||
Germany (1.0%) | |||||||||||
Adidas AG (e) | 126 | 46 | |||||||||
Allianz SE (Registered) | 284 | 70 | |||||||||
BASF SE | 417 | 33 | |||||||||
Bayer AG (Registered) | 471 | 28 | |||||||||
Bayerische Motoren Werke AG | 803 | 71 | |||||||||
Bayerische Motoren Werke AG (Preference) | 95 | 6 | |||||||||
CECONOMY AG (e) | 125 | 1 | |||||||||
Commerzbank AG (e) | 55 | — | @ | ||||||||
Continental AG | 238 | 35 | |||||||||
Daimler AG (Registered) | 1,896 | 134 | |||||||||
Deutsche Bank AG (Registered) (e) | 628 | 7 | |||||||||
Deutsche Boerse AG | 110 | 19 | |||||||||
Deutsche Lufthansa AG (Registered) (e) | 129 | 2 | |||||||||
Deutsche Post AG (Registered) | 433 | 21 | |||||||||
Deutsche Telekom AG (Registered) | 1,535 | 28 | |||||||||
E.ON SE | 1,058 | 12 | |||||||||
Fraport AG Frankfurt Airport Services Worldwide (e) | 25 | 1 | |||||||||
Fresenius Medical Care AG & Co., KGaA | 133 | 11 | |||||||||
Fresenius SE & Co., KGaA | 290 | 13 | |||||||||
HeidelbergCement AG | 44 | 3 | |||||||||
Henkel AG & Co., KGaA | 114 | 11 | |||||||||
Henkel AG & Co., KGaA (Preference) | 211 | 24 | |||||||||
Infineon Technologies AG | 911 | 35 | |||||||||
K+S AG (Registered) | 63 | 1 | |||||||||
LANXESS AG | 38 | 3 | |||||||||
Linde PLC | 29 | 8 | |||||||||
Linde PLC (e) | 167 | 44 | |||||||||
Merck KGaA | 138 | 24 | |||||||||
METRO AG | 125 | 1 | |||||||||
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen (Registered) | 146 | 43 | |||||||||
OSRAM Licht AG (e) | 40 | 3 | |||||||||
Porsche Automobil Holding SE (Preference) | 442 | 30 | |||||||||
QIAGEN N.V. (e) | 321 | 17 | |||||||||
RWE AG | 346 | 15 | |||||||||
Salzgitter AG (e) | 52 | 1 | |||||||||
SAP SE | 563 | 73 | |||||||||
Siemens AG (Registered) | 408 | 59 | |||||||||
Siemens Energy AG (e) | 204 | 8 |
The accompanying notes are an integral part of the consolidated financial statements.
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
Germany (cont'd) | |||||||||||
thyssenKrupp AG (e) | 146 | $ | 1 | ||||||||
Uniper SE | 105 | 4 | |||||||||
Volkswagen AG | 76 | 16 | |||||||||
Volkswagen AG (Preference) | 409 | 76 | |||||||||
1,038 | |||||||||||
Hong Kong (0.0%) | |||||||||||
Bank of East Asia Ltd. (The) | 14 | — | @ | ||||||||
CK Asset Holdings Ltd. | 52 | — | @ | ||||||||
CK Hutchison Holdings Ltd. | 52 | — | @ | ||||||||
CLP Holdings Ltd. | 200 | 2 | |||||||||
Esprit Holdings Ltd. (e) | 1,397 | — | @ | ||||||||
Global Brands Group Holding Ltd. (e) | 1,407 | — | @ | ||||||||
Henderson Land Development Co., Ltd. | 150 | 1 | |||||||||
Hong Kong & China Gas Co., Ltd. | 680 | 1 | |||||||||
I-CABLE Communications Ltd. (e) | 1,072 | — | @ | ||||||||
Kerry Logistics Network Ltd. | 250 | 1 | |||||||||
Link REIT | 65 | 1 | |||||||||
MTR Corp., Ltd. | 30 | — | @ | ||||||||
New World Development Co. Ltd. | 533 | 3 | |||||||||
Sino Land Co., Ltd. | 825 | 1 | |||||||||
Sun Hung Kai Properties Ltd. | 30 | — | @ | ||||||||
Swire Pacific Ltd., Class A | 500 | 3 | |||||||||
Swire Properties Ltd. | 150 | — | @ | ||||||||
Wharf Real Estate Investment Co., Ltd. | 400 | 2 | |||||||||
15 | |||||||||||
Ireland (0.0%) | |||||||||||
CRH PLC (e) | 488 | 21 | |||||||||
Italy (0.2%) | |||||||||||
Assicurazioni Generali SpA | 766 | 13 | |||||||||
Atlantia SpA (e) | 203 | 4 | |||||||||
Banco BPM SpA (e) | 215 | — | @ | ||||||||
CNH Industrial N.V. (e) | 456 | 6 | |||||||||
Enel SpA | 4,573 | 47 | |||||||||
Eni SpA | 1,280 | 13 | |||||||||
EXOR N.V. | 55 | 4 | |||||||||
Ferrari N.V. | 262 | 61 | |||||||||
Fiat Chrysler Automobiles N.V. (e) | 2,467 | 45 | |||||||||
Intesa Sanpaolo SpA (e) | 7,380 | 18 | |||||||||
Italgas SpA | 197 | 1 | |||||||||
Leonardo SpA | 351 | 3 | |||||||||
Mediobanca Banca di Credito Finanziario SpA | 449 | 4 | |||||||||
Pirelli & C SpA (e) | 611 | 3 | |||||||||
Prysmian SpA | 116 | 4 | |||||||||
Rizzoli Corriere Della Sera Mediagroup SpA (e) | 41 | — | @ | ||||||||
Saipem SpA | 15 | — | @ | ||||||||
Snam SpA | 989 | 6 | |||||||||
Telecom Italia SpA (Milano) | 7,592 | 4 | |||||||||
Tenaris SA | 277 | 2 | |||||||||
Terna Rete Elettrica Nazionale SpA | 922 | 7 | |||||||||
UniCredit SpA (e) | 687 | 6 | |||||||||
251 |
Shares | Value (000) | ||||||||||
Japan (0.6%) | |||||||||||
Aisin Seiki Co., Ltd. | 353 | $ | 10 | ||||||||
Bridgestone Corp. | 976 | 32 | |||||||||
Denso Corp. | 686 | 41 | |||||||||
Honda Motor Co., Ltd. | 2,751 | 78 | |||||||||
Isuzu Motors Ltd. | 1,040 | 10 | |||||||||
JTEKT Corp. | 384 | 3 | |||||||||
Koito Manufacturing Co., Ltd. | 127 | 9 | |||||||||
Mazda Motor Corp. | 1,003 | 7 | |||||||||
Mitsubishi Motors Corp. (e) | 1,165 | 2 | |||||||||
NGK Spark Plug Co., Ltd. | 297 | 5 | |||||||||
Nissan Motor Co., Ltd. (e) | 4,079 | 22 | |||||||||
Stanley Electric Co., Ltd. | 131 | 4 | |||||||||
Subaru Corp. | 1,040 | 21 | |||||||||
Sumitomo Electric Industries Ltd. | 1,232 | 16 | |||||||||
Sumitomo Rubber Industries Ltd. | 212 | 2 | |||||||||
Takeda Pharmaceutical Co., Ltd. ADR | 2,312 | 42 | |||||||||
Toyoda Gosei Co., Ltd. | 131 | 4 | |||||||||
Toyota Industries Corp. | 289 | 23 | |||||||||
Toyota Motor Corp. | 3,599 | 278 | |||||||||
Yamaha Motor Co., Ltd. | 481 | 10 | |||||||||
Yokohama Rubber Co., Ltd. (The) | 141 | 2 | |||||||||
621 | |||||||||||
Netherlands (0.4%) | |||||||||||
Akzo Nobel N.V. | 202 | 22 | |||||||||
ASML Holding N.V. | 299 | 145 | |||||||||
Basic-Fit N.V. (e) | 788 | 29 | |||||||||
Coca-Cola European Partners PLC | 129 | 6 | |||||||||
Fugro N.V. (e) | 28 | — | @ | ||||||||
Heineken N.V. | 360 | 40 | |||||||||
ING Groep N.V. (e) | 3,316 | 31 | |||||||||
Koninklijke Ahold Delhaize N.V. | 882 | 25 | |||||||||
Koninklijke KPN N.V. | 1,070 | 3 | |||||||||
Koninklijke Philips N.V. (e) | 1,120 | 60 | |||||||||
Koninklijke Vopak N.V. | 68 | 4 | |||||||||
PostNL N.V. (e) | 385 | 1 | |||||||||
366 | |||||||||||
New Zealand (0.1%) | |||||||||||
Auckland International Airport Ltd. (e) | 1,421 | 8 | |||||||||
Contact Energy Ltd. | 1,031 | 6 | |||||||||
Fletcher Building Ltd. (e) | 973 | 4 | |||||||||
Mercury NZ Ltd. | 998 | 5 | |||||||||
Meridian Energy Ltd. | 1,851 | 10 | |||||||||
Ryman Healthcare Ltd. | 545 | 6 | |||||||||
Spark New Zealand Ltd. | 2,665 | 9 | |||||||||
48 | |||||||||||
Norway (0.1%) | |||||||||||
Akastor ASA (e) | 246 | — | @ | ||||||||
Aker Carbon Capture AS (e) | 184 | — | @ | ||||||||
Aker Offshore Wind Holding AS (e) | 184 | — | @ | ||||||||
Aker Solutions ASA (e) | 447 | 1 | |||||||||
DNB ASA (e) | 1,590 | 31 |
The accompanying notes are an integral part of the consolidated financial statements.
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
Norway (cont'd) | |||||||||||
Equinor ASA | 1,571 | $ | 27 | ||||||||
Norsk Hydro ASA | 1,373 | 6 | |||||||||
Orkla ASA | 831 | 9 | |||||||||
REC Silicon ASA (e) | 118 | — | @ | ||||||||
Subsea 7 SA (e) | 324 | 3 | |||||||||
Telenor ASA | 685 | 12 | |||||||||
Yara International ASA | 242 | 10 | |||||||||
99 | |||||||||||
Peru (0.0%) | |||||||||||
Cia de Minas Buenaventura SAA ADR | 950 | 12 | |||||||||
Poland (0.0%) | |||||||||||
Jeronimo Martins SGPS SA | 241 | 4 | |||||||||
Portugal (0.0%) | |||||||||||
EDP — Energias de Portugal SA | 2,371 | 15 | |||||||||
Galp Energia SGPS SA | 247 | 3 | |||||||||
Pharol SGPS SA (Registered) (e) | 610 | — | @ | ||||||||
18 | |||||||||||
South Africa (0.1%) | |||||||||||
Anglo American PLC | 1,402 | 46 | |||||||||
AngloGold Ashanti Ltd. ADR | 1,575 | 36 | |||||||||
DRDGOLD Ltd. ADR | 331 | 4 | |||||||||
Gold Fields Ltd. ADR | 3,283 | 30 | |||||||||
Harmony Gold Mining Co., Ltd. ADR (e) | 2,274 | 11 | |||||||||
Nedbank Group Ltd. | 249 | 2 | |||||||||
Old Mutual Ltd. | 7,755 | 6 | |||||||||
135 | |||||||||||
Spain (0.2%) | |||||||||||
ACS Actividades de Construccion y Servicios SA | 195 | 6 | |||||||||
Amadeus IT Group SA | 176 | 13 | |||||||||
Banco Bilbao Vizcaya Argentaria SA | 3,600 | 18 | |||||||||
Banco de Sabadell SA | 4,429 | 2 | |||||||||
Banco Santander SA (e) | 6,415 | 20 | |||||||||
CaixaBank SA | 823 | 2 | |||||||||
Enagas SA | 211 | 5 | |||||||||
Ferrovial SA | 309 | 8 | |||||||||
Grifols SA | 163 | 5 | |||||||||
Grifols SA (Preference) Class B | 38 | 1 | |||||||||
Iberdrola SA | 2,771 | 40 | |||||||||
Industria de Diseno Textil SA | 824 | 26 | |||||||||
International Consolidated Airlines Group SA (e) | 1,054 | 2 | |||||||||
Melia Hotels International SA (e) | 3,122 | 22 | |||||||||
Naturgy Energy Group SA | 192 | 4 | |||||||||
Red Electrica Corp., SA | 338 | 7 | |||||||||
Repsol SA | 870 | 9 | |||||||||
Telefonica SA | 2,506 | 10 | |||||||||
200 | |||||||||||
Sweden (0.5%) | |||||||||||
Alfa Laval AB (e) | 368 | 10 | |||||||||
Assa Abloy AB, Class B | 1,127 | 28 | |||||||||
Atlas Copco AB, Class A | 746 | 38 |
Shares | Value (000) | ||||||||||
Atlas Copco AB, Class B | 435 | $ | 19 | ||||||||
Boliden AB | 331 | 12 | |||||||||
Electrolux AB, Class B | 299 | 7 | |||||||||
Electrolux Professional AB (e) | 293 | 2 | |||||||||
Epiroc AB, Class A | 746 | 14 | |||||||||
Epiroc AB, Class B | 487 | 8 | |||||||||
Essity AB, Class B | 682 | 22 | |||||||||
Getinge AB, Class B | 295 | 7 | |||||||||
Hennes & Mauritz AB, Class B (e) | 1,034 | 22 | |||||||||
Hexagon AB, Class B | 286 | 26 | |||||||||
Husqvarna AB, Class B | 581 | 8 | |||||||||
ICA Gruppen AB | 103 | 5 | |||||||||
Industrivarden AB, Class C (e) | 220 | 7 | |||||||||
Investor AB, Class B | 516 | 38 | |||||||||
Kinnevik AB (e) | 280 | 14 | |||||||||
L E Lundbergforetagen AB, Class B (e) | 114 | 6 | |||||||||
Lundin Petroleum AB | 233 | 6 | |||||||||
Millicom International Cellular SA SDR (e) | 85 | 3 | |||||||||
Modern Times Group MTG AB, Class B (e) | 17 | — | @ | ||||||||
Nordic Entertainment Group AB, Class B (e) | 17 | 1 | |||||||||
Sandvik AB (e) | 1,238 | 30 | |||||||||
Securitas AB, Class B | 388 | 6 | |||||||||
Skandinaviska Enskilda Banken AB, Class A (e) | 1,693 | 17 | |||||||||
Skanska AB, Class B | 421 | 11 | |||||||||
SKF AB, Class B | 444 | 12 | |||||||||
Svenska Handelsbanken AB, Class A (e) | 1,673 | 17 | |||||||||
Swedbank AB, Class A (e) | 1,000 | 18 | |||||||||
Swedish Match AB | 201 | 16 | |||||||||
Tele2 AB, Class B | 446 | 6 | |||||||||
Telefonaktiebolaget LM Ericsson, Class B | 3,491 | 41 | |||||||||
Telia Co., AB | 2,874 | 12 | |||||||||
Volvo AB, Class B (e) | 1,731 | 41 | |||||||||
530 | |||||||||||
Switzerland (1.5%) | |||||||||||
ABB Ltd. (Registered) | 2,611 | 73 | |||||||||
Adecco Group AG (Registered) | 275 | 18 | |||||||||
Alcon, Inc. (e) | 241 | 16 | |||||||||
Baloise Holding AG (Registered) | 105 | 19 | |||||||||
Cie Financiere Richemont SA (Registered) | 538 | 49 | |||||||||
Credit Suisse Group AG (Registered) | 1,437 | 19 | |||||||||
GAM Holding AG (e) | 529 | 1 | |||||||||
Geberit AG (Registered) | 84 | 53 | |||||||||
Givaudan SA (Registered) | 15 | 63 | |||||||||
Idorsia Ltd. (e) | 321 | 9 | |||||||||
Julius Baer Group Ltd. | 301 | 17 | |||||||||
Kuehne & Nagel International AG (Registered) | 87 | 20 | |||||||||
LafargeHolcim Ltd. (Registered) (e) (Euronext) | 128 | 7 | |||||||||
LafargeHolcim Ltd. (Registered) (e) (SIX) | 294 | 16 | |||||||||
Lonza Group AG (Registered) | 124 | 80 | |||||||||
Nestle SA (Registered) | 3,135 | 371 | |||||||||
Novartis AG (Registered) | 1,150 | 108 | |||||||||
Roche Holding AG (Genusschein) | 1,121 | 390 | |||||||||
Schindler Holding AG | 90 | 24 |
The accompanying notes are an integral part of the consolidated financial statements.
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
Switzerland (cont'd) | |||||||||||
SGS SA (Registered) | 13 | $ | 39 | ||||||||
Sonova Holding AG (Registered) (e) | 134 | 35 | |||||||||
Swatch Group AG (The) | 40 | 11 | |||||||||
Swiss Life Holding AG (Registered) | 43 | 20 | |||||||||
Swiss Re AG | 159 | 15 | |||||||||
UBS Group AG (Registered) (e) | 3,891 | 55 | |||||||||
Zurich Insurance Group AG | 192 | 81 | |||||||||
1,609 | |||||||||||
United Kingdom (2.5%) | |||||||||||
3i Group PLC | 1,129 | 18 | |||||||||
Admiral Group PLC | 259 | 10 | |||||||||
Antofagasta PLC | 515 | 10 | |||||||||
Ashtead Group PLC | 524 | 25 | |||||||||
Associated British Foods PLC (e) | 431 | 13 | |||||||||
AstraZeneca PLC | 1,408 | 140 | |||||||||
Auto Trader Group PLC | 1,244 | 10 | |||||||||
Aviva PLC | 4,367 | 19 | |||||||||
Babcock International Group PLC (e) | 360 | 1 | |||||||||
BAE Systems PLC | 3,348 | 22 | |||||||||
Barclays PLC (e) | 17,934 | 36 | |||||||||
Barratt Developments PLC (e) | 1,249 | 11 | |||||||||
Berkeley Group Holdings PLC | 167 | 11 | |||||||||
BHP Group PLC | 2,317 | 61 | |||||||||
BP PLC | 22,006 | 76 | |||||||||
British American Tobacco PLC | 2,639 | 98 | |||||||||
British Land Co., PLC (The) REIT | 1,225 | 8 | |||||||||
BT Group PLC | 9,241 | 17 | |||||||||
Bunzl PLC | 439 | 15 | |||||||||
Burberry Group PLC (e) | 531 | 13 | |||||||||
Capita PLC (e) | 954 | 1 | |||||||||
Carnival PLC | 266 | 5 | |||||||||
Centamin PLC | 4,401 | 7 | |||||||||
Centrica PLC (e) | 7,841 | 5 | |||||||||
Coca-Cola HBC AG (e) | 237 | 8 | |||||||||
Compass Group PLC | 1,651 | 31 | |||||||||
ConvaTec Group PLC | 2,001 | 5 | |||||||||
Croda International PLC | 167 | 15 | |||||||||
DCC PLC | 111 | 8 | |||||||||
Diageo PLC | 2,806 | 111 | |||||||||
Direct Line Insurance Group PLC | 1,766 | 8 | |||||||||
Dixons Carphone PLC (e) | 1,404 | 2 | |||||||||
easyJet PLC | 225 | 3 | |||||||||
Experian PLC | 984 | 37 | |||||||||
Ferguson PLC | 260 | 32 | |||||||||
Fresnillo PLC | 324 | 5 | |||||||||
G4S PLC (e) | 2,164 | 8 | |||||||||
GlaxoSmithKline PLC | 5,449 | 100 | |||||||||
Glencore PLC (e) | 12,864 | 41 | |||||||||
Hammerson PLC REIT | 228 | — | @ | ||||||||
Hargreaves Lansdown PLC | 327 | 7 | |||||||||
Hikma Pharmaceuticals PLC | 204 | 7 | |||||||||
HSBC Holdings PLC (e) | 22,577 | 117 |
Shares | Value (000) | ||||||||||
IMI PLC | 381 | $ | 6 | ||||||||
Imperial Brands PLC | 1,010 | 21 | |||||||||
InterContinental Hotels Group PLC (e) | 2,166 | 140 | |||||||||
Intertek Group PLC | 191 | 15 | |||||||||
Intu Properties PLC REIT (e) | 1,268 | — | @ | ||||||||
Investec PLC | 931 | 2 | |||||||||
ITV PLC (e) | 4,716 | 7 | |||||||||
J Sainsbury PLC | 2,261 | 7 | |||||||||
Johnson Matthey PLC | 239 | 8 | |||||||||
Kingfisher PLC (e) | 2,946 | 11 | |||||||||
Land Securities Group PLC REIT | 933 | 9 | |||||||||
Legal & General Group PLC | 6,254 | 23 | |||||||||
Lloyds Banking Group PLC (e) | 75,354 | 38 | |||||||||
London Stock Exchange Group PLC | 337 | 42 | |||||||||
M&G PLC | 3,192 | 9 | |||||||||
Marks & Spencer Group PLC (e) | 2,152 | 4 | |||||||||
Mediclinic International PLC | 533 | 2 | |||||||||
Meggitt PLC (e) | 1,017 | 6 | |||||||||
Melrose Industries PLC (e) | 4,699 | 11 | |||||||||
Micro Focus International PLC (e) | 504 | 3 | |||||||||
Micro Focus International PLC ADR (e) | 219 | 1 | |||||||||
Mondi PLC | 463 | 11 | |||||||||
National Grid PLC | 3,562 | 42 | |||||||||
Next PLC (e) | 171 | 17 | |||||||||
Ninety One PLC | 465 | 2 | |||||||||
Noble Corp., PLC (e) | 254 | — | @ | ||||||||
Paragon Offshore PLC (e)(g) | 67 | — | |||||||||
Pearson PLC | 1,093 | 10 | |||||||||
Persimmon PLC | 355 | 13 | |||||||||
Provident Financial PLC (e) | 221 | 1 | |||||||||
Prudential PLC | 2,715 | 50 | |||||||||
Quilter PLC | 2,394 | 5 | |||||||||
Reckitt Benckiser Group PLC | 708 | 63 | |||||||||
RELX PLC | 1,124 | 28 | |||||||||
Rio Tinto PLC | 1,292 | 97 | |||||||||
Rolls-Royce Holdings PLC (e) | 2,086 | 3 | |||||||||
Royal Bank of Scotland Group PLC (e) | 4,278 | 10 | |||||||||
Royal Dutch Shell PLC, Class A | 4,965 | 87 | |||||||||
Royal Dutch Shell PLC, Class B | 4,223 | 72 | |||||||||
Royal Mail PLC (e) | 1,287 | 6 | |||||||||
RSA Insurance Group PLC | 1,337 | 12 | |||||||||
Sage Group PLC (The) | 1,277 | 10 | |||||||||
Schroders PLC | 162 | 7 | |||||||||
Segro PLC REIT | 1,160 | 15 | |||||||||
Severn Trent PLC | 301 | 9 | |||||||||
Smith & Nephew PLC | 936 | 19 | |||||||||
Smiths Group PLC | 503 | 10 | |||||||||
SSE PLC | 1,060 | 22 | |||||||||
St. James's Place PLC | 662 | 10 | |||||||||
Standard Chartered PLC (e) | 3,521 | 22 | |||||||||
Standard Life Aberdeen PLC | 2,899 | 11 | |||||||||
Tate & Lyle PLC | 619 | 6 | |||||||||
Taylor Wimpey PLC (e) | 4,058 | 9 |
The accompanying notes are an integral part of the consolidated financial statements.
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
United Kingdom (cont'd) | |||||||||||
Tesco PLC | 8,902 | $ | 28 | ||||||||
Travis Perkins PLC (e) | 335 | 6 | |||||||||
TUI AG | 585 | 4 | |||||||||
Unilever PLC | 1,106 | 67 | |||||||||
Unilever PLC CVA | 1,338 | 80 | |||||||||
United Utilities Group PLC | 849 | 10 | |||||||||
Virgin Money UK PLC (e) | 888 | 2 | |||||||||
Vodafone Group PLC | 27,593 | 45 | |||||||||
Weir Group PLC (The) (e) | 287 | 8 | |||||||||
Whitbread PLC (e) | 2,124 | 90 | |||||||||
Wm Morrison Supermarkets PLC | 2,934 | 7 | |||||||||
WPP PLC | 1,458 | 16 | |||||||||
2,584 | |||||||||||
United States (30.0%) | |||||||||||
3M Co. | 1,055 | 184 | |||||||||
Abbott Laboratories | 1,463 | 160 | |||||||||
AbbVie, Inc. | 1,458 | 156 | |||||||||
Accenture PLC, Class A | 1,029 | 269 | |||||||||
Adient PLC (e) | 38 | 1 | |||||||||
Adobe, Inc. (e) | 632 | 316 | |||||||||
AdvanSix, Inc. (e) | 142 | 3 | |||||||||
AES Corp. (The) | 392 | 9 | |||||||||
Agilent Technologies, Inc. | 226 | 27 | |||||||||
Alaska Air Group, Inc. | 478 | 25 | |||||||||
Alexion Pharmaceuticals, Inc. (e) | 234 | 37 | |||||||||
Allegiant Travel Co. | 61 | 12 | |||||||||
Alphabet, Inc., Class A (e) | 449 | 787 | |||||||||
Alphabet, Inc., Class C (e) | 438 | 767 | |||||||||
Altria Group, Inc. | 1,713 | 70 | |||||||||
Amazon.com, Inc. (e) | 543 | 1,769 | |||||||||
Ameren Corp. | 210 | 16 | |||||||||
American Airlines Group, Inc. | 2,377 | 37 | |||||||||
American Electric Power Co., Inc. | 541 | 45 | |||||||||
American Express Co. | 3,005 | 363 | |||||||||
American International Group, Inc. | 1,751 | 66 | |||||||||
American Tower Corp. REIT | 575 | 129 | |||||||||
Ameriprise Financial, Inc. | 224 | 44 | |||||||||
AmerisourceBergen Corp. | 370 | 36 | |||||||||
Amgen, Inc. | 736 | 169 | |||||||||
Amphenol Corp., Class A | 527 | 69 | |||||||||
Analog Devices, Inc. | 168 | 25 | |||||||||
Annaly Capital Management, Inc. REIT | 580 | 5 | |||||||||
Anthem, Inc. | 546 | 175 | |||||||||
Apache Corp. | 342 | 5 | |||||||||
Apple, Inc. | 16,416 | 2,178 | |||||||||
Aptiv PLC | 481 | 63 | |||||||||
AT&T, Inc. | 4,338 | 125 | |||||||||
Autoliv, Inc. | 127 | 12 | |||||||||
Automatic Data Processing, Inc. | 534 | 94 | |||||||||
Avanos Medical, Inc. (e) | 534 | 24 | |||||||||
Avery Dennison Corp. | 390 | 60 | |||||||||
Baker Hughes Co. | 467 | 10 |
Shares | Value (000) | ||||||||||
Bank of America Corp. | 9,042 | $ | 274 | ||||||||
Bank of New York Mellon Corp. (The) | 616 | 26 | |||||||||
Baxter International, Inc. | 889 | 71 | |||||||||
Becton Dickinson & Co. | 577 | 144 | |||||||||
Bed Bath & Beyond, Inc. | 612 | 11 | |||||||||
Berkshire Hathaway, Inc., Class B (e) | 811 | 188 | |||||||||
Biogen, Inc. (e) | 544 | 133 | |||||||||
BlackRock, Inc. | 405 | 292 | |||||||||
Boeing Co. (The) | 805 | 172 | |||||||||
Booking Holdings, Inc. (e) | 53 | 118 | |||||||||
BorgWarner, Inc. | 353 | 14 | |||||||||
Boston Properties, Inc. REIT | 175 | 17 | |||||||||
Boston Scientific Corp. (e) | 457 | 16 | |||||||||
Bristol-Myers Squibb Co. | 2,748 | 170 | |||||||||
Broadcom, Inc. | 7 | 3 | |||||||||
Brookfield Property Partners LP (e) (TSX) | 138 | 2 | |||||||||
Brookfield Property Partners LP (NASDAQ) | 40 | 1 | |||||||||
Capital One Financial Corp. | 224 | 22 | |||||||||
Cardinal Health, Inc. | 182 | 10 | |||||||||
Carnival Corp. | 2 | — | @ | ||||||||
Carrier Global Corp. | 2,612 | 99 | |||||||||
Caterpillar, Inc. | 847 | 154 | |||||||||
CDK Global, Inc. | 152 | 8 | |||||||||
CenterPoint Energy, Inc. | 175 | 4 | |||||||||
CenturyLink, Inc. | 580 | 6 | |||||||||
Cerner Corp. | 539 | 42 | |||||||||
CF Industries Holdings, Inc. | 38 | 1 | |||||||||
CH Robinson Worldwide, Inc. | 232 | 22 | |||||||||
Charles Schwab Corp. (The) | 614 | 33 | |||||||||
Charter Communications, Inc., Class A (e) | 183 | 121 | |||||||||
Chemours Co. (The) | 416 | 10 | |||||||||
Chesapeake Energy Corp. (e) | 1 | — | @ | ||||||||
Chevron Corp. | 1,433 | 121 | |||||||||
Chipotle Mexican Grill, Inc. (e) | 45 | 62 | |||||||||
Choice Hotels International, Inc. | 489 | 52 | |||||||||
Cigna Corp. | 666 | 139 | |||||||||
Cintas Corp. | 188 | 66 | |||||||||
Cisco Systems, Inc. | 3,997 | 179 | |||||||||
CIT Group, Inc. | 559 | 20 | |||||||||
Citigroup, Inc. | 2,527 | 156 | |||||||||
Citrix Systems, Inc. | 347 | 45 | |||||||||
Cleveland-Cliffs, Inc. | 20 | — | @ | ||||||||
CME Group, Inc. | 212 | 39 | |||||||||
CNX Resources Corp. (e) | 383 | 4 | |||||||||
Coca-Cola Co. (The) | 809 | 44 | |||||||||
Coeur Mining, Inc. (e) | 932 | 10 | |||||||||
Cognizant Technology Solutions Corp., Class A | 512 | 42 | |||||||||
Colgate-Palmolive Co. | 2,100 | 180 | |||||||||
Comcast Corp., Class A | 4,194 | 220 | |||||||||
Comerica, Inc. | 224 | 13 | |||||||||
Concho Resources, Inc. | 122 | 7 | |||||||||
Conduent, Inc. (e) | 419 | 2 | |||||||||
ConocoPhillips | 1,315 | 53 |
The accompanying notes are an integral part of the consolidated financial statements.
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
United States (cont'd) | |||||||||||
CONSOL Energy, Inc. (e) | 46 | $ | — | @ | |||||||
Consolidated Edison, Inc. | 539 | 39 | |||||||||
Corteva, Inc. | 878 | 34 | |||||||||
Costco Wholesale Corp. | 781 | 294 | |||||||||
Covetrus, Inc. (e) | 131 | 4 | |||||||||
Crown Castle International Corp. REIT | 449 | 71 | |||||||||
CSX Corp. | 444 | 40 | |||||||||
Cummins, Inc. | 9 | 2 | |||||||||
CVS Health Corp. | 2,470 | 169 | |||||||||
Danaher Corp. | 538 | 120 | |||||||||
DaVita, Inc. (e) | 402 | 47 | |||||||||
Deere & Co. | 24 | 6 | |||||||||
Dell Technologies, Inc., Class C (e) | 350 | 26 | |||||||||
Delta Air Lines, Inc. | 2,133 | 86 | |||||||||
Devon Energy Corp. | 373 | 6 | |||||||||
Discover Financial Services | 427 | 39 | |||||||||
Discovery, Inc., Class A (e) | 527 | 16 | |||||||||
Discovery, Inc., Class C (e) | 467 | 12 | |||||||||
Dominion Energy, Inc. | 370 | 28 | |||||||||
Dow, Inc. | 878 | 49 | |||||||||
DR Horton, Inc. | 1,007 | 69 | |||||||||
DTE Energy Co. | 380 | 46 | |||||||||
Duke Energy Corp. | 811 | 74 | |||||||||
DuPont de Nemours, Inc. | 878 | 62 | |||||||||
DXC Technology Co. | 166 | 4 | |||||||||
Eagle Materials, Inc. | 104 | 11 | |||||||||
Eaton Corp., PLC | 30 | 4 | |||||||||
eBay, Inc. | 1,218 | 61 | |||||||||
Ecolab, Inc. | 34 | 7 | |||||||||
Edison International | 464 | 29 | |||||||||
Edwards Lifesciences Corp. (e) | 1,448 | 132 | |||||||||
Eli Lilly & Co. | 1,048 | 177 | |||||||||
Emerson Electric Co. | 1,061 | 85 | |||||||||
Empire State Realty Trust, Inc., Class A REIT | 5,094 | 47 | |||||||||
Entergy Corp. | 383 | 38 | |||||||||
EOG Resources, Inc. | 472 | 24 | |||||||||
Equity Residential REIT | 463 | 27 | |||||||||
Estee Lauder Cos., Inc. (The), Class A | 387 | 103 | |||||||||
Exelon Corp. | 571 | 24 | |||||||||
Extended Stay America, Inc. (Units) | 1,819 | 27 | |||||||||
Exxon Mobil Corp. | 2,795 | 115 | |||||||||
Facebook, Inc., Class A (e) | 1,123 | 307 | |||||||||
Fastenal Co. | 30 | 1 | |||||||||
FedEx Corp. | 543 | 141 | |||||||||
Fidelity National Financial, Inc. | 733 | 29 | |||||||||
Fidelity National Information Services, Inc. | 208 | 29 | |||||||||
Fifth Third Bancorp | 512 | 14 | |||||||||
First American Financial Corp. | 283 | 15 | |||||||||
FirstEnergy Corp. | 512 | 16 | |||||||||
Fluor Corp. | 45 | 1 | |||||||||
Ford Motor Co. | 10,394 | 91 | |||||||||
Fortive Corp. | 392 | 28 |
Shares | Value (000) | ||||||||||
Fox Corp., Class A | 465 | $ | 14 | ||||||||
Fox Corp., Class B (e) | 216 | 6 | |||||||||
Franklin Resources, Inc. | 422 | 11 | |||||||||
Freeport-McMoRan, Inc. | 6,648 | 173 | |||||||||
Frontier Communications Corp. (e) | 34 | — | @ | ||||||||
Garrett Motion, Inc. (e) | 161 | 1 | |||||||||
General Dynamics Corp. | 73 | 11 | |||||||||
General Electric Co. | 4,172 | 45 | |||||||||
General Mills, Inc. | 623 | 37 | |||||||||
General Motors Co. | 2,143 | 89 | |||||||||
Gilead Sciences, Inc. | 760 | 44 | |||||||||
Goldman Sachs Group, Inc. (The) | 589 | 155 | |||||||||
Halliburton Co. | 6,442 | 122 | |||||||||
Healthpeak Properties, Inc. REIT | 519 | 16 | |||||||||
Hecla Mining Co. | 1,981 | 13 | |||||||||
Henry Schein, Inc. (e) | 629 | 42 | |||||||||
Hershey Co. (The) | 166 | 25 | |||||||||
Hess Corp. | 232 | 12 | |||||||||
Hewlett Packard Enterprise Co. | 908 | 11 | |||||||||
Hilton Worldwide Holdings, Inc. | 3,103 | 345 | |||||||||
Home Depot, Inc. (The) | 1,450 | 385 | |||||||||
Honeywell International, Inc. | 1,317 | 280 | |||||||||
HP, Inc. | 597 | 15 | |||||||||
Humana, Inc. | 131 | 54 | |||||||||
Hyatt Hotels Corp., Class A | 1,285 | 95 | |||||||||
Illinois Tool Works, Inc. | 29 | 6 | |||||||||
Intel Corp. | 2,033 | 101 | |||||||||
Intercontinental Exchange, Inc. | 579 | 67 | |||||||||
International Business Machines Corp. | 862 | 109 | |||||||||
Interpublic Group of Cos., Inc. (The) | 618 | 15 | |||||||||
Intuit, Inc. | 427 | 162 | |||||||||
Intuitive Surgical, Inc. (e) | 142 | 116 | |||||||||
Invesco Ltd. | 541 | 9 | |||||||||
Iron Mountain, Inc. REIT | 700 | 21 | |||||||||
JBG SMITH Properties REIT | 65 | 2 | |||||||||
JetBlue Airways Corp. (e) | 1,044 | 15 | |||||||||
Johnson & Johnson | 2,045 | 322 | |||||||||
Johnson Controls International PLC | 550 | 26 | |||||||||
JPMorgan Chase & Co. | 3,392 | 431 | |||||||||
Juniper Networks, Inc. | 560 | 13 | |||||||||
KB Home | 318 | 11 | |||||||||
Kellogg Co. | 425 | 26 | |||||||||
KeyCorp | 540 | 9 | |||||||||
Keysight Technologies, Inc. (e) | 126 | 17 | |||||||||
Kimberly-Clark Corp. | 735 | 99 | |||||||||
Kimco Realty Corp. REIT | 501 | 8 | |||||||||
Kohl's Corp. | 402 | 16 | |||||||||
Kontoor Brands, Inc. (e) | 49 | 2 | |||||||||
Kraft Heinz Co. (The) | 95 | 3 | |||||||||
Kroger Co. (The) | 582 | 18 | |||||||||
L Brands, Inc. | 366 | 14 | |||||||||
Laboratory Corp. of America Holdings (e) | 173 | 35 | |||||||||
Las Vegas Sands Corp. | 162 | 10 |
The accompanying notes are an integral part of the consolidated financial statements.
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
United States (cont'd) | |||||||||||
Lear Corp. | 64 | $ | 10 | ||||||||
Lennar Corp., Class A | 853 | 65 | |||||||||
Liberty Global PLC, Class A (e) | 565 | 14 | |||||||||
Liberty Global PLC Series C (e) | 561 | 13 | |||||||||
Liberty Latin America Ltd., Class A (e) | 72 | 1 | |||||||||
Liberty Latin America Ltd., Class C (e) | 181 | 2 | |||||||||
Lockheed Martin Corp. | 15 | 5 | |||||||||
Louisiana-Pacific Corp. | 274 | 10 | |||||||||
Lowe's Cos., Inc. | 1,299 | 208 | |||||||||
M&T Bank Corp. | 203 | 26 | |||||||||
M/I Homes, Inc. (e) | 110 | 5 | |||||||||
Macerich Co. (The) REIT | 592 | 6 | |||||||||
Mallinckrodt PLC (e) | 29 | — | @ | ||||||||
ManpowerGroup, Inc. | 210 | 19 | |||||||||
Marathon Oil Corp. | 407 | 3 | |||||||||
Marathon Petroleum Corp. | 426 | 18 | |||||||||
Marriott International, Inc., Class A | 3,744 | 494 | |||||||||
Marriott Vacations Worldwide Corp. | 370 | 51 | |||||||||
Martin Marietta Materials, Inc. | 197 | 56 | |||||||||
Masco Corp. | 730 | 40 | |||||||||
Mastercard, Inc., Class A | 1,772 | 632 | |||||||||
McDonald's Corp. | 783 | 168 | |||||||||
McKesson Corp. | 402 | 70 | |||||||||
MDC Holdings, Inc. | 190 | 9 | |||||||||
Medtronic PLC | 1,194 | 140 | |||||||||
Merck & Co., Inc. | 1,586 | 130 | |||||||||
Meritage Homes Corp. (e) | 107 | 9 | |||||||||
MGIC Investment Corp. | 951 | 12 | |||||||||
Microsoft Corp. | 4,640 | 1,032 | |||||||||
Mohawk Industries, Inc. (e) | 144 | 20 | |||||||||
Mondelez International, Inc., Class A | 787 | 46 | |||||||||
Mosaic Co. (The) | 29 | 1 | |||||||||
Murphy Oil Corp. | 539 | 7 | |||||||||
Murphy USA, Inc. | 162 | 21 | |||||||||
Nasdaq, Inc. | 188 | 25 | |||||||||
NetApp, Inc. | 404 | 27 | |||||||||
NetScout Systems, Inc. (e) | 2,032 | 56 | |||||||||
New York Community Bancorp, Inc. | 188 | 2 | |||||||||
Newmont Goldcorp Corp. (NYSE) | 7,047 | 422 | |||||||||
Newmont Goldcorp Corp. (TSX) | 184 | 11 | |||||||||
News Corp., Class A | 556 | 10 | |||||||||
News Corp., Class B | 410 | 7 | |||||||||
NextEra Energy, Inc. | 1,780 | 137 | |||||||||
NIKE, Inc., Class B | 2,568 | 363 | |||||||||
Nordstrom, Inc. | 137 | 4 | |||||||||
Norfolk Southern Corp. | 458 | 109 | |||||||||
Northrop Grumman Corp. | 20 | 6 | |||||||||
NortonLifeLock, Inc. | 408 | 8 | |||||||||
NOV, Inc. (e) | 618 | 8 | |||||||||
NOW, Inc. (e) | 188 | 1 | |||||||||
nVent Electric PLC | 6 | — | @ | ||||||||
NVR, Inc. (e) | 8 | 33 |
Shares | Value (000) | ||||||||||
O'Reilly Automotive, Inc. (e) | 242 | $ | 110 | ||||||||
Occidental Petroleum Corp. | 1,070 | 19 | |||||||||
Omnicom Group, Inc. | 377 | 24 | |||||||||
ONE Gas, Inc. | 129 | 10 | |||||||||
ONEOK, Inc. | 431 | 17 | |||||||||
Oracle Corp. | 2,821 | 182 | |||||||||
Otis Worldwide Corp. | 1,306 | 88 | |||||||||
Ovintiv, Inc. (NYSE) | 165 | 2 | |||||||||
Ovintiv, Inc. (TSX) | 72 | 1 | |||||||||
Owens Corning | 322 | 24 | |||||||||
PACCAR, Inc. | 22 | 2 | |||||||||
Paramount Group, Inc. REIT | 6,622 | 60 | |||||||||
PayPal Holdings, Inc. (e) | 1,218 | 285 | |||||||||
Pentair PLC | 6 | — | @ | ||||||||
People's United Financial, Inc. | 189 | 2 | |||||||||
PepsiCo, Inc. | 1,216 | 180 | |||||||||
Perspecta, Inc. | 83 | 2 | |||||||||
Pfizer, Inc. | 3,298 | 121 | |||||||||
Philip Morris International, Inc. | 1,172 | 97 | |||||||||
Phillips 66 | 614 | 43 | |||||||||
Pioneer Natural Resources Co. | 402 | 46 | |||||||||
Pitney Bowes, Inc. | 432 | 3 | |||||||||
PNC Financial Services Group, Inc. (The) | 674 | 100 | |||||||||
PPL Corp. | 489 | 14 | |||||||||
Procter & Gamble Co. (The) | 1,992 | 277 | |||||||||
ProLogis, Inc. REIT | 792 | 79 | |||||||||
Public Service Enterprise Group, Inc. | 389 | 23 | |||||||||
Public Storage REIT | 167 | 39 | |||||||||
Pulte Group, Inc. | 703 | 30 | |||||||||
QUALCOMM, Inc. | 1,896 | 289 | |||||||||
Quest Diagnostics, Inc. | 247 | 29 | |||||||||
Range Resources Corp. | 146 | 1 | |||||||||
Rayonier Advanced Materials, Inc. (e) | 393 | 3 | |||||||||
Rayonier, Inc. REIT | 516 | 15 | |||||||||
Raytheon Technologies Corp. | 2,063 | 148 | |||||||||
Regions Financial Corp. | 536 | 9 | |||||||||
Republic Services, Inc. | 618 | 60 | |||||||||
Resideo Technologies, Inc. (e) | 236 | 5 | |||||||||
Robert Half International, Inc. | 224 | 14 | |||||||||
Rockwell Automation, Inc. | 9 | 2 | |||||||||
Ross Stores, Inc. | 420 | 52 | |||||||||
Royal Caribbean Cruises Ltd. | 2 | — | @ | ||||||||
Royal Gold, Inc. | 248 | 26 | |||||||||
S&P Global, Inc. | 517 | 170 | |||||||||
Sabra Health Care, Inc. REIT | 118 | 2 | |||||||||
salesforce.com, Inc. (e) | 565 | 126 | |||||||||
Schlumberger Ltd. | 1,095 | 24 | |||||||||
Scotts Miracle-Gro Co. (The), Class A | 133 | 26 | |||||||||
Sempra Energy | 557 | 71 | |||||||||
Simon Property Group, Inc. REIT | 549 | 47 | |||||||||
Skyline Champion Corp. (e) | 125 | 4 | |||||||||
SL Green Realty Corp. REIT | 2,133 | 127 | |||||||||
Southern Co. (The) | 383 | 24 |
The accompanying notes are an integral part of the consolidated financial statements.
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Shares | Value (000) | ||||||||||
United States (cont'd) | |||||||||||
Southwest Airlines Co. | 2,145 | $ | 100 | ||||||||
Southwestern Energy Co. (e) | 644 | 2 | |||||||||
Starbucks Corp. | 1,743 | 186 | |||||||||
State Street Corp. | 557 | 41 | |||||||||
Stericycle, Inc. (e) | 349 | 24 | |||||||||
Stewart Information Services Corp. | 77 | 4 | |||||||||
Stryker Corp. | 527 | 129 | |||||||||
Sysco Corp. | 387 | 29 | |||||||||
T Rowe Price Group, Inc. | 378 | 57 | |||||||||
T-Mobile US, Inc. (e) | 73 | 10 | |||||||||
Tapestry, Inc. | 446 | 14 | |||||||||
Target Corp. | 765 | 135 | |||||||||
TE Connectivity Ltd. | 186 | 23 | |||||||||
TechnipFMC PLC | 97 | 1 | |||||||||
Texas Instruments, Inc. | 2,111 | 346 | |||||||||
Thermo Fisher Scientific, Inc. | 406 | 189 | |||||||||
TJX Cos., Inc. (The) | 856 | 58 | |||||||||
Toll Brothers, Inc. | 396 | 17 | |||||||||
Truist Financial Corp. | 1,187 | 57 | |||||||||
UFP Industries, Inc. | 140 | 8 | |||||||||
Union Pacific Corp. | 1,287 | 268 | |||||||||
United Airlines Holdings, Inc. (e) | 1,519 | 66 | |||||||||
United Parcel Service, Inc., Class B | 1,307 | 220 | |||||||||
UnitedHealth Group, Inc. | 1,463 | 513 | |||||||||
Urban Edge Properties REIT | 74 | 1 | |||||||||
US Bancorp | 855 | 40 | |||||||||
Valero Energy Corp. | 400 | 23 | |||||||||
Varex Imaging Corp. (e) | 124 | 2 | |||||||||
Varian Medical Systems, Inc. (e) | 375 | 66 | |||||||||
Ventas, Inc. REIT | 253 | 12 | |||||||||
Verisk Analytics, Inc. | 168 | 35 | |||||||||
Verizon Communications, Inc. | 7,641 | 449 | |||||||||
VF Corp. | 548 | 47 | |||||||||
ViacomCBS, Inc., Class B | 718 | 27 | |||||||||
Viatris, Inc. (e) | 397 | 7 | |||||||||
Visa, Inc., Class A | 1,991 | 435 | |||||||||
Vontier Corp. (e) | 116 | 4 | |||||||||
Vornado Realty Trust REIT | 5,832 | 218 | |||||||||
Vulcan Materials Co. | 375 | 56 | |||||||||
Walgreens Boots Alliance, Inc. | 568 | 23 | |||||||||
Walmart, Inc. | 1,966 | 283 | |||||||||
Walt Disney Co. (The) (e) | 1,450 | 263 | |||||||||
Washington Prime Group, Inc. REIT | 66 | — | @ | ||||||||
Waste Management, Inc. | 433 | 51 | |||||||||
Watsco, Inc. | 82 | 19 | |||||||||
WEC Energy Group, Inc. | 220 | 20 | |||||||||
Wells Fargo & Co. | 2,753 | 83 | |||||||||
Welltower, Inc. REIT | 563 | 36 | |||||||||
Western Digital Corp. | 72 | 4 | |||||||||
Western Union Co. (The) | 88 | 2 | |||||||||
Westinghouse Air Brake Technologies Corp. | 19 | 1 |
Shares | Value (000) | ||||||||||
Weyerhaeuser Co. REIT | 618 | $ | 21 | ||||||||
Williams Cos., Inc. (The) | 458 | 9 | |||||||||
WPX Energy, Inc. (e) | 532 | 4 | |||||||||
WW Grainger, Inc. | 5 | 2 | |||||||||
Wyndham Hotels & Resorts, Inc. | 820 | 49 | |||||||||
Wynn Resorts Ltd. | 215 | 24 | |||||||||
Xcel Energy, Inc. | 395 | 26 | |||||||||
Xerox Holdings Corp. | 241 | 6 | |||||||||
Xylem, Inc. | 135 | 14 | |||||||||
Yum! Brands, Inc. | 413 | 45 | |||||||||
Zimmer Biomet Holdings, Inc. | 349 | 54 | |||||||||
Zoetis, Inc. | 910 | 151 | |||||||||
31,425 | |||||||||||
Total Common Stocks (Cost $33,847) | 43,326 | ||||||||||
No. of Rights | |||||||||||
Right (0.0%) | |||||||||||
United States (0.0%) | |||||||||||
Bristol-Myers Squibb Co. (e) (Cost $2) | 960 | 1 | |||||||||
No. of Warrants | |||||||||||
Warrants (0.0%) (h) | |||||||||||
France (0.0%) (h) | |||||||||||
CGG SA, expires 2/21/22 (e) | 5 | — | @ | ||||||||
Switzerland (0.0%) (h) | |||||||||||
Cie Financiere Richemont SA, expires 11/22/23 (e) | 1,124 | — | @ | ||||||||
United States (0.0%) (h) | |||||||||||
Occidental Petroleum Corp., expires 8/3/27 (e) | 108 | 1 | |||||||||
Total Warrants (Cost $1) | 1 | ||||||||||
Shares | |||||||||||
Investment Company (4.1%) | |||||||||||
United States (4.1%) | |||||||||||
SPDR S&P 500 ETF Trust (Cost $2,078) | 11,613 | 4,342 | |||||||||
Short-Term Investments (15.9%) | |||||||||||
Investment Company (14.4%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Government Portfolio — Institutional Class (See Note H) (Cost $15,117) | 15,117,200 | 15,117 | |||||||||
Face Amount (000) | |||||||||||
U.S. Treasury Security (1.5%) | |||||||||||
U.S. Treasury Bill 0.09%, 6/3/21 (i) (Cost $1,560) | $ | 1,561 | 1,561 | ||||||||
Total Short-Term Investments (Cost $16,677) | 16,678 | ||||||||||
Total Investments (100.1%) (Cost $89,919) | 104,888 | ||||||||||
Liabilities in Excess of Other Assets (-0.1%) (j)(k)(l) | (121 | ) | |||||||||
Net Assets (100.0%) | $ | 104,767 |
The accompanying notes are an integral part of the consolidated financial statements.
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.
(a) Security is subject to delayed delivery.
(b) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(c) Floating or variable rate securities: The rates disclosed are as of December 31, 2020. For securities based on a published reference rate and spread, the reference rate and spread are indicated in the description in the Consolidated Portfolio of Investments. Certain variable rate securities may not be based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description in the Consolidated Portfolio of Investments.
(d) Perpetual — One or more securities do not have a predetermined maturity date. Rates for these securities are fixed for a period of time, after which they revert to a floating rate. Interest rates in effect are as of December 31, 2020.
(e) Non-income producing security.
(f) Security trades on the Hong Kong exchange.
(g) At December 31, 2020, the Fund a held fair valued security valued at $0, representing 0% of net assets. This security has been fair valued as determined in good faith under procedures established by and under the general supervision of the Company's (as defined herein) Directors.
(h) Amount is less than 0.05%.
(i) Rate shown is the yield to maturity at December 31, 2020.
(j) Securities are available for collateral in connection with securities purchased on a forward commitment basis, open foreign currency forward exchange contracts, futures contracts and swap agreements.
(k) The approximate fair value and percentage of net assets, $10,292,000 and 9.8%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Consolidated Financial Statements.
(l) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $99,382,000. The aggregate gross unrealized appreciation is approximately $16,549,000 and the aggregate gross unrealized depreciation is approximately 2,294,000, resulting in net unrealized appreciation of approximately $14,255,000.
@ Value is less than $500.
ADR American Depositary Receipt.
ASX Australian Securities Exchange.
CDI CHESS Depositary Interest.
CVA Certificaten Van Aandelen.
ETF Exchange Traded Fund.
EURIBOR Euro Interbank Offered Rate.
Euronext Euronext Paris Exchange.
LSE London Stock Exchange.
MTN Medium Term Note.
NASDAQ Nasdaq Stock Exchange.
NYSE New York Stock Exchange.
OAT Obligations Assimilables du Trésor (Treasury Obligation).
OFZ Obilgatsyi Federal'novo Zaima (Russian Federal Loan Obligation).
OMXH Helsinki Stock Exchange.
REIT Real Estate Investment Trust.
SDR Swedish Depositary Receipt.
SIX Swiss Exchange.
SOFR Secured Overnight Financing Rate.
SPDR Standard & Poor's Depository Receipt.
SSE Stockholm Stock Exchange.
TBA To Be Announced.
TSX Toronto Stock Exchange.
Foreign Currency Forward Exchange Contracts:
The Fund had the following foreign currency forward exchange contracts open at December 31, 2020:
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Delivery Date | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||
Bank of America NA | CNH | 2,390 | $ | 364 | 3/18/21 | $ | (2 | ) | |||||||||||
Bank of America NA | PLN | 67 | $ | 18 | 3/18/21 | — | @ | ||||||||||||
Bank of America NA | $ | 1,244 | CNH | 8,231 | 2/26/21 | 18 | |||||||||||||
Bank of America NA | $ | 58 | ILS | 189 | 3/18/21 | 1 | |||||||||||||
Bank of America NA | $ | 1,131 | JPY | 118,094 | 2/26/21 | 13 | |||||||||||||
Bank of Montreal | HUF | 4,029 | $ | 14 | 3/18/21 | — | @ | ||||||||||||
Bank of Montreal | $ | 235 | CAD | 299 | 3/18/21 | — | @ | ||||||||||||
Barclays Bank PLC | AUD | 1,421 | $ | 1,041 | 2/26/21 | (55 | ) | ||||||||||||
Barclays Bank PLC | CAD | 20 | $ | 16 | 2/26/21 | (— | @) | ||||||||||||
Barclays Bank PLC | COP | 691,139 | $ | 200 | 3/18/21 | (2 | ) | ||||||||||||
Barclays Bank PLC | JPY | 2,025 | $ | 19 | 2/26/21 | (— | @) | ||||||||||||
Barclays Bank PLC | $ | 33 | AUD | 43 | 3/18/21 | 1 | |||||||||||||
Barclays Bank PLC | $ | 117 | CAD | 149 | 3/18/21 | — | @ | ||||||||||||
Barclays Bank PLC | $ | 203 | CHF | 184 | 2/26/21 | 6 |
The accompanying notes are an integral part of the consolidated financial statements.
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Foreign Currency Forward Exchange Contracts (cont'd):
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Delivery Date | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||
Barclays Bank PLC | $ | 400 | CNY | 2,630 | 3/18/21 | $ | — | @ | |||||||||||
Barclays Bank PLC | $ | 23 | HUF | 7,137 | 2/26/21 | 1 | |||||||||||||
Barclays Bank PLC | $ | 15 | PLN | 56 | 2/26/21 | — | @ | ||||||||||||
BNP Paribas SA | CHF | 36 | $ | 41 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | EUR | 73 | $ | 89 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | EUR | 60 | $ | 74 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | EUR | 59 | $ | 72 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | IDR | 26,173 | $ | 2 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | INR | 15,197 | $ | 204 | 3/18/21 | (2 | ) | ||||||||||||
BNP Paribas SA | JPY | 5,709 | $ | 55 | 2/26/21 | — | @ | ||||||||||||
BNP Paribas SA | JPY | 3,037 | $ | 29 | 2/26/21 | — | @ | ||||||||||||
BNP Paribas SA | JPY | 17,963 | $ | 173 | 3/18/21 | (1 | ) | ||||||||||||
BNP Paribas SA | JPY | 4,559 | $ | 44 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | JPY | 28,219 | $ | 274 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | JPY | 4,458 | $ | 43 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | KRW | 213,779 | $ | 196 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | PEN | 10 | $ | 3 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | RUB | 1,954 | $ | 26 | 2/26/21 | (1 | ) | ||||||||||||
BNP Paribas SA | RUB | 14,431 | $ | 196 | 3/18/21 | 2 | |||||||||||||
BNP Paribas SA | $ | 7 | AUD | 10 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 98 | CAD | 125 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 151 | CAD | 192 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 71 | CHF | 63 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | $ | 38 | COP | 140,810 | 2/26/21 | 3 | |||||||||||||
BNP Paribas SA | $ | 14 | DKK | 88 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 68 | EUR | 56 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | $ | 37 | EUR | 30 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | $ | 114 | GBP | 83 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 210 | GBP | 157 | 3/18/21 | 4 | |||||||||||||
BNP Paribas SA | $ | 114 | HKD | 886 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 29 | JPY | 3,037 | 1/6/21 | (— | @) | ||||||||||||
BNP Paribas SA | $ | 88 | JPY | 9,070 | 3/18/21 | (— | @) | ||||||||||||
BNP Paribas SA | $ | 55 | JPY | 5,669 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 55 | JPY | 5,669 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 22 | JPY | 2,316 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 90 | JPY | 9,264 | 3/18/21 | — | @ | ||||||||||||
BNP Paribas SA | $ | 75 | SGD | 101 | 2/26/21 | 1 | |||||||||||||
BNP Paribas SA | $ | 126 | THB | 3,823 | 2/25/21 | 2 | |||||||||||||
BNP Paribas SA | $ | 6 | TWD | 172 | 3/18/21 | (— | @) | ||||||||||||
Citibank NA | CAD | 23 | $ | 18 | 2/26/21 | (— | @) | ||||||||||||
Citibank NA | CAD | 192 | $ | 150 | 3/18/21 | (— | @) | ||||||||||||
Citibank NA | $ | 18 | CAD | 23 | 1/6/21 | — | @ | ||||||||||||
Citibank NA | $ | 13 | CAD | 17 | 3/18/21 | — | @ | ||||||||||||
Citibank NA | $ | 61 | CNH | 400 | 2/26/21 | (— | @) | ||||||||||||
Citibank NA | $ | 8 | CZK | 168 | 3/18/21 | — | @ | ||||||||||||
Citibank NA | $ | 74 | HKD | 572 | 3/18/21 | — | @ | ||||||||||||
Citibank NA | $ | 53 | ILS | 172 | 3/18/21 | 1 | |||||||||||||
Citibank NA | $ | 415 | KRW | 463,082 | 2/26/21 | 11 | |||||||||||||
Citibank NA | $ | 5 | THB | 145 | 3/18/21 | — | @ | ||||||||||||
Commonwealth Bank of Australia | NZD | 13 | $ | 9 | 3/18/21 | (— | @) | ||||||||||||
Credit Suisse International | JPY | 174 | $ | 2 | 3/18/21 | (— | @) | ||||||||||||
Goldman Sachs International | BRL | 9,364 | $ | 1,811 | 3/18/21 | 11 | |||||||||||||
Goldman Sachs International | BRL | 166 | $ | 32 | 3/18/21 | (— | @) |
The accompanying notes are an integral part of the consolidated financial statements.
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Foreign Currency Forward Exchange Contracts (cont'd):
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Delivery Date | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||
Goldman Sachs International | CLP | 139,068 | $ | 189 | 3/18/21 | $ | (6 | ) | |||||||||||
Goldman Sachs International | EUR | 120 | $ | 146 | 3/18/21 | (1 | ) | ||||||||||||
Goldman Sachs International | JPY | 23,805 | $ | 230 | 3/18/21 | (1 | ) | ||||||||||||
Goldman Sachs International | $ | 108 | AUD | 144 | 3/18/21 | 2 | |||||||||||||
Goldman Sachs International | $ | 2,137 | BRL | 10,853 | 3/18/21 | (50 | ) | ||||||||||||
Goldman Sachs International | $ | 258 | CAD | 329 | 3/18/21 | — | @ | ||||||||||||
Goldman Sachs International | $ | 45 | CHF | 40 | 3/18/21 | — | @ | ||||||||||||
Goldman Sachs International | $ | 1,985 | EUR | 1,671 | 2/26/21 | 59 | |||||||||||||
Goldman Sachs International | $ | 65 | HKD | 502 | 3/18/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | CNH | 530 | $ | 78 | 8/12/21 | (3 | ) | ||||||||||||
JPMorgan Chase Bank NA | CNH | 901 | $ | 130 | 8/12/21 | (7 | ) | ||||||||||||
JPMorgan Chase Bank NA | CNH | 383 | $ | 58 | 8/12/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | DKK | 102 | $ | 16 | 2/26/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | EUR | 35 | $ | 43 | 2/26/21 | — | @ | ||||||||||||
JPMorgan Chase Bank NA | GBP | 22 | $ | 30 | 2/26/21 | (1 | ) | ||||||||||||
JPMorgan Chase Bank NA | JPY | 127 | $ | 1 | 3/18/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | $ | 49 | AUD | 66 | 2/26/21 | 2 | |||||||||||||
JPMorgan Chase Bank NA | $ | 89 | CAD | 113 | 3/18/21 | — | @ | ||||||||||||
JPMorgan Chase Bank NA | $ | 184 | CNH | 1,229 | 8/12/21 | 3 | |||||||||||||
JPMorgan Chase Bank NA | $ | 152 | CNH | 1,078 | 8/12/21 | 12 | |||||||||||||
JPMorgan Chase Bank NA | $ | 2,658 | CNH | 18,870 | 8/12/21 | 204 | |||||||||||||
JPMorgan Chase Bank NA | $ | 2 | GBP | 2 | 2/26/21 | — | @ | ||||||||||||
JPMorgan Chase Bank NA | $ | 322 | GBP | 241 | 2/26/21 | 8 | |||||||||||||
JPMorgan Chase Bank NA | $ | 34 | GBP | 25 | 3/18/21 | 1 | |||||||||||||
JPMorgan Chase Bank NA | $ | 137 | HKD | 1,060 | 3/18/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | $ | 6 | JPY | 629 | 2/26/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | $ | 29 | NOK | 267 | 2/26/21 | 2 | |||||||||||||
JPMorgan Chase Bank NA | $ | 38 | PEN | 135 | 2/26/21 | (— | @) | ||||||||||||
JPMorgan Chase Bank NA | $ | 36 | RON | 150 | 2/26/21 | 1 | |||||||||||||
JPMorgan Chase Bank NA | $ | 84 | SEK | 727 | 2/26/21 | 4 | |||||||||||||
JPMorgan Chase Bank NA | ZAR | 19 | $ | 1 | 3/18/21 | (— | @) | ||||||||||||
Royal Bank of Canada | $ | 18 | AUD | 24 | 2/26/21 | 1 | |||||||||||||
Royal Bank of Canada | $ | 39 | CAD | 50 | 2/26/21 | — | @ | ||||||||||||
State Street Bank and Trust Co. | GBP | 284 | $ | 380 | 2/26/21 | (9 | ) | ||||||||||||
State Street Bank and Trust Co. | $ | 8 | HKD | 61 | 3/18/21 | — | @ | ||||||||||||
UBS AG | CAD | 90 | $ | 69 | 2/26/21 | (2 | ) | ||||||||||||
UBS AG | EUR | 58 | $ | 70 | 2/26/21 | (2 | ) | ||||||||||||
UBS AG | EUR | 345 | $ | 420 | 3/18/21 | (2 | ) | ||||||||||||
UBS AG | EUR | 293 | $ | 361 | 3/18/21 | 2 | |||||||||||||
UBS AG | GBP | 17 | $ | 23 | 2/26/21 | (— | @) | ||||||||||||
UBS AG | HUF | 57,994 | $ | 198 | 3/18/21 | 3 | |||||||||||||
UBS AG | JPY | 15,991 | $ | 154 | 3/18/21 | (1 | ) | ||||||||||||
UBS AG | MXN | 2,046 | $ | 101 | 2/26/21 | (1 | ) | ||||||||||||
UBS AG | MXN | 5,976 | $ | 294 | 3/18/21 | (4 | ) | ||||||||||||
UBS AG | MXN | 2,627 | $ | 131 | 3/18/21 | (— | @) | ||||||||||||
UBS AG | NOK | 297 | $ | 34 | 3/18/21 | (1 | ) | ||||||||||||
UBS AG | NZD | 273 | $ | 191 | 2/26/21 | (6 | ) | ||||||||||||
UBS AG | SGD | 34 | $ | 25 | 3/18/21 | (— | @) | ||||||||||||
UBS AG | TRY | 226 | $ | 30 | 3/18/21 | — | @ | ||||||||||||
UBS AG | TRY | 1,595 | $ | 196 | 3/18/21 | (12 | ) | ||||||||||||
UBS AG | $ | 321 | AUD | 426 | 3/18/21 | 7 | |||||||||||||
UBS AG | $ | 542 | CAD | 690 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 385 | CHF | 340 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 37 | CZK | 825 | 2/26/21 | 1 |
The accompanying notes are an integral part of the consolidated financial statements.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Foreign Currency Forward Exchange Contracts (cont'd):
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Delivery Date | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||
UBS AG | $ | 282 | EUR | 229 | 3/18/21 | $ | (1 | ) | |||||||||||
UBS AG | $ | 147 | EUR | 120 | 3/18/21 | (— | @) | ||||||||||||
UBS AG | $ | 91 | EUR | 75 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 91 | EUR | 75 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 50 | EUR | 40 | 3/18/21 | (— | @) | ||||||||||||
UBS AG | $ | 150 | EUR | 122 | 3/18/21 | (1 | ) | ||||||||||||
UBS AG | $ | 23 | GBP | 17 | 1/6/21 | — | @ | ||||||||||||
UBS AG | $ | 4 | GBP | 3 | 2/26/21 | — | @ | ||||||||||||
UBS AG | $ | 47 | GBP | 35 | 3/18/21 | 1 | |||||||||||||
UBS AG | $ | 101 | GBP | 74 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 82 | HKD | 638 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 168 | JPY | 17,384 | 3/18/21 | — | @ | ||||||||||||
UBS AG | $ | 7 | MXN | 138 | 2/26/21 | — | @ | ||||||||||||
UBS AG | $ | 587 | TRY | 4,465 | 3/18/21 | (3 | ) | ||||||||||||
UBS AG | $ | 304 | TRY | 2,298 | 3/18/21 | (3 | ) | ||||||||||||
UBS AG | $ | 581 | TRY | 4,385 | 3/18/21 | (7 | ) | ||||||||||||
UBS AG | $ | 289 | TRY | 2,188 | 3/18/21 | (3 | ) | ||||||||||||
UBS AG | ZAR | 3,419 | $ | 227 | 3/18/21 | (4 | ) | ||||||||||||
$ | 194 |
Futures Contracts:
The Fund had the following futures contracts open at December 31, 2020: |
Number of Contracts | Expiration Date | Notional Amount (000) | Value (000) | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||||||
Long: | |||||||||||||||||||||||
U.S. Treasury 5 yr. Note (United States) | 42 | Mar-21 | $ | 4,200 | $ | 5,299 | $ | 18 | |||||||||||||||
BIST 30 Index (Turkey) | 264 | Feb-21 | TRY | 3 | 589 | 9 | |||||||||||||||||
Euro Stoxx 50 Index (Germany) | 6 | Mar-21 | EUR | — | @ | 260 | 5 | ||||||||||||||||
IBEX 35 Index (Spain) | 7 | Jan-21 | — | @ | 690 | 5 | |||||||||||||||||
Hang Seng Index (Hong Kong) | 3 | Jan-21 | HKD | — | @ | 527 | 18 | ||||||||||||||||
SGX MSCI Singapore (Singapore) | 7 | Jan-21 | SGD | 1 | 171 | 1 | |||||||||||||||||
S&P TSE 60 Index (Canada) | 6 | Mar-21 | CAD | 1 | 970 | (12 | ) | ||||||||||||||||
South Korea 10 yr. Bond (Korea, Republic of) | 1 | Mar-21 | KRW | 100,000 | 119 | (1 | ) | ||||||||||||||||
FTSE MIB Index (Italy) | 5 | Mar-21 | EUR | — | @ | 676 | 9 | ||||||||||||||||
ASX SPI 200 Index (Australia) | 4 | Mar-21 | AUD | — | @ | 504 | (3 | ) | |||||||||||||||
Euro Stoxx 50 Index Dividend Futures (Germany) | 27 | Dec-22 | EUR | 3 | 320 | 74 | |||||||||||||||||
NIKKEI 225 Index (Japan) | 1 | Mar-21 | JPY | 1 | 133 | — | @ | ||||||||||||||||
CAC 40 Index (France) | 1 | Jan-21 | EUR | — | @ | 68 | (— | @) | |||||||||||||||
U.S. Treasury 10 yr. Note (United States) | 53 | Mar-21 | $ | 5,300 | 7,318 | 15 | |||||||||||||||||
NYMEX WTI Crude Oil Futures (United States) | 6 | Nov-21 | 6 | 286 | 16 | ||||||||||||||||||
Short: | |||||||||||||||||||||||
U.S. Treasury Ultra Bond (United States) | 11 | Mar-21 | (1,100 | ) | (2,349 | ) | 34 | ||||||||||||||||
MSCI Emerging Market E Mini (United States) | 33 | Mar-21 | (2 | ) | (2,126 | ) | (57 | ) | |||||||||||||||
U.S. Treasury 5 yr. Note (United States) | 3 | Mar-21 | (300 | ) | (378 | ) | (1 | ) | |||||||||||||||
S&P 500 E Mini Index (United States) | 5 | Mar-21 | — | @ | (937 | ) | (4 | ) | |||||||||||||||
U.S. Treasury 2 yr. Note (United States) | 4 | Mar-21 | (800 | ) | (884 | ) | (1 | ) | |||||||||||||||
FTSE 100 Index (United Kingdom) | 1 | Mar-21 | GBP | — | @ | (88 | ) | 1 | |||||||||||||||
NIKKEI 225 Index (United States) | 11 | Mar-21 | JPY | (6 | ) | (1,465 | ) | (32 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Futures Contracts (cont'd):
Number of Contracts | Expiration Date | Notional Amount (000) | Value (000) | Unrealized Appreciation (Depreciation) (000) | |||||||||||||||||||
German Euro BTP (Germany) | 11 | Mar-21 | EUR | (1,100 | ) | $ | (2,043 | ) | $ | (9 | ) | ||||||||||||
U.S. Treasury Ultra Long Bond (United States) | 39 | Mar-21 | $ | (3,900 | ) | (6,098 | ) | (31 | ) | ||||||||||||||
$ | 54 |
Interest Rate Swap Agreements:
The Fund had the following interest rate swap agreements open at December 31, 2020:
Swap Counterparty | Floating Rate Index | Pay/ Receive Floating Rate | Fixed Rate | Payment Frequency Paid/ Received | Maturity Date | Notional Amount (000) | Value (000) | Upfront Payment Paid (000) | Unrealized Appreciation (000) | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | 3 Month KORIBOR | Pay | 1.83 | % | Quarterly/ Quarterly | 6/14/27 | KRW | 510,000 | $ | 19 | $ | — | $ | 19 | |||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.24 | Semi-Annual/ Quarterly | 3/30/30 | $ | 316 | 29 | — | 29 | |||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.27 | Semi-Annual/ Quarterly | 3/30/30 | 1,106 | 97 | — | 97 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.3 | Semi-Annual/ Quarterly | 3/30/30 | 315 | 27 | — | 27 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.18 | Semi-Annual/ Quarterly | 3/31/30 | 526 | 51 | — | 51 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.31 | Semi-Annual/ Quarterly | 4/28/30 | 190 | 16 | — | 16 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.37 | Semi-Annual/ Quarterly | 5/29/30 | 134 | 11 | — | 11 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.75 | Semi-Annual/ Quarterly | 7/30/30 | 247 | 15 | — | 15 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 1.96 | Semi-Annual/ Quarterly | 8/28/30 | 138 | 4 | — | 4 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | US CPI All Urban Consumers Index | Receive | 2.18 | Semi-Annual/ Quarterly | 12/23/30 | 387 | 1 | — | 1 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.78 | Quarterly/ Quarterly | 10/3/30 | MXN | 12,350 | 21 | — | 21 | |||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.78 | Quarterly/ Quarterly | 10/3/30 | 15,155 | 25 | — | 25 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.79 | Quarterly/ Quarterly | 10/3/30 | 15,120 | 26 | — | 26 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.81 | Quarterly/ Quarterly | 10/3/30 | 37,523 | 67 | — | 67 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.78 | Quarterly/ Quarterly | 10/4/30 | 7,103 | 12 | — | 12 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.78 | Quarterly/ Quarterly | 10/4/30 | 7,113 | 12 | — | 12 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.58 | Quarterly/ Quarterly | 11/1/30 | 4,361 | 4 | — | 4 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.59 | Quarterly/ Quarterly | 11/1/30 | 4,360 | 4 | — | 4 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.60 | Quarterly/ Quarterly | 11/1/30 | 8,555 | 8 | — | 8 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.61 | Quarterly/ Quarterly | 11/1/30 | 7,125 | 7 | — | 7 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.61 | Quarterly/ Quarterly | 11/1/30 | 9,980 | 10 | — | 10 | ||||||||||||||||||||||||||||||
Morgan Stanley & Co. LLC* | 1 Month TIIE | Pay | 5.61 | Quarterly/ Quarterly | 11/1/30 | 9,980 | 10 | — | 10 | ||||||||||||||||||||||||||||||
$ | 476 | $ | — | $ | 476 |
The accompanying notes are an integral part of the consolidated financial statements.
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Total Return Swap Agreements:
The Fund had the following total return swap agreements open at December 31, 2020:
Swap Counterparty | Index | Pay/ Receive Total Return of Referenced Index | Floating Rate | Payment Frequency | Maturity Date | Notional Amount (000) | Value (000) | Upfront Payment Paid (000) | Unrealized Appreciation (Depreciation) (000) | ||||||||||||||||||||||||||||||
BNP Paribas SA | BNP Custom U.S. Banks Index†† | Receive | 3 Month USD LIBOR plus 0.15% | Quarterly | 9/16/21 | $ | 324 | $ | 20 | $ | — | $ | 20 | ||||||||||||||||||||||||||
BNP Paribas SA | BNP Custom U.S. Banks Index†† | Receive | 3 Month USD LIBOR plus 0.15% | Quarterly | 9/16/21 | 185 | 12 | — | 12 | ||||||||||||||||||||||||||||||
BNP Paribas SA | BNP Custom U.S. Banks Index†† | Receive | 3 Month USD LIBOR plus 0.25% | Quarterly | 9/16/21 | 313 | 20 | — | 20 | ||||||||||||||||||||||||||||||
BNP Paribas SA | BNP Custom U.S. Banks Index†† | Receive | 3 Month USD LIBOR plus 0.25% | Quarterly | 9/16/21 | 418 | 16 | — | 16 | ||||||||||||||||||||||||||||||
BNP Paribas SA | MSCI Emerging Markets Index | Receive | 3 Month USD LIBOR plus 0.28% | Quarterly | 1/26/21 | 8,986 | 1,244 | — | 1,244 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Growth Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 276 | (15 | ) | — | (15 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Growth Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 278 | (11 | ) | — | (11 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Growth Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 270 | (11 | ) | — | (11 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Growth Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 272 | (9 | ) | — | (9 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Growth Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 265 | (7 | ) | — | (7 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Low Vol Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 628 | (17 | ) | — | (17 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Low Vol Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 634 | (13 | ) | — | (13 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Low Vol Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 621 | (10 | ) | — | (10 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Low Vol Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 621 | (9 | ) | — | (9 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Low Vol Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 620 | (7 | ) | — | (7 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Value Index†† | Receive | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 915 | 29 | — | 29 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Value Index†† | Receive | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 918 | 11 | — | 11 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Value Index†† | Receive | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 879 | 12 | — | 12 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Value Index†† | Receive | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 891 | 10 | — | 10 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 1500 Value Index†† | Receive | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 888 | 6 | — | 6 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 500 Growth Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 4,192 | (174 | ) | — | (174 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 500 Low Vol Index†† | Pay | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 2,259 | (46 | ) | — | (46 | ) | ||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | JPM SPX 500 Value Index†† | Receive | 3 Month USD LIBOR plus 0.20% | Quarterly | 5/14/21 | 6,505 | 143 | — | 143 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank NA | MSCI Japan Net Total Return Index | Receive | 3 Month USD LIBOR plus 0.15% | Quarterly | 2/10/21 | 4,550 | 457 | — | 457 | ||||||||||||||||||||||||||||||
$ | 1,651 | $ | — | $ | 1,651 |
†† See tables below for details of the equity basket holdings underlying the swap.
The accompanying notes are an integral part of the consolidated financial statements.
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
The following table represents the equity basket holdings underlying the total return swap with BNP Custom U.S. Banks Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
BNP Custom U.S. Banks Index | |||||||||||||||
Bank of America Corp. | 308,343 | $ | 9,346 | 20.35 | % | ||||||||||
CIT Group, Inc. | 3,298 | 118 | 0.26 | ||||||||||||
Citigroup, Inc. | 79,236 | 4,886 | 10.63 | ||||||||||||
Citizens Financial Group | 15,687 | 561 | 1.22 | ||||||||||||
Comerica, Inc. | 5,287 | 295 | 0.64 | ||||||||||||
East West Bancorp, Inc. | 4,961 | 252 | 0.55 | ||||||||||||
Fifth Third Bancorp | 25,079 | 691 | 1.51 | ||||||||||||
First Republic Bank | 5,750 | 845 | 1.84 | ||||||||||||
Huntington Bancshares, Inc. | 35,695 | 451 | 0.98 | ||||||||||||
Jpmorgan Chase & Co. | 110,953 | 14,099 | 30.70 | ||||||||||||
Keycorp | 34,389 | 564 | 1.23 | ||||||||||||
M&T Bank Corp. | 4,440 | 565 | 1.23 | ||||||||||||
People's United Financial | 13,619 | 176 | 0.38 | ||||||||||||
PNC Financial Services Group | 15,425 | 2,298 | 5.00 | ||||||||||||
Regions Financial Corp. | 34,597 | 558 | 1.21 | ||||||||||||
Signature Bank | 1,907 | 258 | 0.56 | ||||||||||||
SVB Financial Group | 1,793 | 695 | 1.51 | ||||||||||||
Truist Financial Corp. | 45,852 | 2,198 | 4.78 | ||||||||||||
US Bancorp | 51,605 | 2,404 | 5.23 | ||||||||||||
Wells Fargo & Co. | 146,120 | 4,410 | 9.60 | ||||||||||||
Zions Bancorp NA | 6,245 | 271 | 0.59 | ||||||||||||
Total | $ | 45,941 | 100.00 | % |
The following table represents the equity basket holdings underlying the total return swap with JPM SPX 1500 Growth Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Growth Index | |||||||||||||||
8X8, Inc. | 2,755 | $ | 95 | 0.82 | % | ||||||||||
AAON, Inc. | 874 | 58 | 0.51 | ||||||||||||
Advanced Micro Devices, Inc. | 594 | 54 | 0.48 | ||||||||||||
Air Products & Chemicals, Inc. | 203 | 56 | 0.49 | ||||||||||||
Albemarle Corp. | 412 | 61 | 0.53 | ||||||||||||
Allegheny Technologies, Inc. | 3,664 | 61 | 0.54 | ||||||||||||
Ambac Financial Group, Inc. | 3,487 | 54 | 0.47 | ||||||||||||
Amedisys, Inc. | 225 | 66 | 0.57 | ||||||||||||
American Tower Corp. | 243 | 55 | 0.48 | ||||||||||||
Aon PLC — Class A | 266 | 56 | 0.49 | ||||||||||||
Apache Corp. | 4,248 | 60 | 0.53 | ||||||||||||
Apple, Inc. | 452 | 60 | 0.52 | ||||||||||||
Aptargroup, Inc. | 441 | 60 | 0.53 | ||||||||||||
Arista Networks, Inc. | 205 | 60 | 0.52 | ||||||||||||
Arlo Technologies, Inc. | 9,891 | 77 | 0.67 | ||||||||||||
Axon Enterprise, Inc. | 449 | 55 | 0.48 | ||||||||||||
Badger Meter, Inc. | 681 | 64 | 0.56 | ||||||||||||
Ball Corp. | 592 | 55 | 0.48 | ||||||||||||
Banc of California, Inc. | 3,947 | 58 | 0.51 | ||||||||||||
Bank of Hawaii Corp. | 714 | 55 | 0.48 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Growth Index (cont'd) | |||||||||||||||
Berkshire Hills Bancorp, Inc. | 3,202 | $ | 55 | 0.48 | % | ||||||||||
Biotelemetry, Inc. | 1,020 | 74 | 0.64 | ||||||||||||
Boeing Co. (The) | 249 | 53 | 0.47 | ||||||||||||
Boston Beer Company, Inc. — Class A | 60 | 60 | 0.53 | ||||||||||||
Brown & Brown, Inc. | 1,236 | 59 | 0.51 | ||||||||||||
Cable One, Inc. | 27 | 61 | 0.53 | ||||||||||||
Calamp Corp. | 5,918 | 59 | 0.51 | ||||||||||||
Calavo Growers, Inc. | 787 | 55 | 0.48 | ||||||||||||
Capitol Federal Financial, Inc. | 4,509 | 56 | 0.49 | ||||||||||||
Cardiovascular Systems, Inc. | 1,624 | 71 | 0.62 | ||||||||||||
Catalent, Inc. | 597 | 62 | 0.54 | ||||||||||||
Century Aluminum Company | 5,067 | 56 | 0.49 | ||||||||||||
Chatham Lodging Trust | 4,855 | 52 | 0.46 | ||||||||||||
Chefs' Warehouse, Inc. (The) | 2,291 | 59 | 0.51 | ||||||||||||
Chesapeake Utilities Corp. | 535 | 58 | 0.51 | ||||||||||||
Cognex Corp. | 733 | 59 | 0.51 | ||||||||||||
Commerce Bancshares, Inc. | 880 | 58 | 0.51 | ||||||||||||
Community Bank System, Inc. | 867 | 54 | 0.47 | ||||||||||||
Conocophillips | 1,393 | 56 | 0.49 | ||||||||||||
Copart, Inc. | 492 | 63 | 0.55 | ||||||||||||
Core Laboratories N.V. | 2,293 | 61 | 0.53 | ||||||||||||
Coresite Realty Corp. | 461 | 58 | 0.51 | ||||||||||||
Corvel Corp. | 604 | 64 | 0.56 | ||||||||||||
Costco Wholesale Corp. | 145 | 55 | 0.48 | ||||||||||||
Cree, Inc. | 621 | 66 | 0.57 | ||||||||||||
Crown Castle International Corp. | 334 | 53 | 0.46 | ||||||||||||
Cutera, Inc. | 2,295 | 55 | 0.48 | ||||||||||||
Cyrusone, Inc. | 813 | 59 | 0.52 | ||||||||||||
Cytokinetics, Inc. | 3,094 | 64 | 0.56 | ||||||||||||
Delta Air Lines, Inc. | 1,356 | 55 | 0.48 | ||||||||||||
Dexcom, Inc. | 167 | 62 | 0.54 | ||||||||||||
DMC Global, Inc. | 1,295 | 56 | 0.49 | ||||||||||||
Dorman Products, Inc. | 599 | 52 | 0.45 | ||||||||||||
Duke Realty Corp. | 1,476 | 59 | 0.52 | ||||||||||||
Eastgroup Properties, Inc. | 418 | 58 | 0.50 | ||||||||||||
Ecolab, Inc. | 254 | 55 | 0.48 | ||||||||||||
Enerpac Tool Group Corp. | 2,524 | 57 | 0.50 | ||||||||||||
Enphase Energy, Inc. | 435 | 76 | 0.67 | ||||||||||||
Equinix, Inc. | 81 | 58 | 0.50 | ||||||||||||
Estee Lauder Companies — Class A | 227 | 60 | 0.53 | ||||||||||||
Eversource Energy | 632 | 55 | 0.48 | ||||||||||||
Expedia Group, Inc. | 435 | 58 | 0.50 | ||||||||||||
Exponent, Inc. | 680 | 61 | 0.53 | ||||||||||||
Factset Research Systems, Inc. | 166 | 55 | 0.48 | ||||||||||||
Faro Technologies, Inc. | 820 | 58 | 0.51 | ||||||||||||
Fastenal Co. | 1,170 | 57 | 0.50 | ||||||||||||
First Finl Bankshares, Inc. | 1,609 | 58 | 0.51 | ||||||||||||
First Republic Bank | 423 | 62 | 0.54 | ||||||||||||
Five Below | 357 | 62 | 0.55 | ||||||||||||
Fluor Corp. | 3,150 | 50 | 0.44 | ||||||||||||
Fox Factory Holding Corp. | 620 | 65 | 0.57 |
The accompanying notes are an integral part of the consolidated financial statements.
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Growth Index (cont'd) | |||||||||||||||
Gap, Inc. (The) | 2,662 | $ | 54 | 0.47 | % | ||||||||||
Garmin Ltd. | 470 | 56 | 0.49 | ||||||||||||
Glaukos Corp. | 801 | 60 | 0.53 | ||||||||||||
Graco, Inc. | 836 | 60 | 0.53 | ||||||||||||
Granite Construction, Inc. | 2,220 | 59 | 0.52 | ||||||||||||
Green Dot Corp. — Class A | 1,065 | 59 | 0.52 | ||||||||||||
Halliburton Co. | 3,162 | 60 | 0.52 | ||||||||||||
Hancock Whitney Corp. | 1,891 | 64 | 0.56 | ||||||||||||
Healthequity, Inc. | 780 | 54 | 0.48 | ||||||||||||
Heska Corp. | 454 | 66 | 0.58 | ||||||||||||
Hess Corp. | 1,134 | 60 | 0.52 | ||||||||||||
Hilton Worldwide Holdings, Inc. | 522 | 58 | 0.51 | ||||||||||||
Host Hotels & Resorts, Inc. | 3,739 | 55 | 0.48 | ||||||||||||
IAA, Inc. | 930 | 60 | 0.53 | ||||||||||||
IDEX Corp. | 293 | 58 | 0.51 | ||||||||||||
IDEXX Laboratories, Inc. | 120 | 60 | 0.53 | ||||||||||||
Illinois Tool Works | 272 | 55 | 0.48 | ||||||||||||
Ingersoll-Rand, Inc. | 1,256 | 57 | 0.50 | ||||||||||||
Installed Building Products | 584 | 60 | 0.52 | ||||||||||||
IPG Photonics Corp. | 268 | 60 | 0.52 | ||||||||||||
Kinsale Capital Group, Inc. | 230 | 46 | 0.40 | ||||||||||||
Lancaster Colony Corp. | 333 | 61 | 0.53 | ||||||||||||
Las Vegas Sands Corp. | 967 | 58 | 0.50 | ||||||||||||
Lendingtree, Inc. | 234 | 64 | 0.56 | ||||||||||||
Lennox International, Inc. | 198 | 54 | 0.47 | ||||||||||||
LHC Group, Inc. | 284 | 61 | 0.53 | ||||||||||||
Live Nation Entertainment, Inc. | 797 | 59 | 0.51 | ||||||||||||
Livent Corp. | 3,633 | 68 | 0.60 | ||||||||||||
Liveperson, Inc. | 1,003 | 62 | 0.55 | ||||||||||||
Liveramp Holdings, Inc. | 949 | 69 | 0.61 | ||||||||||||
Marathon Petroleum Corp. | 1,372 | 57 | 0.50 | ||||||||||||
Marketaxess Holdings, Inc. | 103 | 59 | 0.51 | ||||||||||||
Mastercard, Inc. — Class A | 164 | 58 | 0.51 | ||||||||||||
McCormick & Co., Inc. | 609 | 58 | 0.51 | ||||||||||||
Mercer International, Inc. | 6,119 | 63 | 0.55 | ||||||||||||
Monolithic Power Systems, Inc. | 174 | 64 | 0.56 | ||||||||||||
Moody's Corp. | 200 | 58 | 0.51 | ||||||||||||
MSCI, Inc. | 134 | 60 | 0.52 | ||||||||||||
National Instruments Corp. | 1,430 | 63 | 0.55 | ||||||||||||
Nektar Therapeutics | 3,224 | 55 | 0.48 | ||||||||||||
Neogenomics, Inc. | 1,178 | 63 | 0.55 | ||||||||||||
New York Mortgage Trust, Inc. | 15,257 | 56 | 0.49 | ||||||||||||
New York Times Co. — Class A | 1,233 | 64 | 0.56 | ||||||||||||
Nextera Energy, Inc. | 749 | 58 | 0.51 | ||||||||||||
Nike, Inc. — Class B | 411 | 58 | 0.51 | ||||||||||||
Nisource, Inc. | 2,262 | 52 | 0.45 | ||||||||||||
Nordson Corp. | 282 | 57 | 0.50 | ||||||||||||
Northfield Bancorp, Inc. | 4,851 | 60 | 0.52 | ||||||||||||
NOW, Inc. | 9,552 | 69 | 0.60 | ||||||||||||
NVIDIA Corp. | 103 | 54 | 0.47 | ||||||||||||
Old Dominion Freight Line | 272 | 53 | 0.46 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Growth Index (cont'd) | |||||||||||||||
Ollie's Bargain Outlet Holdings, Inc. | 642 | $ | 52 | 0.46 | % | ||||||||||
Pacific Premier Bancorp, Inc. | 1,868 | 59 | 0.51 | ||||||||||||
Pacwest Bancorp | 2,266 | 58 | 0.50 | ||||||||||||
Palomar Holdings, Inc. | 827 | 74 | 0.64 | ||||||||||||
Par Pacific Holdings, Inc. | 4,374 | 61 | 0.53 | ||||||||||||
Park Hotels & Resorts, Inc. | 3,238 | 56 | 0.49 | ||||||||||||
Paycom Software, Inc. | 133 | 60 | 0.52 | ||||||||||||
Paylocity Holding Corp. | 286 | 59 | 0.51 | ||||||||||||
Paypal Holdings, Inc. | 262 | 61 | 0.54 | ||||||||||||
PBF Energy, Inc.- Class A | 7,058 | 50 | 0.44 | ||||||||||||
PDF Solutions, Inc. | 2,506 | 54 | 0.47 | ||||||||||||
Pennant Group, Inc. (The) | 1,061 | 62 | 0.54 | ||||||||||||
Penumbra, Inc. | 271 | 47 | 0.42 | ||||||||||||
Proassurance Corp. | 3,480 | 62 | 0.54 | ||||||||||||
Proto Labs, Inc. | 416 | 64 | 0.56 | ||||||||||||
Quaker Chemical Corp. | 229 | 58 | 0.51 | ||||||||||||
Regis Corp. | 6,119 | 56 | 0.49 | ||||||||||||
Repligen Corp. | 298 | 57 | 0.50 | ||||||||||||
RH | 123 | 55 | 0.48 | ||||||||||||
RLI Corp. | 562 | 59 | 0.51 | ||||||||||||
Rollins, Inc. | 1,514 | 59 | 0.52 | ||||||||||||
Ross Stores, Inc. | 499 | 61 | 0.54 | ||||||||||||
S&P Global, Inc. | 167 | 55 | 0.48 | ||||||||||||
Sabre Corp. | 4,815 | 58 | 0.51 | ||||||||||||
Saia, Inc. | 319 | 58 | 0.50 | ||||||||||||
Sailpoint Technologies, Inc. | 1,211 | 64 | 0.56 | ||||||||||||
Sanderson Farms, Inc. | 392 | 52 | 0.45 | ||||||||||||
Sba Communications Corp. | 196 | 55 | 0.48 | ||||||||||||
Servicenow, Inc. | 106 | 58 | 0.51 | ||||||||||||
Shake Shack, Inc. — Class A | 676 | 57 | 0.50 | ||||||||||||
Sherwin-Williams Co. (The) | 78 | 57 | 0.50 | ||||||||||||
Simulations Plus, Inc. | 993 | 71 | 0.62 | ||||||||||||
Six Flags Entertainment Corp. | 1,680 | 57 | 0.50 | ||||||||||||
Southwestern Energy Co. | 19,269 | 57 | 0.50 | ||||||||||||
Spectrum Pharmaceuticals, Inc. | 11,674 | 40 | 0.35 | ||||||||||||
Summit Hotel Properties, Inc. | 6,033 | 54 | 0.48 | ||||||||||||
Sunrun, Inc. | 913 | 63 | 0.55 | ||||||||||||
SVB Financial Group | 158 | 61 | 0.53 | ||||||||||||
Tactile Systems Technology I | 1,330 | 60 | 0.52 | ||||||||||||
Techtarget | 1,099 | 65 | 0.57 | ||||||||||||
TJX Companies, Inc. | 857 | 59 | 0.51 | ||||||||||||
Topbuild Corp. | 335 | 62 | 0.54 | ||||||||||||
Transdigm Group, Inc. | 94 | 58 | 0.51 | ||||||||||||
Trex Company, Inc. | 754 | 63 | 0.55 | ||||||||||||
Triumph Bancorp, Inc. | 1,193 | 58 | 0.51 | ||||||||||||
Trupanion, Inc. | 592 | 71 | 0.61 | ||||||||||||
Tupperware Brands Corp. | 1,635 | 53 | 0.46 | ||||||||||||
Twitter, Inc. | 1,179 | 64 | 0.56 | ||||||||||||
Ulta Beauty, Inc. | 197 | 57 | 0.50 | ||||||||||||
Under Armour, Inc. — Class A | 3,412 | 59 | 0.51 | ||||||||||||
Under Armour, Inc. — Class C | 3,838 | 57 | 0.50 |
The accompanying notes are an integral part of the consolidated financial statements.
28
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Growth Index (cont'd) | |||||||||||||||
United Parcel Service — Class B | 330 | $ | 56 | 0.49 | % | ||||||||||
Universal Display Corp. | 240 | 55 | 0.48 | ||||||||||||
Verisign, Inc. | 278 | 60 | 0.53 | ||||||||||||
Verisk Analytics, Inc. | 284 | 59 | 0.52 | ||||||||||||
Viad Corp. | 1,759 | 64 | 0.55 | ||||||||||||
Vicor Corp. | 674 | 62 | 0.54 | ||||||||||||
Visa, Inc. — Class A | 265 | 58 | 0.51 | ||||||||||||
Visteon Corp. | 453 | 57 | 0.50 | ||||||||||||
Vonage Holdings Corp. | 4,137 | 53 | 0.47 | ||||||||||||
Vornado Realty Trust | 1,402 | 52 | 0.46 | ||||||||||||
WD-40 Co. | 223 | 59 | 0.52 | ||||||||||||
Wec Energy Group, Inc. | 582 | 54 | 0.47 | ||||||||||||
Westamerica Bancorp | 1,014 | 56 | 0.49 | ||||||||||||
Wingstop, Inc. | 442 | 59 | 0.51 | ||||||||||||
Wynn Resorts Ltd. | 530 | 60 | 0.52 | ||||||||||||
Xcel Energy, Inc. | 811 | 54 | 0.47 | ||||||||||||
Xencor, Inc. | 1,413 | 62 | 0.54 | ||||||||||||
Xenia Hotels & Resorts, Inc. | 3,742 | 57 | 0.50 | ||||||||||||
Xylem, Inc. | 579 | 59 | 0.52 | ||||||||||||
Yeti Holdings, Inc. | 887 | 61 | 0.53 | ||||||||||||
Zoetis, Inc. | 350 | 58 | 0.51 | ||||||||||||
Total | $ | 11,442 | 100.00 | % |
The following table represents the equity basket holdings underlying the total return swap with JPM SPX 1500 Low Vol Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Low Vol Index | |||||||||||||||
Abbott Laboratories | 488 | $ | 53 | 0.52 | % | ||||||||||
Adobe, Inc. | 110 | 55 | 0.53 | ||||||||||||
Agilent Technologies, Inc. | 461 | 55 | 0.53 | ||||||||||||
Agree Realty Corp. | 798 | 53 | 0.52 | ||||||||||||
Air Products & Chemicals, Inc. | 193 | 53 | 0.51 | ||||||||||||
Akamai Technologies, Inc. | 510 | 54 | 0.52 | ||||||||||||
Alexandria Real Estate Equities, Inc. | 318 | 57 | 0.55 | ||||||||||||
Alleghany Corp. | 89 | 54 | 0.52 | ||||||||||||
Alphabet, Inc. — Class C | 29 | 51 | 0.49 | ||||||||||||
Ameren Corporation | 672 | 52 | 0.51 | ||||||||||||
American Express Co. | 431 | 52 | 0.51 | ||||||||||||
American Tower Corp. | 231 | 52 | 0.50 | ||||||||||||
Amerisafe, Inc. | 969 | 56 | 0.54 | ||||||||||||
Amerisourcebergen Corp. | 512 | 50 | 0.49 | ||||||||||||
Amgen, Inc. | 233 | 54 | 0.52 | ||||||||||||
Amphenol Corp. — Class A | 403 | 53 | 0.51 | ||||||||||||
Analog Devices, Inc. | 375 | 55 | 0.54 | ||||||||||||
Aptargroup, Inc. | 418 | 57 | 0.56 | ||||||||||||
Arcosa, Inc. | 995 | 55 | 0.53 | ||||||||||||
Arthur J Gallagher & Co. | 453 | 56 | 0.55 | ||||||||||||
AT&T, Inc. | 1,814 | 52 | 0.51 | ||||||||||||
Atmos Energy Corp. | 549 | 52 | 0.51 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Low Vol Index (cont'd) | |||||||||||||||
Automatic Data Processing | 308 | $ | 54 | 0.53 | % | ||||||||||
Autozone, Inc. | 46 | 54 | 0.53 | ||||||||||||
Badger Meter, Inc. | 645 | 61 | 0.59 | ||||||||||||
Baxter International, Inc. | 691 | 55 | 0.54 | ||||||||||||
Booking Holdings, Inc. | 25 | 57 | 0.55 | ||||||||||||
Boston Scientific Corp. | 1,546 | 56 | 0.54 | ||||||||||||
Broadcom, Inc. | 131 | 57 | 0.56 | ||||||||||||
Brown & Brown, Inc. | 1,171 | 56 | 0.54 | ||||||||||||
Cable One, Inc. | 26 | 58 | 0.56 | ||||||||||||
Cabot Oil & Gas Corp. | 3,096 | 50 | 0.49 | ||||||||||||
Capitol Federal Financial, Inc. | 4,274 | 53 | 0.52 | ||||||||||||
Carrier Global Corp. | 1,433 | 54 | 0.53 | ||||||||||||
CDW Corp. | 402 | 53 | 0.52 | ||||||||||||
Cerner Corp. | 699 | 55 | 0.53 | ||||||||||||
Chemed Corp. | 111 | 59 | 0.57 | ||||||||||||
Chevron Corp. | 587 | 50 | 0.48 | ||||||||||||
City Holding Co. | 782 | 54 | 0.53 | ||||||||||||
CME Group, Inc. | 290 | 53 | 0.51 | ||||||||||||
CMS Energy Corp. | 854 | 52 | 0.51 | ||||||||||||
Columbia Sportswear Co. | 631 | 55 | 0.54 | ||||||||||||
Comcast Corp. — Class A | 1,034 | 54 | 0.53 | ||||||||||||
Commerce Bancshares, Inc. | 834 | 55 | 0.53 | ||||||||||||
Community Bank System, Inc. | 822 | 51 | 0.50 | ||||||||||||
Cooper Co, Inc. (The) | 158 | 57 | 0.56 | ||||||||||||
Corning, Inc. | 1,396 | 50 | 0.49 | ||||||||||||
Costco Wholesale Corp. | 138 | 52 | 0.50 | ||||||||||||
Crown Castle Intl Corp. | 316 | 50 | 0.49 | ||||||||||||
CVB Financial Corp. | 2,718 | 53 | 0.52 | ||||||||||||
Daktronics, Inc. | 5,419 | 25 | 0.25 | ||||||||||||
Danaher Corp. | 235 | 52 | 0.51 | ||||||||||||
Deckers Outdoor Corp. | 196 | 56 | 0.55 | ||||||||||||
Dollar General Corp. | 243 | 51 | 0.50 | ||||||||||||
Domino's Pizza, Inc. | 136 | 52 | 0.51 | ||||||||||||
Dorman Products, Inc. | 567 | 49 | 0.48 | ||||||||||||
Dril-Quip, Inc. | 1,697 | 50 | 0.49 | ||||||||||||
DSP Group, Inc. | 3,118 | 52 | 0.50 | ||||||||||||
Duke Realty Corp. | 1,399 | 56 | 0.54 | ||||||||||||
Easterly Government Properties | 2,450 | 55 | 0.54 | ||||||||||||
Eastgroup Properties, Inc. | 396 | 55 | 0.53 | ||||||||||||
Eaton Corp. PLC | 444 | 53 | 0.52 | ||||||||||||
Encore Wire Corp. | 1,017 | 62 | 0.60 | ||||||||||||
Estee Lauder Companies — Class A | 215 | 57 | 0.56 | ||||||||||||
Eversource Energy | 599 | 52 | 0.50 | ||||||||||||
Expeditors International Wash, Inc. | 595 | 57 | 0.55 | ||||||||||||
Extra Space Storage, Inc. | 474 | 55 | 0.53 | ||||||||||||
Exxon Mobil Corp. | 1,321 | 54 | 0.53 | ||||||||||||
Factset Research Systems, Inc. | 157 | 52 | 0.51 | ||||||||||||
Fidelity National Information Services, Inc | 355 | 50 | 0.49 | ||||||||||||
First Financial Bankshares, Inc. | 1,525 | 55 | 0.54 | ||||||||||||
Firstcash, Inc. | 783 | 55 | 0.53 | ||||||||||||
Flowers Foods, Inc. | 2,386 | 54 | 0.53 |
The accompanying notes are an integral part of the consolidated financial statements.
29
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Low Vol Index (cont'd) | |||||||||||||||
FMC Corp. | 447 | $ | 51 | 0.50 | % | ||||||||||
Garmin Ltd. | 445 | 53 | 0.52 | ||||||||||||
GATX Corp. | 646 | 54 | 0.52 | ||||||||||||
Gentex Corp. | 1,597 | 54 | 0.53 | ||||||||||||
Gilead Sciences, Inc. | 863 | 50 | 0.49 | ||||||||||||
Graco, Inc. | 792 | 57 | 0.56 | ||||||||||||
Hasbro, Inc. | 562 | 53 | 0.51 | ||||||||||||
Hawaiian Electric Industries | 1,454 | 51 | 0.50 | ||||||||||||
Heartland Express, Inc. | 2,858 | 52 | 0.50 | ||||||||||||
Helen Of Troy Ltd. | 257 | 57 | 0.56 | ||||||||||||
Henry Schein, Inc. | 794 | 53 | 0.52 | ||||||||||||
Heritage Financial Corp. | 2,206 | 52 | 0.50 | ||||||||||||
Hilton Worldwide Holdings, Inc. | 494 | 55 | 0.54 | ||||||||||||
Home Depot, Inc. | 195 | 52 | 0.50 | ||||||||||||
HP, Inc. | 2,313 | 57 | 0.55 | ||||||||||||
Humana, Inc. | 130 | 53 | 0.52 | ||||||||||||
IDEX Corp. | 278 | 55 | 0.54 | ||||||||||||
Illinois Tool Works | 257 | 52 | 0.51 | ||||||||||||
Intercontinental Exchange, Inc. | 495 | 57 | 0.56 | ||||||||||||
Intuit, Inc. | 148 | 56 | 0.55 | ||||||||||||
Jack Henry & Associates, Inc. | 330 | 53 | 0.52 | ||||||||||||
Jacobs Engineering Group, Inc. | 494 | 54 | 0.52 | ||||||||||||
JM Smucker Co. (The) | 459 | 53 | 0.52 | ||||||||||||
Johnson & Johnson | 356 | 56 | 0.55 | ||||||||||||
Kinder Morgan, Inc. | 3,681 | 50 | 0.49 | ||||||||||||
Kkr Real Estate Finance Trust | 2,855 | 51 | 0.50 | ||||||||||||
Landstar System, Inc. | 404 | 54 | 0.53 | ||||||||||||
La-Z-Boy, Inc. | 1,412 | 56 | 0.55 | ||||||||||||
Lennox International, Inc. | 188 | 51 | 0.50 | ||||||||||||
Life Storage, Inc. | 482 | 58 | 0.56 | ||||||||||||
Linde PLC | 210 | 55 | 0.54 | ||||||||||||
Lindsay Corp. | 449 | 58 | 0.56 | ||||||||||||
Lockheed Martin Corp. | 146 | 52 | 0.50 | ||||||||||||
Lowe's Co., Inc. | 348 | 56 | 0.54 | ||||||||||||
Marsh & Mclennan Co. | 455 | 53 | 0.52 | ||||||||||||
Matrix Service Co. | 5,380 | 59 | 0.58 | ||||||||||||
Maximus, Inc. | 731 | 54 | 0.52 | ||||||||||||
Mcdonald's Corp. | 250 | 54 | 0.52 | ||||||||||||
Medtronic PLC | 465 | 54 | 0.53 | ||||||||||||
Merck & Co., Inc.. | 645 | 53 | 0.51 | ||||||||||||
Microsoft Corp. | 245 | 55 | 0.53 | ||||||||||||
Mid-America Apartment Communities, Inc. | 427 | 54 | 0.53 | ||||||||||||
Mondelez International, Inc. — Class A | 908 | 53 | 0.52 | ||||||||||||
Monro, Inc. | 1,128 | 60 | 0.59 | ||||||||||||
Motorola Solutions, Inc. | 309 | 52 | 0.51 | ||||||||||||
Msa Safety, Inc. | 354 | 53 | 0.52 | ||||||||||||
NBT Bancorp, Inc. | 1,704 | 55 | 0.53 | ||||||||||||
Nasdaq, Inc. | 408 | 54 | 0.53 | ||||||||||||
National Storage Affiliates | 1,588 | 57 | 0.56 | ||||||||||||
Newmarket Corp. | 141 | 56 | 0.55 | ||||||||||||
Newmont Corp. | 880 | 53 | 0.51 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Low Vol Index (cont'd) | |||||||||||||||
Nike, Inc. — Class B | 389 | $ | 55 | 0.54 | % | ||||||||||
Northrop Grumman Corp. | 177 | 54 | 0.52 | ||||||||||||
Northwest Bancshares, Inc. | 4,351 | 55 | 0.54 | ||||||||||||
Nucor Corp. | 958 | 51 | 0.50 | ||||||||||||
NVR, Inc. | 14 | 55 | 0.54 | ||||||||||||
Old National Bancorp | 3,262 | 54 | 0.53 | ||||||||||||
O'Reilly Automotive, Inc. | 119 | 54 | 0.53 | ||||||||||||
OSI Systems, Inc. | 597 | 56 | 0.54 | ||||||||||||
Otis Worldwide Corp. | 803 | 54 | 0.53 | ||||||||||||
Paccar, Inc. | 606 | 52 | 0.51 | ||||||||||||
Park National Corp. | 512 | 54 | 0.52 | ||||||||||||
Pepsico, Inc. | 365 | 54 | 0.53 | ||||||||||||
Pioneer Natural Resources Co. | 520 | 59 | 0.58 | ||||||||||||
Power Integrations, Inc. | 713 | 58 | 0.57 | ||||||||||||
Procter & Gamble Co. (The) | 381 | 53 | 0.52 | ||||||||||||
Progressive Corp. | 592 | 59 | 0.57 | ||||||||||||
Prologis, Inc. | 541 | 54 | 0.53 | ||||||||||||
Ps Business Parks, Inc. | 398 | 53 | 0.51 | ||||||||||||
Public Storage | 235 | 54 | 0.53 | ||||||||||||
Reliance Steel & Aluminum | 443 | 53 | 0.52 | ||||||||||||
Republic Services, Inc. | 551 | 53 | 0.52 | ||||||||||||
Rex American Resources Corp. | 635 | 47 | 0.45 | ||||||||||||
Rexford Industrial Realty, Inc. | 1,114 | 55 | 0.53 | ||||||||||||
Rollins, Inc. | 1,435 | 56 | 0.55 | ||||||||||||
Ross Stores, Inc. | 473 | 58 | 0.57 | ||||||||||||
S&T Bancorp, Inc. | 2,261 | 56 | 0.55 | ||||||||||||
S&P Global, Inc. | 158 | 52 | 0.51 | ||||||||||||
Safety Insurance Group, Inc. | 730 | 57 | 0.55 | ||||||||||||
SBA Communications Corp. | 186 | 52 | 0.51 | ||||||||||||
Schweitzer-Mauduit International, Inc. | 1,516 | 61 | 0.59 | ||||||||||||
Service Corporation International | 1,079 | 53 | 0.52 | ||||||||||||
Servisfirst Bancshares, Inc. | 1,359 | 55 | 0.53 | ||||||||||||
Sherwin-Williams Co. (The) | 74 | 54 | 0.53 | ||||||||||||
Sonoco Products Co. | 902 | 53 | 0.52 | ||||||||||||
Southside Bancshares, Inc. | 1,743 | 54 | 0.53 | ||||||||||||
Southwest Airlines Co. | 1,113 | 52 | 0.50 | ||||||||||||
Standard Motor Products, Inc. | 1,114 | 45 | 0.44 | ||||||||||||
Starbucks Corp. | 534 | 57 | 0.56 | ||||||||||||
Stepan Co. | 464 | 55 | 0.54 | ||||||||||||
Steris PLC | 274 | 52 | 0.51 | ||||||||||||
Stryker Corp. | 225 | 55 | 0.53 | ||||||||||||
Synopsys, Inc. | 235 | 61 | 0.58 | ||||||||||||
Texas Instruments, Inc. | 324 | 53 | 0.52 | ||||||||||||
Thermo Fisher Scientific, Inc. | 110 | 51 | 0.49 | ||||||||||||
TJX Companies, Inc. | 812 | 55 | 0.54 | ||||||||||||
Tompkins Financial Corp. | 795 | 56 | 0.55 | ||||||||||||
Toro Co. | 593 | 56 | 0.55 | ||||||||||||
Tractor Supply Company | 386 | 54 | 0.53 | ||||||||||||
Trane Technologies PLC | 366 | 53 | 0.52 | ||||||||||||
Tyler Technologies, Inc. | 126 | 55 | 0.54 | ||||||||||||
Unitedhealth Group, Inc. | 152 | 53 | 0.52 |
The accompanying notes are an integral part of the consolidated financial statements.
30
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Low Vol Index (cont'd) | |||||||||||||||
Verisk Analytics, Inc. | 269 | $ | 56 | 0.53 | % | ||||||||||
Vertex Pharmaceuticals, Inc. | 233 | 55 | 0.53 | ||||||||||||
Visa, Inc. — Class A | 251 | 55 | 0.53 | ||||||||||||
Walmart, Inc. | 351 | 51 | 0.49 | ||||||||||||
Walt Disney Co. (The) | 344 | 62 | 0.60 | ||||||||||||
Waste Management, Inc. | 451 | 53 | 0.52 | ||||||||||||
Watsco, Inc. | 238 | 54 | 0.53 | ||||||||||||
Watts Water Technologies — Class A | 455 | 55 | 0.53 | ||||||||||||
Westamerica Bancorp | 961 | 53 | 0.52 | ||||||||||||
Wiley (John) & Sons — Class A | 1,510 | 69 | 0.66 | ||||||||||||
Williams Co., Inc. | 2,438 | 49 | 0.48 | ||||||||||||
Wr Berkley Corp. | 784 | 52 | 0.51 | ||||||||||||
Xcel Energy, Inc. | 768 | 51 | 0.50 | ||||||||||||
Yum! Brands, Inc. | 503 | 55 | 0.52 | ||||||||||||
Zoetis, Inc. | 332 | 55 | 0.54 | ||||||||||||
Total | $ | 10,263 | 100.00 | % |
The following table represents the equity basket holdings underlying the total return swap with JPM SPX 1500 Value Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Value Index | |||||||||||||||
Aaron's, Inc. | 2,682 | $ | 51 | 0.49 | % | ||||||||||
ABM Industries, Inc. | 1,339 | 51 | 0.48 | ||||||||||||
Acuity Brands, Inc. | 433 | 52 | 0.51 | ||||||||||||
Advansix, Inc. | 2,822 | 56 | 0.54 | ||||||||||||
Agco Corp. | 560 | 58 | 0.55 | ||||||||||||
Alexion Pharmaceuticals, Inc. | 419 | 66 | 0.63 | ||||||||||||
Alliance Data Systems Corp. | 650 | 48 | 0.46 | ||||||||||||
Allstate Corp. | 496 | 55 | 0.52 | ||||||||||||
Amc Networks, Inc. — Class A | 1,588 | 57 | 0.54 | ||||||||||||
American Woodmark Corp. | 587 | 55 | 0.53 | ||||||||||||
Ameris Bancorp | 1,439 | 55 | 0.52 | ||||||||||||
Angiodynamics, Inc. | 3,708 | 57 | 0.54 | ||||||||||||
Antero Midstream Corp. | 7,385 | 57 | 0.54 | ||||||||||||
Anthem, Inc. | 162 | 52 | 0.50 | ||||||||||||
Apogee Enterprises, Inc. | 1,909 | 60 | 0.58 | ||||||||||||
Arcbest Corp. | 1,197 | 51 | 0.49 | ||||||||||||
Archrock, Inc. | 6,113 | 53 | 0.51 | ||||||||||||
Armada Hoffler Properties, Inc. | 4,662 | 52 | 0.51 | ||||||||||||
Arrow Electronics, Inc. | 550 | 53 | 0.51 | ||||||||||||
Asbury Automotive Group | 419 | 61 | 0.58 | ||||||||||||
Associated Bancorp | 3,229 | 55 | 0.53 | ||||||||||||
Atlas Air Worldwide Holdings | 948 | 52 | 0.51 | ||||||||||||
Autonation, Inc. | 790 | 55 | 0.53 | ||||||||||||
Avanos Medical, Inc. | 1,224 | 56 | 0.54 | ||||||||||||
Avista Corp. | 1,375 | 55 | 0.53 | ||||||||||||
Axcelis Technologies, Inc. | 1,852 | 54 | 0.52 | ||||||||||||
Baker Hughes Co. | 2,617 | 55 | 0.52 | ||||||||||||
Bank Of New York Mellon Corp. | 1,287 | 55 | 0.52 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Value Index (cont'd) | |||||||||||||||
Big Lots, Inc. | 981 | $ | 42 | 0.40 | % | ||||||||||
Biogen, Inc. | 208 | 51 | 0.49 | ||||||||||||
Bio-Rad Laboratories — Class A | 94 | 55 | 0.52 | ||||||||||||
Bonanza Creek Energy, Inc. | 2,308 | 45 | 0.43 | ||||||||||||
Borgwarner, Inc. | 1,333 | 52 | 0.49 | ||||||||||||
Boston Private Financial Holding | 6,809 | 58 | 0.55 | ||||||||||||
Boyd Gaming Corp. | 1,319 | 57 | 0.54 | ||||||||||||
Brandywine Realty Trust | 4,511 | 54 | 0.51 | ||||||||||||
Bristow Group, Inc. | 655 | 17 | 0.16 | ||||||||||||
Caci International, Inc. — Class A | 214 | 53 | 0.51 | ||||||||||||
Cardinal Health, Inc. | 925 | 50 | 0.47 | ||||||||||||
Cardtronics PLC — Class A | 2,047 | 72 | 0.69 | ||||||||||||
Centene Corp. | 806 | 48 | 0.46 | ||||||||||||
Central Garden & Pet Co. | 1,423 | 52 | 0.49 | ||||||||||||
Centurylink, Inc. | 4,902 | 48 | 0.46 | ||||||||||||
Chuy's Holdings, Inc. | 2,123 | 56 | 0.54 | ||||||||||||
Cigna Corp. | 243 | 51 | 0.48 | ||||||||||||
Citigroup, Inc. | 900 | 55 | 0.53 | ||||||||||||
Citizens Financial Group | 1,498 | 54 | 0.51 | ||||||||||||
Clearwater Paper Corp. | 1,470 | 56 | 0.53 | ||||||||||||
CNO Financial Group, Inc. | 2,348 | 52 | 0.50 | ||||||||||||
Commercial Metals Co. | 2,524 | 52 | 0.50 | ||||||||||||
Computer Programs & Systems | 1,839 | 49 | 0.47 | ||||||||||||
Cooper Tire & Rubber | 1,288 | 52 | 0.50 | ||||||||||||
Corecivic, Inc. | 6,737 | 44 | 0.42 | ||||||||||||
Cousins Properties, Inc. | 1,531 | 51 | 0.49 | ||||||||||||
Crane Co. | 731 | 57 | 0.54 | ||||||||||||
Customers BanCorp, Inc. | 2,637 | 48 | 0.46 | ||||||||||||
Cvs Health Corp. | 739 | 50 | 0.48 | ||||||||||||
Dana, Inc. | 2,884 | 56 | 0.54 | ||||||||||||
Deluxe Corp. | 1,980 | 58 | 0.55 | ||||||||||||
Dine Brands Global, Inc. | 781 | 45 | 0.43 | ||||||||||||
Discovery, Inc. — Class A | 1,814 | 55 | 0.52 | ||||||||||||
Discovery, Inc. — Class C | 2,039 | 53 | 0.51 | ||||||||||||
Diversified Healthcare Trust | 11,239 | 46 | 0.44 | ||||||||||||
Dorian LPG Ltd. | 4,870 | 59 | 0.57 | ||||||||||||
DXC Technology Co. | 2,304 | 59 | 0.57 | ||||||||||||
Ebay, Inc. | 1,002 | 50 | 0.48 | ||||||||||||
Ebix, Inc. | 1,507 | 57 | 0.55 | ||||||||||||
Edgewell Personal Care Co. | 1,475 | 51 | 0.49 | ||||||||||||
El Pollo Loco Holdings, Inc. | 3,205 | 58 | 0.56 | ||||||||||||
Enova International, Inc. | 2,261 | 56 | 0.54 | ||||||||||||
Equitrans Midstream Corp. | 6,363 | 51 | 0.49 | ||||||||||||
Exelon Corp. | 1,238 | 52 | 0.50 | ||||||||||||
Fiesta Restaurant Group | 3,629 | 41 | 0.40 | ||||||||||||
Fifth Third Bancorp | 1,936 | 53 | 0.51 | ||||||||||||
First Financial Bancorp | 3,075 | 54 | 0.52 | ||||||||||||
First Solar, Inc. | 569 | 56 | 0.54 | ||||||||||||
FNB Corp. | 5,613 | 53 | 0.51 | ||||||||||||
Foot Locker, Inc. | 1,305 | 53 | 0.51 | ||||||||||||
Fresh Del Monte Produce, Inc. | 2,057 | 50 | 0.47 |
The accompanying notes are an integral part of the consolidated financial statements.
31
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Value Index (cont'd) | |||||||||||||||
Futurefuel Corp. | 3,150 | $ | 40 | 0.38 | % | ||||||||||
General Dynamics Corp. | 336 | 50 | 0.48 | ||||||||||||
Genworth Financial, Inc. — Class A | 11,070 | 42 | 0.40 | ||||||||||||
Geo Group, Inc. (The) | 5,323 | 47 | 0.45 | ||||||||||||
G-Iii Apparel Group Ltd. | 2,362 | 56 | 0.54 | ||||||||||||
GMS, Inc. | 1,702 | 52 | 0.50 | ||||||||||||
Goldman Sachs Group, Inc. | 217 | 57 | 0.55 | ||||||||||||
Graham Holdings Co. — Class B | 114 | 61 | 0.58 | ||||||||||||
Greenbrier Companies, Inc. | 1,524 | 55 | 0.53 | ||||||||||||
Griffon Corp. | 2,587 | 53 | 0.50 | ||||||||||||
Group 1 Automotive, Inc. | 412 | 54 | 0.52 | ||||||||||||
HB Fuller Co. | 981 | 51 | 0.49 | ||||||||||||
Hanesbrands, Inc. | 3,661 | 53 | 0.51 | ||||||||||||
Hanmi Financial Corporation | 3,976 | 45 | 0.43 | ||||||||||||
Hartford Financial Services Group, Inc. (The) | 1,132 | 55 | 0.53 | ||||||||||||
Hawkins, Inc. | 1,009 | 53 | 0.51 | ||||||||||||
Herman Miller, Inc. | 1,395 | 47 | 0.45 | ||||||||||||
Hewlett Packard Enterprise | 4,468 | 53 | 0.51 | ||||||||||||
Hibbett Sports, Inc. | 1,184 | 55 | 0.52 | ||||||||||||
Highwoods Properties, Inc. | 1,319 | 52 | 0.50 | ||||||||||||
Hill-Rom Holdings, Inc. | 535 | 52 | 0.50 | ||||||||||||
Hologic, Inc. | 726 | 53 | 0.51 | ||||||||||||
Hope Bancorp, Inc. | 5,215 | 57 | 0.54 | ||||||||||||
Huntington Ingalls Industries | 315 | 54 | 0.51 | ||||||||||||
Ichor Holdings Ltd. | 1,498 | 45 | 0.43 | ||||||||||||
Ingredion, Inc. | 666 | 52 | 0.50 | ||||||||||||
Insight Enterprises, Inc. | 714 | 54 | 0.52 | ||||||||||||
Integer Holdings Corp. | 688 | 56 | 0.53 | ||||||||||||
Intel Corp. | 314 | 16 | 0.15 | ||||||||||||
Interface, Inc. | 6,113 | 64 | 0.61 | ||||||||||||
Intl Business Machines Corp. | 413 | 52 | 0.50 | ||||||||||||
Invesco Ltd. | 3,071 | 54 | 0.51 | ||||||||||||
Istar, Inc. | 3,648 | 54 | 0.52 | ||||||||||||
J2 Global, Inc. | 560 | 55 | 0.52 | ||||||||||||
Jack In The Box, Inc. | 553 | 51 | 0.49 | ||||||||||||
Juniper Networks, Inc. | 724 | 16 | 0.16 | ||||||||||||
KB Home | 1,533 | 51 | 0.49 | ||||||||||||
Kelly Services, Inc. — Class A | 2,421 | 50 | 0.48 | ||||||||||||
Kimco Realty Corp. | 3,413 | 51 | 0.49 | ||||||||||||
Knight-Swift Transportation | 1,242 | 52 | 0.50 | ||||||||||||
Koppers Holdings, Inc. | 1,843 | 57 | 0.55 | ||||||||||||
Lannett Co, Inc. | 7,588 | 49 | 0.47 | ||||||||||||
Lennar Corp. — Class A | 723 | 55 | 0.53 | ||||||||||||
Lexington Realty Trust | 5,061 | 54 | 0.51 | ||||||||||||
LTC Properties, Inc. | 1,372 | 53 | 0.51 | ||||||||||||
M/I Homes, Inc. | 1,202 | 53 | 0.51 | ||||||||||||
Mastec, Inc. | 881 | 60 | 0.57 | ||||||||||||
MDU Resources Group, Inc. | 2,062 | 54 | 0.52 | ||||||||||||
Megalith Financial Acquisition — Class A | 290 | 4 | 0.04 | ||||||||||||
Meridian Bioscience, Inc. | 2,709 | 51 | 0.48 | ||||||||||||
Meritage Homes Corp. | 604 | 50 | 0.48 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Value Index (cont'd) | |||||||||||||||
Meritor, Inc. | 1,887 | $ | 53 | 0.50 | % | ||||||||||
Methode Electronics, Inc. | 1,441 | 55 | 0.53 | ||||||||||||
Metlife, Inc. | 1,079 | 51 | 0.48 | ||||||||||||
Mgic Investment Corp. | 4,198 | 53 | 0.50 | ||||||||||||
Michaels Cos, Inc. (The) | 5,022 | 65 | 0.63 | ||||||||||||
Minerals Technologies, Inc. | 824 | 51 | 0.49 | ||||||||||||
Molson Coors Beverage Co. — Class B | 1,137 | 51 | 0.49 | ||||||||||||
Mr Cooper Group, Inc. | 1,919 | 60 | 0.57 | ||||||||||||
Mueller Industries, Inc. | 1,566 | 55 | 0.53 | ||||||||||||
MYR Group, Inc. | 970 | 58 | 0.56 | ||||||||||||
National Presto Inds, Inc. | 183 | 16 | 0.15 | ||||||||||||
Navient Corp. | 5,307 | 52 | 0.50 | ||||||||||||
Netgear, Inc. | 1,529 | 62 | 0.59 | ||||||||||||
Netscout Systems, Inc. | 652 | 18 | 0.17 | ||||||||||||
Nortonlifelock, Inc. | 2,769 | 58 | 0.55 | ||||||||||||
NRG Energy, Inc. | 1,532 | 58 | 0.55 | ||||||||||||
ODP Corp. (The) | 1,860 | 54 | 0.52 | ||||||||||||
Office Properties Income Trust | 2,240 | 51 | 0.49 | ||||||||||||
O-I Glass, Inc. | 4,318 | 51 | 0.49 | ||||||||||||
Oracle Corp. | 265 | 17 | 0.16 | ||||||||||||
Orthofix Medical, Inc. | 1,422 | 61 | 0.58 | ||||||||||||
Oshkosh Corp. | 637 | 55 | 0.52 | ||||||||||||
Owens & Minor, Inc. | 2,046 | 55 | 0.53 | ||||||||||||
People's United Financial | 3,981 | 51 | 0.49 | ||||||||||||
Photronics, Inc. | 4,236 | 47 | 0.45 | ||||||||||||
Powell Industries, Inc. | 1,289 | 38 | 0.36 | ||||||||||||
PPL Corp. | 1,804 | 51 | 0.49 | ||||||||||||
Preferred Bank | 1,347 | 68 | 0.65 | ||||||||||||
Prestige Consumer Healthcare | 1,446 | 50 | 0.48 | ||||||||||||
Pr, Inc.ipal Financial Group | 1,012 | 50 | 0.48 | ||||||||||||
Progress Software Corp. | 1,263 | 57 | 0.55 | ||||||||||||
QEP Resources, Inc. | 29,246 | 70 | 0.67 | ||||||||||||
Quidel Corp. | 259 | 46 | 0.44 | ||||||||||||
Quinstreet, Inc. | 2,834 | 61 | 0.58 | ||||||||||||
Ready Capital Corp. | 3,856 | 48 | 0.46 | ||||||||||||
Renewable Energy Group, Inc. | 863 | 61 | 0.58 | ||||||||||||
Resources Connection, Inc. | 3,898 | 49 | 0.47 | ||||||||||||
RPT Realty | 6,659 | 58 | 0.55 | ||||||||||||
Sabra Health Care REIT, Inc. | 2,989 | 52 | 0.50 | ||||||||||||
Sanmina Corp. | 1,581 | 50 | 0.48 | ||||||||||||
Seneca Foods Corp. — Class A | 734 | 29 | 0.28 | ||||||||||||
Simmons First National Corp. — Class A | 2,524 | 55 | 0.52 | ||||||||||||
Skywest, Inc. | 1,158 | 47 | 0.45 | ||||||||||||
Smart Global Holdings, Inc. | 1,606 | 60 | 0.58 | ||||||||||||
Spartannash Co. | 2,667 | 46 | 0.44 | ||||||||||||
Stonex Group, Inc. | 825 | 48 | 0.46 | ||||||||||||
Suncoke Energy, Inc. | 10,569 | 46 | 0.44 | ||||||||||||
Sykes Enterprises, Inc. | 1,346 | 51 | 0.49 | ||||||||||||
Syneos Health, Inc. | 824 | 56 | 0.54 | ||||||||||||
Synnex Corp. | 671 | 55 | 0.52 | ||||||||||||
Teradata Corp. | 2,399 | 54 | 0.52 |
The accompanying notes are an integral part of the consolidated financial statements.
32
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 1500 Value Index (cont'd) | |||||||||||||||
Timken Co. | 709 | $ | 55 | 0.52 | % | ||||||||||
TTM Technologies | 3,905 | 54 | 0.52 | ||||||||||||
Tyson Foods, Inc. — Class A | 779 | 50 | 0.48 | ||||||||||||
UGI Corp. | 1,425 | 50 | 0.48 | ||||||||||||
Ultra Clean Holdings, Inc. | 1,541 | 48 | 0.46 | ||||||||||||
United Natural Foods, Inc. | 2,967 | 47 | 0.45 | ||||||||||||
United Therapeutics Corp. | 392 | 60 | 0.57 | ||||||||||||
Unum Group | 2,257 | 52 | 0.51 | ||||||||||||
Vera Bradley, Inc. | 6,308 | 50 | 0.48 | ||||||||||||
Veritiv Corp. | 2,512 | 52 | 0.51 | ||||||||||||
Viatris, Inc. | 3,006 | 56 | 0.54 | ||||||||||||
Vista Outdoor, Inc. | 2,542 | 60 | 0.58 | ||||||||||||
Wabtec Corp. | 709 | 52 | 0.51 | ||||||||||||
Waddell & Reed Financial — Class A | 3,026 | 77 | 0.74 | ||||||||||||
Warrior Met Coal, Inc. | 2,776 | 59 | 0.57 | ||||||||||||
Weingarten Realty Investors | 2,366 | 51 | 0.49 | ||||||||||||
Westrock Co. | 1,184 | 52 | 0.49 | ||||||||||||
Whitestone REIT | 6,308 | 50 | 0.48 | ||||||||||||
World Fuel Services Corp. | 1,774 | 55 | 0.53 | ||||||||||||
World Wrestling Entertainment — Class A | 1,157 | 56 | 0.53 | ||||||||||||
Total | $ | 10,444 | 100.00 | % |
The following table represents the equity basket holdings underlying the total return swap with JPM SPX 500 Growth Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Growth Index | |||||||||||||||
Abiomed, Inc. | 390 | $ | 126 | 1.15 | % | ||||||||||
Adobe, Inc. | 218 | 109 | 0.98 | ||||||||||||
Advanced Micro Devices | 1,129 | 104 | 0.93 | ||||||||||||
Air Products & Chemicals, Inc. | 369 | 101 | 0.91 | ||||||||||||
Alaska Air Group, Inc. | 2,054 | 107 | 0.96 | ||||||||||||
Albemarle Corp. | 770 | 114 | 1.02 | ||||||||||||
Align Technology, Inc. | 209 | 112 | 1.01 | ||||||||||||
Amazon.com, Inc. | 32 | 106 | 0.95 | ||||||||||||
American Express Co. | 872 | 105 | 0.95 | ||||||||||||
American Tower Corp. | 444 | 100 | 0.90 | ||||||||||||
American Water Works Co., Inc. | 678 | 104 | 0.94 | ||||||||||||
Ansys, Inc. | 307 | 112 | 1.01 | ||||||||||||
Aon PLC — Class A | 497 | 105 | 0.95 | ||||||||||||
Apache Corp. | 8,457 | 120 | 1.08 | ||||||||||||
Arthur J Gallagher & Co. | 896 | 111 | 1.00 | ||||||||||||
Autodesk, Inc. | 375 | 114 | 1.03 | ||||||||||||
Ball Corp | 1,081 | 101 | 0.91 | ||||||||||||
Blackrock, Inc. | 146 | 106 | 0.95 | ||||||||||||
Boeing Co. (The) | 491 | 105 | 0.95 | ||||||||||||
Brown-Forman Corp. — Class B | 1,282 | 102 | 0.92 | ||||||||||||
Cadence Design Systems, Inc. | 905 | 123 | 1.11 | ||||||||||||
Catalent, Inc. | 1,092 | 114 | 1.03 | ||||||||||||
Chipotle Mexican Grill, Inc. | 79 | 110 | 0.99 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Growth Index (cont'd) | |||||||||||||||
Cintas Corp. | 291 | $ | 103 | 0.93 | % | ||||||||||
CME Group, Inc. | 584 | 106 | 0.96 | ||||||||||||
CMS Energy Corp. | 1,701 | 104 | 0.94 | ||||||||||||
Colgate-Palmolive Co. | 1,213 | 104 | 0.94 | ||||||||||||
Conocophillips | 2,664 | 107 | 0.96 | ||||||||||||
Copart, Inc. | 908 | 116 | 1.04 | ||||||||||||
Costco Wholesale Corp. | 270 | 102 | 0.92 | ||||||||||||
Crown Castle International Corp. | 613 | 98 | 0.88 | ||||||||||||
Delta Air Lines, Inc. | 2,618 | 105 | 0.95 | ||||||||||||
Dexcom, Inc. | 319 | 118 | 1.06 | ||||||||||||
Ecolab, Inc. | 467 | 101 | 0.91 | ||||||||||||
Edwards Lifesciences Corp. | 1,247 | 114 | 1.03 | ||||||||||||
Equinix, Inc. | 147 | 105 | 0.95 | ||||||||||||
Estee Lauder Companies — Class A | 423 | 113 | 1.02 | ||||||||||||
ETSY, Inc. | 676 | 120 | 1.09 | ||||||||||||
Eversource Energy | 1,186 | 103 | 0.93 | ||||||||||||
Expedia Group, Inc. | 829 | 110 | 0.99 | ||||||||||||
Fastenal Co. | 2,156 | 105 | 0.95 | ||||||||||||
First Republic Bank | 796 | 117 | 1.06 | ||||||||||||
Halliburton Co. | 6,141 | 116 | 1.05 | ||||||||||||
Hess Corp. | 2,190 | 116 | 1.04 | ||||||||||||
Hilton Worldwide Holdings, Inc. | 998 | 111 | 1.00 | ||||||||||||
Host Hotels & Resorts, Inc. | 7,210 | 105 | 0.95 | ||||||||||||
IDEX Corp. | 536 | 107 | 0.96 | ||||||||||||
IDEXX Laboratories, Inc. | 224 | 112 | 1.01 | ||||||||||||
Illinois Tool Works | 498 | 102 | 0.92 | ||||||||||||
Illumina, Inc. | 313 | 116 | 1.04 | ||||||||||||
Incyte Corp. | 1,225 | 107 | 0.96 | ||||||||||||
Intercontinental Exchange, Inc. | 976 | 113 | 1.02 | ||||||||||||
Intuit, Inc. | 293 | 111 | 1.00 | ||||||||||||
Intuitive Surgical, Inc. | 143 | 117 | 1.05 | ||||||||||||
Las Vegas Sands Corp. | 1,848 | 110 | 0.99 | ||||||||||||
Linde PLC | 406 | 107 | 0.96 | ||||||||||||
Live Nation Entertainment, Inc. | 1,536 | 113 | 1.02 | ||||||||||||
Marketaxess Holdings, Inc. | 191 | 109 | 0.98 | ||||||||||||
Marriott International — Class A | 814 | 107 | 0.97 | ||||||||||||
Marsh & Mclennan Co. | 899 | 105 | 0.95 | ||||||||||||
Mastercard, Inc. — A | 309 | 110 | 0.99 | ||||||||||||
Mccormick & Co. | 1,117 | 107 | 0.96 | ||||||||||||
Mettler-Toledo International | 90 | 103 | 0.93 | ||||||||||||
Monster Beverage Corp. | 1,207 | 112 | 1.01 | ||||||||||||
Moody's Corp. | 375 | 109 | 0.98 | ||||||||||||
MSCI, Inc. | 252 | 113 | 1.02 | ||||||||||||
Nasdaq, Inc. | 805 | 107 | 0.96 | ||||||||||||
Netflix, Inc. | 207 | 112 | 1.01 | ||||||||||||
Nextera Energy, Inc. | 1,411 | 109 | 0.98 | ||||||||||||
Nike, Inc. — Class B | 772 | 109 | 0.99 | ||||||||||||
Nisource, Inc. | 4,272 | 98 | 0.88 | ||||||||||||
NOV, Inc. | 8,237 | 113 | 1.02 | ||||||||||||
NVIDIA Corp. | 195 | 102 | 0.92 | ||||||||||||
Old Dominion Freight Line | 496 | 97 | 0.87 |
The accompanying notes are an integral part of the consolidated financial statements.
33
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Growth Index (cont'd) | |||||||||||||||
Paycom Software, Inc. | 252 | $ | 114 | 1.03 | % | ||||||||||
Paypal Holdings, Inc. | 483 | 113 | 1.02 | ||||||||||||
Resmed, Inc. | 494 | 105 | 0.95 | ||||||||||||
Rollins, Inc. | 2,727 | 107 | 0.96 | ||||||||||||
Roper Technologies, Inc. | 247 | 106 | 0.96 | ||||||||||||
S&P Global, Inc. | 313 | 103 | 0.93 | ||||||||||||
Salesforce.Com, Inc. | 433 | 96 | 0.87 | ||||||||||||
SBA Communications Corp. | 362 | 102 | 0.92 | ||||||||||||
Servicenow, Inc. | 194 | 107 | 0.96 | ||||||||||||
Sherwin-Williams Co. (The) | 141 | 103 | 0.93 | ||||||||||||
Southwest Airlines Co. | 2,213 | 103 | 0.93 | ||||||||||||
Starbucks Corp. | 1,059 | 113 | 1.02 | ||||||||||||
Synopsys, Inc. | 455 | 118 | 1.06 | ||||||||||||
Take-Two Interactive Softwre | 581 | 121 | 1.09 | ||||||||||||
Transdigm Group, Inc. | 176 | 109 | 0.98 | ||||||||||||
Twitter, Inc. | 2,242 | 121 | 1.09 | ||||||||||||
Tyler Technologies, Inc. | 242 | 106 | 0.95 | ||||||||||||
Under Armour, Inc. — Class A | 6,325 | 109 | 0.98 | ||||||||||||
Verisk Analytics, Inc. | 523 | 109 | 0.98 | ||||||||||||
VF Corp. | 1,234 | 105 | 0.95 | ||||||||||||
Visa, Inc. — Class A | 495 | 108 | 0.98 | ||||||||||||
Vornado Realty Trust | 2,662 | 99 | 0.90 | ||||||||||||
Walt Disney Co. (The) | 700 | 127 | 1.14 | ||||||||||||
Wec Energy Group, Inc. | 1,094 | 101 | 0.91 | ||||||||||||
West Pharmaceutical Services | 385 | 109 | 0.98 | ||||||||||||
Wynn Resorts Ltd. | 1,022 | 115 | 1.04 | ||||||||||||
Xylem, Inc. | 1,078 | 110 | 0.99 | ||||||||||||
Zoetis, Inc. | 648 | 107 | 0.97 | ||||||||||||
Total | $ | 11,093 | 100.00 | % |
The following table represents the equity basket holdings underlying the total return swap with JPM SPX 500 Low Vol Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Low Vol Index | |||||||||||||||
3M Co. | 617 | $ | 108 | 1.06 | % | ||||||||||
Abbott Laboratories | 970 | 106 | 1.05 | ||||||||||||
Accenture PLC — Class A | 417 | 109 | 1.08 | ||||||||||||
Adobe, Inc. | 220 | 110 | 1.08 | ||||||||||||
Air Products & Chemicals, Inc. | 372 | 102 | 1.00 | ||||||||||||
Akamai Technologies, Inc. | 1,010 | 106 | 1.05 | ||||||||||||
Alexandria Real Estate Equities, Inc. | 626 | 112 | 1.10 | ||||||||||||
Alphabet, Inc. — Class A | 59 | 103 | 1.01 | ||||||||||||
Alphabet, Inc. — Class C | 59 | 103 | 1.01 | ||||||||||||
Ameren Corporation | 1,341 | 105 | 1.03 | ||||||||||||
American Tower Corp. | 446 | 100 | 0.99 | ||||||||||||
Amerisourcebergen Corp. | 1,030 | 101 | 0.99 | ||||||||||||
Aon PLC — Class A | 500 | 106 | 1.04 | ||||||||||||
Arthur J Gallagher & Co. | 902 | 112 | 1.10 | ||||||||||||
Assurant, Inc. | 801 | 109 | 1.08 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Low Vol Index (cont'd) | |||||||||||||||
Atmos Energy Corp. | 1,089 | $ | 104 | 1.03 | % | ||||||||||
Automatic Data Processing | 603 | 106 | 1.05 | ||||||||||||
Autozone, Inc. | 90 | 107 | 1.06 | ||||||||||||
Ball Corp. | 1,087 | 101 | 1.00 | ||||||||||||
Baxter International, Inc. | 1,394 | 112 | 1.10 | ||||||||||||
Berkshire Hathaway, Inc. — Class B | 458 | 106 | 1.05 | ||||||||||||
CH Robinson Worldwide, Inc. | 1,122 | 105 | 1.04 | ||||||||||||
Cerner Corp. | 1,397 | 110 | 1.08 | ||||||||||||
Chevron Corp. | 1,204 | 102 | 1.00 | ||||||||||||
CME Group, Inc. | 588 | 107 | 1.06 | ||||||||||||
CMS Energy Corp. | 1,711 | 104 | 1.03 | ||||||||||||
Coca-Cola Co. (The) | 2,023 | 111 | 1.09 | ||||||||||||
Colgate-Palmolive Co. | 1,220 | 104 | 1.03 | ||||||||||||
Comcast Corp. — Class A | 2,063 | 108 | 1.07 | ||||||||||||
Costco Wholesale Corp. | 272 | 102 | 1.01 | ||||||||||||
Crown Castle International Corp. | 616 | 98 | 0.97 | ||||||||||||
Danaher Corp. | 468 | 104 | 1.03 | ||||||||||||
Dollar General Corp. | 479 | 101 | 0.99 | ||||||||||||
Dominion Energy, Inc. | 1,313 | 99 | 0.97 | ||||||||||||
Duke Realty Corp. | 2,727 | 109 | 1.08 | ||||||||||||
Eli Lilly & Co. | 723 | 122 | 1.20 | ||||||||||||
Expeditors International Wash, Inc. | 1,173 | 112 | 1.10 | ||||||||||||
Extra Space Storage, Inc. | 926 | 107 | 1.06 | ||||||||||||
Fidelity National Information Services, Inc. | 700 | 99 | 0.98 | ||||||||||||
Fiserv, Inc. | 909 | 104 | 1.02 | ||||||||||||
FMC Corp. | 885 | 102 | 1.00 | ||||||||||||
Garmin Ltd. | 879 | 105 | 1.04 | ||||||||||||
Genuine Parts Co. | 1,035 | 104 | 1.03 | ||||||||||||
Home Depot, Inc. | 381 | 101 | 1.00 | ||||||||||||
Honeywell International, Inc. | 510 | 109 | 1.07 | ||||||||||||
IDEX Corp. | 539 | 107 | 1.06 | ||||||||||||
Illinois Tool Works | 501 | 102 | 1.01 | ||||||||||||
Intercontinental Exchange, Inc. | 982 | 113 | 1.12 | ||||||||||||
Intuit, Inc. | 295 | 112 | 1.11 | ||||||||||||
Jack Henry & Associates, Inc. | 652 | 106 | 1.04 | ||||||||||||
Johnson & Johnson | 714 | 112 | 1.11 | ||||||||||||
Kansas City Southern | 563 | 115 | 1.13 | ||||||||||||
Kimberly-Clark Corp. | 745 | 100 | 0.99 | ||||||||||||
Linde PLC | 408 | 108 | 1.06 | ||||||||||||
Marsh & Mclennan Co. | 905 | 106 | 1.04 | ||||||||||||
Mcdonald's Corp. | 487 | 105 | 1.03 | ||||||||||||
Medtronic PLC | 939 | 110 | 1.08 | ||||||||||||
Merck & Co., Inc.. | 1,291 | 106 | 1.04 | ||||||||||||
Microsoft Corp. | 487 | 108 | 1.07 | ||||||||||||
Nasdaq, Inc. | 810 | 108 | 1.06 | ||||||||||||
Nike, Inc. — Class B | 777 | 110 | 1.08 | ||||||||||||
Oracle Corp. | 1,792 | 116 | 1.14 | ||||||||||||
Otis Worldwide Corp. | 1,575 | 106 | 1.05 | ||||||||||||
Paychex, Inc. | 1,125 | 105 | 1.03 | ||||||||||||
Pepsico, Inc. | 721 | 107 | 1.05 | ||||||||||||
Pool Corp. | 298 | 111 | 1.10 |
The accompanying notes are an integral part of the consolidated financial statements.
34
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Low Vol Index (cont'd) | |||||||||||||||
Procter & Gamble Co. (The) | 755 | $ | 105 | 1.04 | % | ||||||||||
Progressive Corp. | 1,181 | 117 | 1.15 | ||||||||||||
Public Storage | 467 | 108 | 1.06 | ||||||||||||
Republic Services, Inc. | 1,084 | 104 | 1.03 | ||||||||||||
Roper Technologies, Inc. | 248 | 107 | 1.06 | ||||||||||||
Ross Stores, Inc. | 944 | 116 | 1.14 | ||||||||||||
S&P Global, Inc. | 315 | 104 | 1.02 | ||||||||||||
Sherwin-Williams Co. (The) | 142 | 104 | 1.03 | ||||||||||||
Starbucks Corp. | 1,065 | 114 | 1.12 | ||||||||||||
Steris PLC | 543 | 103 | 1.01 | ||||||||||||
Stryker Corp. | 456 | 112 | 1.10 | ||||||||||||
Texas Instruments, Inc. | 644 | 106 | 1.04 | ||||||||||||
Thermo Fisher Scientific, Inc. | 223 | 104 | 1.03 | ||||||||||||
TJX Companies, Inc. | 1,622 | 111 | 1.09 | ||||||||||||
T-Mobile US, Inc. | 787 | 106 | 1.05 | ||||||||||||
Tractor Supply Company | 754 | 106 | 1.05 | ||||||||||||
Travelers Co., Inc. (The) | 789 | 111 | 1.09 | ||||||||||||
Tyler Technologies, Inc. | 244 | 106 | 1.05 | ||||||||||||
Union Pacific Corp. | 520 | 108 | 1.07 | ||||||||||||
Verisign, Inc. | 524 | 113 | 1.12 | ||||||||||||
Verisk Analytics, Inc. | 526 | 109 | 1.08 | ||||||||||||
Visa, Inc. — Class A | 498 | 109 | 1.08 | ||||||||||||
Vulcan Materials Co. | 734 | 109 | 1.07 | ||||||||||||
Waste Management, Inc. | 880 | 104 | 1.02 | ||||||||||||
Wec Energy Group, Inc. | 1,101 | 101 | 1.00 | ||||||||||||
Williams Co., Inc. | 5,037 | 101 | 1.00 | ||||||||||||
Wr Berkley Corp. | 1,559 | 104 | 1.02 | ||||||||||||
Xcel Energy, Inc. | 1,539 | 103 | 1.01 | ||||||||||||
Zoetis, Inc. | 652 | 108 | 1.06 | ||||||||||||
Total | $ | 10,143 | 100.00 | % |
The following table represents the equity basket holdings underlying the total return swap with JPM SPX 500 Value Index as of December 31, 2020:
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Value Index | |||||||||||||||
Aflac, Inc. | 2,504 | $ | 111 | 0.97 | % | ||||||||||
Alexion Pharmaceuticals, Inc. | 916 | 143 | 1.24 | ||||||||||||
Allstate Corp. | 696 | 77 | 0.67 | ||||||||||||
Amcor PLC | 9,707 | 114 | 1.00 | ||||||||||||
Anthem, Inc. | 357 | 114 | 1.00 | ||||||||||||
Archer-Daniels-Midland Co. | 2,234 | 113 | 0.97 | ||||||||||||
AT&T, Inc. | 2,515 | 72 | 0.63 | ||||||||||||
Baker Hughes Co. | 5,820 | �� | 121 | 1.06 | |||||||||||
Bank of New York Mellon Corp. | 2,836 | 120 | 1.05 | ||||||||||||
Best Buy Co, Inc. | 1,028 | 103 | 0.90 | ||||||||||||
Biogen, Inc. | 460 | 113 | 0.99 | ||||||||||||
Borgwarner, Inc. | 2,891 | 112 | 0.98 | ||||||||||||
Boston Properties, Inc. | 1,121 | 106 | 0.93 | ||||||||||||
Cabot Oil & Gas Corp. | 4,178 | 68 | 0.59 |
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Value Index (cont'd) | |||||||||||||||
Cardinal Health, Inc. | 2,072 | $ | 111 | 0.97 | % | ||||||||||
CBRE Group, Inc. — Class A | 1,816 | 114 | 1.00 | ||||||||||||
Centene Corp. | 1,780 | 107 | 0.93 | ||||||||||||
Centerpoint Energy, Inc. | 4,902 | 106 | 0.93 | ||||||||||||
Centurylink, Inc. | 10,609 | 103 | 0.90 | ||||||||||||
Cigna Corp. | 539 | 112 | 0.98 | ||||||||||||
Cisco Systems, Inc. | 2,571 | 115 | 1.01 | ||||||||||||
Citigroup, Inc. | 2,018 | 124 | 1.09 | ||||||||||||
Citizens Financial Group | 3,329 | 119 | 1.04 | ||||||||||||
Cummins, Inc. | 486 | 110 | 0.96 | ||||||||||||
CVS Health Corp. | 1,657 | 113 | 0.99 | ||||||||||||
Discovery, Inc. — Class A | 4,044 | 122 | 1.06 | ||||||||||||
Discovery, Inc. — Class C | 4,539 | 119 | 1.04 | ||||||||||||
Dr Horton, Inc. | 1,553 | 107 | 0.94 | ||||||||||||
DXC Technology Co. | 5,055 | 130 | 1.14 | ||||||||||||
Eastman Chemical Co. | 1,133 | 114 | 0.99 | ||||||||||||
Everest RE Group Ltd. | 485 | 114 | 0.99 | ||||||||||||
Exelon Corp. | 2,713 | 115 | 1.00 | ||||||||||||
Exxon Mobil Corp. | 1,886 | 78 | 0.68 | ||||||||||||
Fifth Third BanCorp | 4,272 | 118 | 1.03 | ||||||||||||
Firstenergy Corp. | 4,119 | 126 | 1.10 | ||||||||||||
Ford Motor Co. | 12,113 | 106 | 0.93 | ||||||||||||
General Dynamics Corp. | 738 | 110 | 0.96 | ||||||||||||
General Motors Co. | 2,505 | 104 | 0.91 | ||||||||||||
Hanesbrands, Inc. | 7,915 | 115 | 1.01 | ||||||||||||
Hartford Financial Services Group | 2,464 | 121 | 1.05 | ||||||||||||
Hewlett Packard Enterprise | 9,993 | 118 | 1.04 | ||||||||||||
HP, Inc. | 5,001 | 123 | 1.08 | ||||||||||||
Humana, Inc. | 276 | 113 | 0.99 | ||||||||||||
Huntington Ingalls Industries | 681 | 116 | 1.01 | ||||||||||||
Intel Corp. | 2,258 | 113 | 0.98 | ||||||||||||
International Paper Co. | 2,245 | 112 | 0.98 | ||||||||||||
Interpublic Group of Co., Inc. | 4,911 | 116 | 1.01 | ||||||||||||
International Business Machines Corp. | 909 | 114 | 1.00 | ||||||||||||
Invesco Ltd. | 6,800 | 119 | 1.04 | ||||||||||||
Iron Mountain, Inc. | 4,109 | 121 | 1.06 | ||||||||||||
Jacobs Engineering Group, Inc. | 668 | 73 | 0.64 | ||||||||||||
Johnson Controls Internation | 2,419 | 113 | 0.99 | ||||||||||||
Juniper Networks, Inc. | 5,113 | 115 | 1.01 | ||||||||||||
Kimco Realty Corp. | 7,562 | 114 | 0.99 | ||||||||||||
Kinder Morgan, Inc. | 5,150 | 70 | 0.62 | ||||||||||||
Kraft Heinz Co. (The) | 3,377 | 117 | 1.02 | ||||||||||||
Kroger Co. | 3,391 | 108 | 0.94 | ||||||||||||
L3Harris Technologies, Inc. | 583 | 110 | 0.96 | ||||||||||||
Laboratory Corp. of America Holdings | 556 | 113 | 0.99 | ||||||||||||
Leidos Holdings, Inc. | 1,101 | 116 | 1.01 | ||||||||||||
Lennar Corp. — Class A | 1,528 | 117 | 1.02 | ||||||||||||
Lincoln National Corp. | 2,243 | 113 | 0.99 | ||||||||||||
LKQ Corp. | 3,097 | 109 | 0.95 | ||||||||||||
Lockheed Martin Corp. | 307 | 109 | 0.95 | ||||||||||||
Lyondellbasell Industries — Class A | 1,305 | 120 | 1.05 |
The accompanying notes are an integral part of the consolidated financial statements.
35
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Portfolio of Investments (cont'd)
Global Strategist Portfolio
Security Description | Shares | Value (000) | Index Weight | ||||||||||||
JPM SPX 500 Value Index (cont'd) | |||||||||||||||
Metlife, Inc. | 2,386 | $ | 112 | 0.98 | % | ||||||||||
Micron Technology, Inc. | 1,669 | 125 | 1.10 | ||||||||||||
Mohawk Industries, Inc. | 883 | 124 | 1.09 | ||||||||||||
Molson Coors Beverage Co. — Class B | 2,420 | 109 | 0.96 | ||||||||||||
Netapp, Inc. | 2,067 | 137 | 1.20 | ||||||||||||
Newell Brands, Inc. | 5,220 | 111 | 0.97 | ||||||||||||
Newmont Corp. | 1,859 | 111 | 0.97 | ||||||||||||
Nielsen Holdings PLC | 6,939 | 145 | 1.27 | ||||||||||||
Northrop Grumman Corp. | 241 | 73 | 0.64 | ||||||||||||
NRG Energy, Inc. | 3,355 | 126 | 1.10 | ||||||||||||
Oneok, Inc. | 3,069 | 118 | 1.03 | ||||||||||||
Paccar, Inc. | 1,282 | 111 | 0.97 | ||||||||||||
Perrigo Co. PLC | 2,310 | 103 | 0.90 | ||||||||||||
PPL Corp. | 3,947 | 111 | 0.97 | ||||||||||||
Principal Financial Group | 2,256 | 112 | 0.98 | ||||||||||||
Pultegroup, Inc. | 2,624 | 113 | 0.99 | ||||||||||||
Quanta Services, Inc. | 1,600 | 115 | 1.01 | ||||||||||||
Quest Diagnostics, Inc. | 891 | 106 | 0.93 | ||||||||||||
Seagate Technology | 1,856 | 115 | 1.01 | ||||||||||||
Simon Property Group, Inc. | 1,317 | 112 | 0.98 | ||||||||||||
Sl Green Realty Corp. | 1,911 | 114 | 1.00 | ||||||||||||
Snap-On, Inc. | 637 | 109 | 0.95 | ||||||||||||
Textron, Inc. | 2,453 | 119 | 1.04 | ||||||||||||
Tyson Foods, Inc. — Class A | 1,677 | 108 | 0.94 | ||||||||||||
United Rentals, Inc. | 479 | 111 | 0.97 | ||||||||||||
Universal Health Services — Class B | 855 | 118 | 1.03 | ||||||||||||
Unum Group | 4,977 | 114 | 1.00 | ||||||||||||
Viacomcbs, Inc. — Class B | 3,078 | 115 | 1.00 | ||||||||||||
Viatris, Inc. | 6,580 | 123 | 1.08 | ||||||||||||
Vontier Corp. | 3,392 | 113 | 0.99 | ||||||||||||
Wabtec Corp. | 1,548 | 113 | 0.99 | ||||||||||||
Walgreens Boots Alliance, Inc. | 2,910 | 116 | 1.01 | ||||||||||||
Western Digital Corp. | 2,368 | 131 | 1.15 | ||||||||||||
Western Union Co. | 4,952 | 109 | 0.95 | ||||||||||||
Westrock Co. | 2,597 | 113 | 0.99 | ||||||||||||
Whirlpool Corp. | 578 | 104 | 0.91 | ||||||||||||
Xerox Holdings Corp. | 5,051 | 117 | 1.02 | ||||||||||||
Total | $ | 11,438 | 100.00 | % |
@ Value is less than $500.
* Cleared swap agreement, the broker is Morgan Stanley & Co. LLC.
BIST Borsa Istanbul Stock Exchange.
BTP Buoni del Tesoro Poliennali.
CAC Cotation Assistée en Continu.
CPI Consumer Price Index.
FTSE Financial Times Stock Exchange.
IBEX Índice Bursátil Español.
KORIBOR Korea Interbank Offered Rate.
LIBOR London Interbank Offered Rate.
MIB Milano Indice di Borsa.
NYMEX New York Mercantile Exchange.
SGX Singapore Exchange Ltd.
TIIE Interbank Equilibrium Interest Rate.
TSE Toronto Stock Exchange.
WTI West Texas Intermediate.
AUD — Australian Dollar
BRL — Brazilian Real
CAD — Canadian Dollar
CHF — Swiss Franc
CLP — Chilean Peso
CNH — Chinese Yuan Renminbi Offshore
CNY — Chinese Yuan Renminbi
COP — Colombian Peso
CZK — Czech Koruna
DKK — Danish Krone
EUR — Euro
GBP — British Pound
HKD — Hong Kong Dollar
HUF — Hungarian Forint
IDR — Indonesian Rupiah
ILS — Israeli Shekel
INR — Indian Rupee
JPY — Japanese Yen
KRW — South Korean Won
MXN — Mexican Peso
MYR — Malaysian Ringgit
NOK — Norwegian Krone
NZD — New Zealand Dollar
PEN — Peruvian Nuevo Sol
PLN — Polish Zloty
RON — Romanian New Leu
RUB — Russian Ruble
SEK — Swedish Krona
SGD — Singapore Dollar
THB — Thai Baht
TRY — Turkish Lira
TWD — Taiwan Dollar
USD — United States Dollar
ZAR — South African Rand
Portfolio Composition
Classification | Percentage of Total Investments | ||||||
Common Stocks | 41.3 | % | |||||
Fixed Income Securities | 38.7 | ||||||
Short-Term Investments | 15.9 | ||||||
Other* | 4.1 | ||||||
Total Investments | 100.0 | %** |
* Industries and/or investment types representing less than 5% of total investments.
** Does not include open long/short futures contracts with a value of approximately $34,298,000 and net unrealized appreciation of approximately $54,000. Does not include open foreign currency forward exchange contracts with net unrealized appreciation of approximately $194,000. Also does not include open swap agreements with net unrealized appreciation of approximately $2,127,000.
The accompanying notes are an integral part of the consolidated financial statements.
36
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Strategist Portfolio
Consolidated Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value (Cost $74,802) | $ | 89,771 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $15,117) | 15,117 | ||||||
Total Investments in Securities, at Value (Cost $89,919) | 104,888 | ||||||
Foreign Currency, at Value (Cost $283) | 2,091 | ||||||
Cash | 16 | ||||||
Unrealized Appreciation on Swap Agreements | 1,999 | ||||||
Receivable for Investments Sold | 1,402 | ||||||
Due from Broker | 1,055 | ||||||
Receivable for Variation Margin on Futures Contracts | 1,003 | ||||||
Unrealized Appreciation on Foreign Currency Forward Exchange Contracts | 388 | ||||||
Interest Receivable | 269 | ||||||
Receivable for Swap Agreements Termination | 63 | ||||||
Tax Reclaim Receivable | 59 | ||||||
Dividends Receivable | 50 | ||||||
Receivable for Variation Margin on Swap Agreements | 10 | ||||||
Receivable for Fund Shares Sold | 1 | ||||||
Receivable from Affiliate | — | @ | |||||
Other Assets | 12 | ||||||
Total Assets | 113,306 | ||||||
Liabilities: | |||||||
Payable for Investments Purchased | 6,182 | ||||||
Due to Broker | 1,540 | ||||||
Unrealized Depreciation on Swap Agreements | 329 | ||||||
Unrealized Depreciation on Foreign Currency Forward Exchange Contracts | 194 | ||||||
Payable for Fund Shares Redeemed | 89 | ||||||
Payable for Custodian Fees | 64 | ||||||
Payable for Professional Fees | 38 | ||||||
Payable for Servicing Fees | 35 | ||||||
Payable for Advisory Fees | 7 | ||||||
Payable for Administration Fees | 7 | ||||||
Payable for Transfer Agency Fees | 3 | ||||||
Deferred Capital Gain Country Tax | 2 | ||||||
Payable for Distribution Fees — Class II Shares | 1 | ||||||
Other Liabilities | 48 | ||||||
Total Liabilities | 8,539 | ||||||
NET ASSETS | $ | 104,767 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 85,054 | |||||
Total Distributable Earnings | 19,713 | ||||||
Net Assets | $ | 104,767 | |||||
CLASS I: | |||||||
Net Assets | $ | 88,563 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 8,056,526 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 10.99 | |||||
CLASS II: | |||||||
Net Assets | $ | 16,204 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 1,482,732 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 10.93 |
@ Amount is less than $500.
The accompanying notes are an integral part of the consolidated financial statements.
37
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Strategist Portfolio
Consolidated Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Interest from Securities of Unaffiliated Issuers (Net of $3 of Foreign Taxes Withheld) | $ | 857 | |||||
Dividends from Securities of Unaffiliated Issuers (Net of $29 of Foreign Taxes Withheld) | 825 | ||||||
Dividends from Security of Affiliated Issuer (Note H) | 31 | ||||||
Total Investment Income | 1,713 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 725 | ||||||
Custodian Fees (Note G) | 219 | ||||||
Professional Fees | 211 | ||||||
Servicing Fees (Note D) | 149 | ||||||
Pricing Fees | 91 | ||||||
Administration Fees (Note C) | 77 | ||||||
Distribution Fees — Class II Shares (Note E) | 37 | ||||||
Shareholder Reporting Fees | 35 | ||||||
Transfer Agency Fees (Note F) | 11 | ||||||
Directors' Fees and Expenses | 6 | ||||||
Other Expenses | 16 | ||||||
Total Expenses | 1,577 | ||||||
Waiver of Advisory Fees (Note B) | (671 | ) | |||||
Waiver of Distribution Fees — Class II Shares (Note E) | (22 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (18 | ) | |||||
Net Expenses | 866 | ||||||
Net Investment Income | 847 | ||||||
Realized Gain (Loss): | |||||||
Investments Sold (Net of $1 of Capital Gain Country Tax) | 4,841 | ||||||
Foreign Currency Forward Exchange Contracts | (84 | ) | |||||
Foreign Currency Translation | 67 | ||||||
Futures Contracts | (487 | ) | |||||
Swap Agreements | (216 | ) | |||||
Net Realized Gain | 4,121 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments (Net of Increase in Deferred Capital Gain Country Tax of $1) | 3,315 | ||||||
Foreign Currency Forward Exchange Contracts | 143 | ||||||
Foreign Currency Translation | 10 | ||||||
Futures Contracts | (33 | ) | |||||
Swap Agreements | 1,325 | ||||||
Net Change in Unrealized Appreciation (Depreciation) | 4,760 | ||||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | 8,881 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 9,728 |
The accompanying notes are an integral part of the consolidated financial statements.
38
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Global Strategist Portfolio
Consolidated Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 847 | $ | 1,638 | |||||||
Net Realized Gain | 4,121 | 5,537 | |||||||||
Net Change in Unrealized Appreciation (Depreciation) | 4,760 | 10,258 | |||||||||
Net Increase in Net Assets Resulting from Operations | 9,728 | 17,433 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (7,322 | ) | (5,415 | ) | |||||||
Class II | (1,336 | ) | (1,033 | ) | |||||||
Total Dividends and Distributions to Shareholders | (8,658 | ) | (6,448 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 3,399 | 2,208 | |||||||||
Distributions Reinvested | 7,322 | 5,415 | |||||||||
Redeemed | (12,642 | ) | (14,962 | ) | |||||||
Class II: | |||||||||||
Subscribed | 474 | 319 | |||||||||
Distributions Reinvested | 1,336 | 1,033 | |||||||||
Redeemed | (2,356 | ) | (3,415 | ) | |||||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (2,467 | ) | (9,402 | ) | |||||||
Total Increase (Decrease) in Net Assets | (1,397 | ) | 1,583 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 106,164 | 104,581 | |||||||||
End of Period | $ | 104,767 | $ | 106,164 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 329 | 211 | |||||||||
Shares Issued on Distributions Reinvested | 778 | 521 | |||||||||
Shares Redeemed | (1,260 | ) | (1,427 | ) | |||||||
Net Decrease in Class I Shares Outstanding | (153 | ) | (695 | ) | |||||||
Class II: | |||||||||||
Shares Subscribed | 48 | 31 | |||||||||
Shares Issued on Distributions Reinvested | 143 | 100 | |||||||||
Shares Redeemed | (237 | ) | (328 | ) | |||||||
Net Decrease in Class II Shares Outstanding | (46 | ) | (197 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
39
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Financial Highlights
Global Strategist Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.91 | $ | 9.85 | $ | 11.17 | $ | 9.87 | $ | 9.39 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.09 | 0.16 | 0.16 | 0.20 | 0.15 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 0.95 | 1.56 | (0.86 | ) | 1.38 | 0.37 | |||||||||||||||||
Total from Investment Operations | 1.04 | 1.72 | (0.70 | ) | 1.58 | 0.52 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.20 | ) | (0.13 | ) | (0.12 | ) | — | ||||||||||||||
Net Realized Gain | (0.80 | ) | (0.46 | ) | (0.49 | ) | (0.16 | ) | (0.04 | ) | |||||||||||||
Total Distributions | (0.96 | ) | (0.66 | ) | (0.62 | ) | (0.28 | ) | (0.04 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 10.99 | $ | 10.91 | $ | 9.85 | $ | 11.17 | $ | 9.87 | |||||||||||||
Total Return(3) | 10.92 | % | 17.77 | % | (6.50 | )% | 16.11 | % | 5.58 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 88,563 | $ | 89,575 | $ | 87,675 | $ | 107,015 | $ | 104,197 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.59 | % | 1.49 | % | 1.44 | % | 1.42 | % | 1.43 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.88 | %(4) | 0.88 | %(4) | 0.89 | %(4) | 0.88 | %(4) | 0.88 | %(4) | |||||||||||||
Ratio of Net Investment Income | 0.89 | %(4) | 1.55 | %(4) | 1.48 | %(4) | 1.85 | %(4) | 1.54 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.02 | % | 0.02 | % | 0.01 | % | 0.02 | % | 0.02 | % | |||||||||||||
Portfolio Turnover Rate | 114 | % | 124 | % | 85 | % | 99 | % | 105 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
The accompanying notes are an integral part of the consolidated financial statements.
40
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Consolidated Financial Highlights
Global Strategist Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.85 | $ | 9.79 | $ | 11.11 | $ | 9.82 | $ | 9.35 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.08 | 0.15 | 0.15 | 0.18 | 0.14 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 0.94 | 1.56 | (0.86 | ) | 1.38 | 0.37 | |||||||||||||||||
Total from Investment Operations | 1.02 | 1.71 | (0.71 | ) | 1.56 | 0.51 | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.14 | ) | (0.19 | ) | (0.12 | ) | (0.11 | ) | — | ||||||||||||||
Net Realized Gain | (0.80 | ) | (0.46 | ) | (0.49 | ) | (0.16 | ) | (0.04 | ) | |||||||||||||
Total Distributions | (0.94 | ) | (0.65 | ) | (0.61 | ) | (0.27 | ) | (0.04 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 10.93 | $ | 10.85 | $ | 9.79 | $ | 11.11 | $ | 9.82 | |||||||||||||
Total Return(3) | 10.85 | % | 17.74 | % | (6.65 | )% | 15.96 | % | 5.49 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 16,204 | $ | 16,589 | $ | 16,906 | $ | 21,700 | $ | 21,861 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.84 | % | 1.74 | % | 1.69 | % | 1.67 | % | 1.68 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.98 | %(4) | 0.98 | %(4) | 0.99 | %(4) | 0.98 | %(4) | 0.98 | %(4) | |||||||||||||
Ratio of Net Investment Income | 0.79 | %(4) | 1.45 | %(4) | 1.38 | %(4) | 1.75 | %(4) | 1.44 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.02 | % | 0.02 | % | 0.01 | % | 0.02 | % | 0.02 | % | |||||||||||||
Portfolio Turnover Rate | 114 | % | 124 | % | 85 | % | 99 | % | 105 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
The accompanying notes are an integral part of the consolidated financial statements.
41
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying consolidated financial statements relate to the Global Strategist Portfolio. The Fund seeks total return and offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its consolidated financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results may differ from those estimates.
In March 2020, the Financial Accounting Standards Board ("FASB") issued an Accounting Standard Update, ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate ("LIBOR") and other IBOR-based reference rates at the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the Fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
The Fund may, consistent with its principal investment strategies, invest up to 25% of its total assets in a wholly-owned subsidiary of the Fund organized as a company under the laws of the Cayman Islands, VIF Global Strategist Cayman Portfolio, Ltd. (the "Subsidiary"). The Subsidiary may invest, directly or indirectly through the use of derivatives, in securities,
commodities, commodity-related instruments and other investments, primarily futures, swaps and notes. The Fund is the sole shareholder of the Subsidiary, and it is not currently expected that shares of the Subsidiary will be sold or offered to other investors. The consolidated portfolio of investments and consolidated financial statements include the positions and accounts of the Fund and the Subsidiary. All intercompany accounts and transactions of the Fund and the Subsidiary have been eliminated in consolidation. As of December 31, 2020, the Subsidiary represented approximately $9,122,000 or approximately 8.71% of the total net assets of the Fund.
Investments in the Subsidiary are expected to provide the Fund with exposure to the commodity markets within the limitations of Subchapter M of the Code and recent Internal Revenue Service ("IRS") revenue rulings, which require that a mutual fund receive no more than ten percent of its gross income from such investments in order to receive favorable tax treatment as a regulated investment company ("RIC"). Tax treatment of the income received from the Subsidiary may potentially be affected by changes in legislation, regulations or other legally binding authority, which could affect the character, timing and amount of the Fund's taxable income and distributions. If such changes occur, the Fund may need to significantly change its investment strategy and recognize unrealized gains in order to remain qualified for taxation as a RIC, which could adversely affect the Fund.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day,
42
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Limited ("MSIM Limited") (the "Sub-Adviser"), each a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (4) futures are valued at the settlement price on the exchange on which they trade or, if a settlement price is unavailable, at the last sale price on the exchange; (5) OTC swaps may be valued by an outside pricing service approved by the Directors or quotes from a broker or dealer. Swaps cleared on a clearinghouse or exchange may be valued using the closing price provided by the clearinghouse or exchange; (6) when market quotations are not readily available, including circumstances under which the Adviser or the Sub-Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (7) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (8) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: FASB Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing an asset or liability developed based on the best information
43
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Agency Adjustable Rate Mortgage | $ | — | $ | 18 | $ | — | $ | 18 | |||||||||||
Agency Fixed Rate Mortgages | — | 2,845 | — | 2,845 | |||||||||||||||
Asset-Backed Securities | — | 460 | — | 460 | |||||||||||||||
Commercial Mortgage- Backed Securities | — | 648 | — | 648 | |||||||||||||||
Corporate Bonds | — | 12,158 | — | 12,158 | |||||||||||||||
Mortgages - Other | — | 662 | — | 662 | |||||||||||||||
Sovereign | — | 20,206 | — | 20,206 | |||||||||||||||
Supranational | — | 1,026 | — | 1,026 | |||||||||||||||
U.S. Treasury Securities | — | 2,517 | — | 2,517 | |||||||||||||||
Total Fixed Income Securities | — | 40,540 | — | 40,540 | |||||||||||||||
Common Stocks | |||||||||||||||||||
Aerospace & Defense | 342 | 106 | — | 448 | |||||||||||||||
Air Freight & Logistics | 383 | 82 | — | 465 | |||||||||||||||
Airlines | 341 | 7 | — | 348 |
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Common Stocks (cont'd) | |||||||||||||||||||
Auto Components | $ | 147 | $ | 279 | $ | — | $ | 426 | |||||||||||
Automobiles | 240 | 1,013 | — | 1,253 | |||||||||||||||
Banks | 1,309 | 741 | — | 2,050 | |||||||||||||||
Beverages | 230 | 245 | — | 475 | |||||||||||||||
Biotechnology | 539 | 87 | — | 626 | |||||||||||||||
Building Products | 202 | 100 | — | 302 | |||||||||||||||
Capital Markets | 984 | 264 | — | 1,248 | |||||||||||||||
Chemicals | 215 | 304 | — | 519 | |||||||||||||||
Commercial Banks | — | 2 | — | 2 | |||||||||||||||
Commercial Services & Supplies | 204 | 25 | — | 229 | |||||||||||||||
Communications Equipment | 248 | 54 | — | 302 | |||||||||||||||
Construction & Engineering | 2 | 87 | — | 89 | |||||||||||||||
Construction Materials | 123 | 51 | — | 174 | |||||||||||||||
Consumer Finance | 424 | 1 | — | 425 | |||||||||||||||
Containers & Packaging | 60 | 16 | — | 76 | |||||||||||||||
Diversified Financial Services | 188 | 94 | — | 282 | |||||||||||||||
Diversified Telecommunication Services | 619 | 131 | — | 750 | |||||||||||||||
Electric Utilities | 427 | 171 | — | 598 | |||||||||||||||
Electrical Equipment | 91 | 251 | — | 342 | |||||||||||||||
Electronic Equipment, Instruments & Components | 113 | 26 | — | 139 | |||||||||||||||
Energy Equipment & Services | 165 | 7 | — | † | 172 | † | |||||||||||||
Entertainment | 263 | 33 | — | 296 | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) | 1,006 | 87 | — | 1,093 | |||||||||||||||
Food & Staples Retailing | 654 | 128 | — | 782 | |||||||||||||||
Food Products | 137 | 427 | — | 564 | |||||||||||||||
Gas Utilities | 10 | 17 | — | 27 | |||||||||||||||
Health Care Equipment & Supplies | 1,174 | 142 | — | 1,316 | |||||||||||||||
Health Care Providers & Services | 1,323 | 32 | — | 1,355 | |||||||||||||||
Health Care Technology | 42 | — | — | 42 | |||||||||||||||
Hotels, Restaurants & Leisure | 1,634 | 456 | — | 2,090 | |||||||||||||||
Household Durables | 272 | 59 | — | 331 | |||||||||||||||
Household Products | 556 | 120 | — | 676 | |||||||||||||||
Independent Power & Renewable Electricity Producers | 9 | 14 | — | 23 | |||||||||||||||
Industrial Conglomerates | 509 | 77 | — | 586 | |||||||||||||||
Information Technology Services | 1,905 | 44 | — | 1,949 | |||||||||||||||
Insurance | 135 | 487 | — | 622 |
44
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Common Stocks (cont'd) | |||||||||||||||||||
Interactive Media & Services | $ | 1,922 | $ | 10 | $ | — | $ | 1,932 | |||||||||||
Internet & Direct Marketing Retail | 1,887 | — | — | 1,887 | |||||||||||||||
Life Sciences Tools & Services | 216 | 97 | — | 313 | |||||||||||||||
Machinery | 301 | 279 | — | 580 | |||||||||||||||
Marine | — | 50 | — | 50 | |||||||||||||||
Media | 472 | 46 | — | 518 | |||||||||||||||
Metals & Mining | 1,742 | 630 | — | 2,372 | |||||||||||||||
Multi-Line Retail | 155 | 52 | — | 207 | |||||||||||||||
Multi-Utilities | 247 | 105 | — | 352 | |||||||||||||||
Oil, Gas & Consumable Fuels | 585 | 372 | — | 957 | |||||||||||||||
Paper & Forest Products | 10 | 34 | — | 44 | |||||||||||||||
Personal Products | 170 | 174 | — | 344 | |||||||||||||||
Pharmaceuticals | 1,120 | 1,078 | — | 2,198 | |||||||||||||||
Professional Services | 90 | 137 | — | 227 | |||||||||||||||
Real Estate Management & Development | 3 | 15 | — | 18 | |||||||||||||||
Road & Rail | 470 | — | @ | — | 470 | ||||||||||||||
Semiconductors & Semiconductor Equipment | 764 | 180 | — | 944 | |||||||||||||||
Software | 1,881 | 86 | — | 1,967 | |||||||||||||||
Specialty Retail | 859 | 62 | — | 921 | |||||||||||||||
Tech Hardware, Storage & Peripherals | 2,267 | — | — | 2,267 | |||||||||||||||
Textiles, Apparel & Luxury Goods | 426 | 288 | — | 714 | |||||||||||||||
Thrifts & Mortgage Finance | 14 | — | — | 14 | |||||||||||||||
Tobacco | 167 | 135 | — | 302 | |||||||||||||||
Trading Companies & Distributors | 23 | 78 | — | 101 | |||||||||||||||
Transportation Infrastructure | — | 44 | — | 44 | |||||||||||||||
Water Utilities | — | 19 | — | 19 | |||||||||||||||
Wireless Telecommunication Services | 18 | 54 | — | 72 | |||||||||||||||
Total Common Stocks | 33,034 | 10,292 | — | † | 43,326 | † | |||||||||||||
Right | 1 | — | — | 1 | |||||||||||||||
Warrants | 1 | — | — | 1 | |||||||||||||||
Investment Company | 4,342 | — | — | 4,342 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 15,117 | — | — | 15,117 | |||||||||||||||
U.S. Treasury Security | — | 1,561 | — | 1,561 | |||||||||||||||
Total Short-Term Investments | 15,117 | 1,561 | — | 16,678 |
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Foreign Currency Forward Exchange Contracts | $ | — | $ | 388 | $ | — | $ | 388 | |||||||||||
Futures Contracts | 205 | — | — | 205 | |||||||||||||||
Interest Rate Swap Agreements | — | 476 | — | 476 | |||||||||||||||
Total Return Swap Agreements | — | 1,980 | — | 1,980 | |||||||||||||||
Total Assets | 52,700 | 55,237 | — | † | 107,937 | † | |||||||||||||
Liabilities: | |||||||||||||||||||
Foreign Currency Forward Exchange Contracts | — | (194 | ) | — | (194 | ) | |||||||||||||
Futures Contracts | (151 | ) | — | — | (151 | ) | |||||||||||||
Total Return Swap Agreements | — | (329 | ) | — | (329 | ) | |||||||||||||
Total Liabilities | (151 | ) | (523 | ) | — | (674 | ) | ||||||||||||
Total | $ | 52,549 | $ | 54,714 | $ | — | † | $ | 107,263 | † |
@ Value is less than $500.
† Includes a security valued at zero.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Common Stock (000) | |||||||
Beginning Balance | $ | — | † | ||||
Purchases | — | ||||||
Sales | — | ||||||
Amortization of discount | — | ||||||
Transfers in | — | ||||||
Transfers out | — | ||||||
Corporate actions | — | ||||||
Change in unrealized appreciation (depreciation) | — | ||||||
Realized gains (losses) | — | ||||||
Ending Balance | $ | — | † | ||||
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2020 | $ | — |
† Includes a security valued at zero.
45
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
3. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Consolidated Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Consolidated Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
4. Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.
Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and
46
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser and/or Sub-Adviser seek to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.
Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:
Foreign Currency Forward Exchange Contracts: In connection with its investments in foreign securities, the Fund also entered into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. In addition, the Fund may use cross currency hedging or proxy hedging with respect to currencies in which the Fund has or expects to have portfolio or currency exposure. Cross currency hedges involve the sale of one currency against the positive exposure to a different currency and may be used for hedging purposes or to establish an active exposure to the exchange rate between any two currencies. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions may reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which the Fund's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract.
A currency contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.
Futures: A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return and the potential loss from futures contracts can exceed the Fund's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with which the Fund has open positions in the futures contract.
Swaps: The Fund may enter into OTC swap contracts or cleared swap transactions. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Fund's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by
47
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
each party. Cleared swap transactions may help reduce counterparty credit risk. In a cleared swap, the Fund's ultimate counterparty is a clearinghouse rather than a swap dealer, bank or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by the Fund or if the reference index, security or investments do not perform as expected. During the period swap agreements are open, payments are received from or made to the clearinghouse or counterparty based upon changes in the value of the contract (variation margin). The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis based on the type of market participant and U.S. Commission ("CFTC") approval of contracts for central clearing and exchange trading.
The Fund's use of swaps during the period included those based on the credit of an underlying security commonly referred to as "credit default swaps." The Fund may be either the buyer or seller in a credit default swap. Where the Fund is the buyer of a credit default swap contract, it would typically be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract only in the event of a default or similar event by the issuer of the debt obligation. If no default occurs, the Fund would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, it typically receives the stream of payments but is obligated to pay an amount equal to the par (or other agreed-upon) value of a referenced debt obligation upon the default or similar event by the issuer of the referenced debt obligation. The use of credit default swaps could result in losses to the Fund if the Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation.
If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of
the swap agreement and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap agreement and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are estimated by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value. The Fund's maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the swap agreement.
The current credit rating of each individual issuer is included in the table following the Consolidated Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.
When the Fund has an unrealized loss on a swap agreement, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. If applicable, cash collateral is included with "Due from (to) Broker" in the Consolidated Statement of Assets and Liabilities.
48
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
Upfront payments paid or received by the Fund will be reflected as an asset or liability, respectively, in the Consolidated Statement of Assets and Liabilities.
FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The following tables set forth the fair value of the Fund's derivative contracts by primary risk exposure as of December 31, 2020:
Asset Derivatives Consolidated Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Foreign Currency Forward Exchange Contracts | Unrealized Appreciation on Foreign Currency Forward Exchange Contracts | Currency Risk | $ | 388 | |||||||||||
Futures Contract | Variation Margin on Futures Contract | Commodity Risk | 16 | (a) | |||||||||||
Futures Contracts | Variation Margin on Futures Contracts | Equity Risk | 122 | (a) | |||||||||||
Futures Contracts | Variation Margin on Futures Contracts | Interest Rate Risk | 67 | (a) | |||||||||||
Swap Agreements | Variation Margin on Swap Agreements | Interest Rate Risk | 457 | (a) | |||||||||||
Swap Agreements | Unrealized Appreciation on Swap Agreements | Equity Risk | 1,980 | ||||||||||||
Swap Agreement | Unrealized Appreciation on Swap Agreement | Interest Rate Risk | 19 | ||||||||||||
Total | $ | 3,049 | |||||||||||||
Liability Derivatives Consolidated Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Foreign Currency Forward Exchange Contracts | Unrealized Depreciation on Foreign Currency Forward Exchange Contracts | Currency Risk | $ | (194 | ) | ||||||||||
Futures Contracts | Variation Margin on Futures Contracts | Equity Risk | (108 | )(a) | |||||||||||
Futures Contracts | Variation Margin on Futures Contracts | Interest Rate Risk | (43 | )(a) | |||||||||||
Swap Agreements | Unrealized Depreciation on Swap Agreements | Equity Risk | (329 | ) | |||||||||||
Total | $ | (674 | ) |
(a) This amount represents the cumulative appreciation (depreciation) as reported in the Consolidated Portfolio of Investments. The Consolidated Statement of Assets and Liabilities only reflects the current day's net variation margin.
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the year ended December 31, 2020 in accordance with ASC 815:
Realized Gain (Loss) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | (84 | ) | |||||||
Commodity Risk | Futures Contracts | 448 | |||||||||
Equity Risk | Futures Contracts | (368 | ) | ||||||||
Interest Rate Risk | Futures Contracts | (567 | ) | ||||||||
Credit Risk | Swap Agreements | 5 | |||||||||
Equity Risk | Swap Agreements | (221 | ) | ||||||||
Interest Rate Risk | Swap Agreements | — | @ | ||||||||
Total | $ | (787 | ) | ||||||||
Change in Unrealized Appreciation (Depreciation) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Foreign Currency Forward Exchange Contracts | $ | 143 | ||||||||
Commodity Risk | Futures Contracts | (56 | ) | ||||||||
Equity Risk | Futures Contracts | 32 | |||||||||
Interest Rate Risk | Futures Contracts | (9 | ) | ||||||||
Equity Risk | Swap Agreements | 905 | |||||||||
Credit Risk | Swap Agreements | 7 | |||||||||
Interest Rate Risk | Swap Agreements | 413 | |||||||||
Total | $ | 1,435 |
@ Value is less than $500.
At December 31, 2020, the Fund's derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Consolidated Statement of Assets and Liabilities | |||||||||||
Derivatives(b) | Assets(c) (000) | Liabilities(c) (000) | |||||||||
Foreign Currency Forward Exchange Contracts | $ | 388 | $ | (194 | ) | ||||||
Swap Agreements | 1,999 | (329 | ) | ||||||||
Total | $ | 2,387 | $ | (523 | ) |
(b) Excludes exchange-traded derivatives.
(c) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of
49
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Fund exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of the Fund's net liability may be delayed or denied.
The following tables present derivative financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Consolidated Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Asset Derivatives Presented in the Consolidated Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Received (000) | Net Amount (not less than $0) (000) | |||||||||||||||
Bank of America NA | $ | 32 | $ | (2 | ) | $ | — | $ | 30 | ||||||||||
Bank of Montreal | — | @ | — | — | — | @ | |||||||||||||
Barclays Bank PLC | 8 | (8 | ) | — | 0 | ||||||||||||||
BNP Paribas SA | 1,324 | (4 | ) | (1,280 | ) | 40 | |||||||||||||
Citibank NA | 12 | (— | @) | — | 12 | ||||||||||||||
Goldman Sachs International | 72 | (58 | ) | — | 14 | ||||||||||||||
JPMorgan Chase Bank NA | 924 | (340 | ) | (260 | ) | 324 | |||||||||||||
Royal Bank of Canada | 1 | — | — | 1 | |||||||||||||||
State Street Bank and Trust Co. | — | @ | (— | @) | — | 0 | |||||||||||||
UBS AG | 14 | (14 | ) | — | 0 | ||||||||||||||
Total | $ | 2,387 | $ | (426 | ) | $ | (1,540 | ) | $ | 421 |
Gross Amounts Not Offset in the Consolidated Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Liability Derivatives Presented in the Consolidated Statement of Assets and Liabilities (000) | Financial Instrument (000) | Collateral Pledged (000) | Net Amount (not less than $0) (000) | |||||||||||||||
Bank of America NA | $ | 2 | $ | (2 | ) | $ | — | $ | 0 | ||||||||||
Barclays Bank PLC | 57 | (8 | ) | — | 49 | ||||||||||||||
BNP Paribas SA | 4 | (4 | ) | — | 0 | ||||||||||||||
Citibank NA | — | @ | (— | @) | — | 0 | |||||||||||||
Commonwealth Bank of Australia | — | @ | — | — | — | @ | |||||||||||||
Credit Suisse International | — | @ | — | — | — | @ | |||||||||||||
Goldman Sachs International | 58 | (58 | ) | — | 0 | ||||||||||||||
JPMorgan Chase Bank NA | 340 | (340 | ) | — | 0 | ||||||||||||||
State Street Bank and Trust Co. | 9 | (— | @) | — | 9 | ||||||||||||||
UBS AG | 53 | (14 | ) | — | 39 | ||||||||||||||
Total | $ | 523 | $ | (426 | ) | $ | — | $ | 97 |
@ Value is less than $500.
For the year ended December 31, 2020, the approximate average monthly amount outstanding for each derivative type is as follows:
Foreign Currency Forward Exchange Contracts: | |||||||
Average monthly principal amount | $ | 32,492,000 | |||||
Futures Contracts: | |||||||
Average monthly notional value | $ | 34,505,000 | |||||
Swap Agreements: | |||||||
Average monthly notional amount | $ | 14,425,000 |
5. When-Issued/Delayed Delivery Securities: The Fund purchases and sells when-issued and delayed delivery securities. Securities purchased on a when-issued or delayed delivery basis are purchased for delivery beyond the normal settlement date at a stated price and yield, and no income accrues to the Fund on such securities prior to delivery date. Payment and delivery for when-issued and delayed delivery securities can take place a month or more after the date of the transaction. When the Fund enters into a purchase transaction on a when-issued or delayed delivery basis, securities are available for collateral in an amount at least equal in value to the Fund's commitments to purchase such securities. Purchasing securities on a when-issued or delayed delivery basis may involve a risk that the market price at the time of delivery may be lower than the agreed upon purchase price, in which case there could be an unrealized loss at the time of delivery. Purchasing investments on a when-issued or delayed delivery basis may be considered
50
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
a form of leverage which may increase the impact that gains (losses) may have on the Fund.
6. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
7. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, ownership of shares is defined according to entries in the issuer's share register. It is possible that a Fund holding these securities could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Fund to further risk of loss in the event of a failure to complete the transaction by the counterparty.
8. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory/Sub-Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory
Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $500 million | Next $500 million | Over $1 billion | |||||||||
0.75 | % | 0.70 | % | 0.65 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.04% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.90% for Class I shares and 1.00% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $671,000 of advisory fees were waived pursuant to this arrangement.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser, a wholly-owned subsidiary of Morgan Stanley. The Sub-Adviser provides the Fund with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Directors. The Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser receives from the Fund.
The Adviser provides investment advisory services to the Subsidiary pursuant to the Subsidiary Investment Management Agreement (the "Agreement"). Under the Agreement, the Subsidiary will pay the Adviser at the end of each fiscal quarter, calculated by applying a quarterly rate, based on the annual rate of 0.05%, to the average daily net assets of the Subsidiary.
The Adviser has agreed to waive its advisory fees by the amount of advisory fees it receives from the Subsidiary.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
51
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares. The Distributor has agreed to waive 0.15% of the 0.25% distribution fee that it may receive. This fee waiver will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waiver when they deem such action is appropriate. For the year ended December 31, 2020, this waiver amounted to approximately $22,000.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $56,454,000 and $67,330,000, respectively. For the year ended December 31, 2020, purchases and sales of long-term U.S. Government securities were approximately $38,674,000 and $39,626,000, respectively.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Government
Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $18,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 12,137 | $ | 71,892 | $ | 68,912 | $ | 31 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 15,117 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the consolidated financial statements.
52
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for consolidated financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the consolidated financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Consolidated Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 4,575 | $ | 4,083 | $ | 1,951 | $ | 4,497 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
Permanent differences, due to an adjustment to prior period equalization debits, resulted in the following reclassifications among the components of net assets at December 31, 2020:
Total Distributable Earnings (000) | Paid-in Capital (000) | ||||||
$ | — | @ | $ | (— | @) |
@ Amount is less than $500.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 4,053 | $ | 1,501 |
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 73.8%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
M. LIBOR Risk: The Fund's investments, payment obligations and financing terms may be based on floating rates, such as London Interbank Offer Rate ("LIBOR"), Euro Interbank Offered Rate and other similar types of reference rates (each, a "Reference Rate"). These Reference Rates are generally intended to represent the rate at which contributing banks may obtain short-term borrowings from each other within certain financial markets. On July 27, 2017, the Chief Executive of the UK Financial Conduct Authority ("FCA"), which regulates LIBOR, announced that the FCA will no longer persuade nor require banks to submit rates for the calculation of LIBOR and certain other Reference Rates after 2021. Such announcement indicates that the continuation of LIBOR and other Reference Rates on the current basis cannot
53
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Consolidated Financial Statements (cont'd)
and will not be guaranteed after the end of 2021. This announcement and any additional regulatory or market changes may have an adverse impact on the Fund or its investments.
In advance of 2022, regulators and market participants are currently engaged in identifying successor Reference Rates ("Alternative Reference Rates"). Additionally, prior to the end of 2021, it is expected that market participants will focus on the transition mechanisms by which the Reference Rates in existing contracts or instruments may be amended, whether through marketwide protocols, fallback contractual provisions, bespoke negotiations or amendments or otherwise. Nonetheless, the termination of certain Reference Rates presents risks to the Fund. At this time, it is not possible to completely identify or predict the effect of any such changes, any establishment of Alternative Reference Rates or any other reforms to Reference Rates that may be enacted in the UK or elsewhere. The elimination of a Reference Rate or any other changes or reforms to the determination or supervision of Reference Rates could have an adverse impact on the market for or value of any securities or payments linked to those Reference Rates and other financial obligations held by the Fund or on its overall financial condition or results of operations.
54
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Global Strategist Portfolio
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities of Global Strategist Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the consolidated portfolio of investments, as of December 31, 2020, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, the consolidated financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of Global Strategist Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the consolidated results of its operations for the year then ended, the consolidated changes in its net assets for each of the two years in the period then ended and its consolidated financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
55
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
56
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020. For corporate shareholders 9.20% of the dividends qualified for the dividends received deduction.
The Fund designated and paid approximately $4,083,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
57
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
58
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
59
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
60
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
61
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Sub-Adviser
Morgan Stanley Investment Management Limited
25 Cabot Square, Canary Wharf
London, E14 4QA, England
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFIMANN
3386945 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Growth Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 5 | ||||||
Statement of Assets and Liabilities | 7 | ||||||
Statement of Operations | 8 | ||||||
Statements of Changes in Net Assets | 9 | ||||||
Financial Highlights | 10 | ||||||
Notes to Financial Statements | 12 | ||||||
Report of Independent Registered Public Accounting Firm | 22 | ||||||
Liquidity Risk Management Program | 23 | ||||||
Federal Tax Notice | 24 | ||||||
Director and Officer Information | 25 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
Growth Portfolio
As a shareholder of the Growth Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
Growth Portfolio Class I | $ | 1,000.00 | $ | 1,429.00 | $ | 1,022.32 | $ | 3.42 | $ | 2.85 | 0.56 | % | |||||||||||||||
Growth Portfolio Class II | 1,000.00 | 1,427.00 | 1,021.06 | 4.94 | 4.12 | 0.81 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
Growth Portfolio
The Fund seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of large capitalization companies.
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 117.31%, net of fees, and 116.76%, net of fees, for Class II shares. The Fund's Class I and Class II shares outperformed the Fund's benchmark, the Russell 1000® Growth Index (the "Index"), which returned 38.49%.
Please keep in mind that high triple-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions.
Factors Affecting Performance
• U.S. equities reversed a steep sell-off caused by the COVID-19 pandemic shock, aided by massive fiscal and monetary stimulus that kept liquidity flowing and supported a faster-than-expected rebound in economic activity. Promising vaccine news throughout the year, along with the start of vaccine distribution across the U.S. and Europe in December 2020, also helped investors look past resurgences of the virus and renewed curbs on social and business activity that have slowed the economic recovery in the short term. Political uncertainty eased after the U.S. election in November 2020, with markets taking a positive stance on a Biden administration and the prospect for additional fiscal stimulus in 2021.
• Within the Index, consumer discretionary, information technology and communication services were the top-performing sectors for the year, while energy (the only sector with a negative return), real estate and industrials were the weakest performers.
• Counterpoint Global seeks high quality companies, which we define primarily as those with sustainable competitive advantages. We manage concentrated portfolios that are highly differentiated from the benchmark, with securities weighted on our assessment of the quality of the company and our conviction. The value added or detracted in any period of time will result from stock selection, given our philosophy and process. For the year, the Fund outperformed the Index.
• The long-term investment horizon and conviction-weighted investment approach embraced by the team since 1998 can result in periods of performance deviation from the benchmark and peers. The Fund outperformed the Index in this reporting period largely due to favorable stock selection and a small contribution from sector allocations.
• Stock selection was the strongest across the information technology sector. A proprietary cloud-based communications platform that connects users through frictionless video, voice, chat and content sharing, was the top contributor in the sector and across the portfolio. Its shares continued to advance on solid results which significantly surpassed expectations and were characterized by strong revenue growth, customer base expansion, speed to scale in international markets, higher profit margins, traction with new products, and a raised financial outlook. The company has experienced growing use of its products by both consumers and businesses as video-based communication has become mission critical during the COVID-19 pandemic.
• Stock selection in the health care and consumer discretionary sectors also contributed to relative outperformance. In health care, the top contributor was a provider of cloud-based software solutions to the life sciences industry. Fundamentals remain strong at the company, as it reported revenue and profitability that beat consensus estimates, driven by strong performance and increasing customer adoption of its solutions across both its platforms. Management also commented on an improving environment across its life sciences end markets and raised its financial outlook accordingly. In consumer discretionary, an online used car marketplace was the top contributor to relative outperformance in the sector. The company experienced a rebound in demand and reported better than expected unit sales and profitability, despite constrained inventory levels resulting from the company's decision to slow vehicle acquisition earlier in the pandemic. The company has benefited from the accelerating shift to buying cars online, and is working toward improving vehicle inventory levels by accelerating hiring efforts and opening additional inspection and reconditioning centers.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
Growth Portfolio
• Given the magnitude of the Fund's outperformance relative to the benchmark, there were no meaningful sector detractors from performance. An overweight to health care was detrimental on a relative basis but was more than offset by the outperformance of our stock selection in the sector.
• Although the information technology sector was by far the largest contributor to performance, the strength in these holdings was partly offset by weakness in a provider of cloud-based financial and human resources management software, which was the largest detractor across the portfolio.
Management Strategies
• As a team, we believe having a market outlook can be an anchor. Our focus is on assessing company prospects over a five-year horizon, and owning a portfolio of unique companies whose market value we believe can increase significantly for underlying fundamental reasons.
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the Russell 1000® Growth Index(1)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(2) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(5) | ||||||||||||||||
Fund – Class I(3) | 117.31 | % | 34.10 | % | 23.90 | % | 13.49 | % | |||||||||||
Russell 1000® Growth Index | 38.49 | 21.00 | 17.21 | 9.72 | |||||||||||||||
Fund – Class II(4) | 116.76 | 33.77 | 23.58 | 16.83 | |||||||||||||||
Russell 1000® Growth Index | 38.49 | 21.00 | 17.21 | 12.44 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Index is an index of approximately 1,000 of the largest U.S. companies based on a combination of market capitalization and current index membership. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(3) Commenced operations on January 2, 1997.
(4) Commenced offering on May 5, 2003.
(5) For comparative purposes, average annual since inception returns listed for the Index refers to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
Growth Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (90.3%) | |||||||||||
Biotechnology (0.8%) | |||||||||||
Alnylam Pharmaceuticals, Inc. (a) | 27,550 | $ | 3,581 | ||||||||
Moderna, Inc. (a) | 51,507 | 5,381 | |||||||||
8,962 | |||||||||||
Entertainment (5.8%) | |||||||||||
Netflix, Inc. (a) | 22,072 | 11,935 | |||||||||
Spotify Technology SA (a) | 170,078 | 53,517 | |||||||||
65,452 | |||||||||||
Food & Staples Retailing (1.0%) | |||||||||||
Costco Wholesale Corp. | 31,113 | 11,723 | |||||||||
Health Care Equipment & Supplies (5.4%) | |||||||||||
DexCom, Inc. (a) | 47,909 | 17,713 | |||||||||
Intuitive Surgical, Inc. (a) | 52,029 | 42,565 | |||||||||
60,278 | |||||||||||
Health Care Providers & Services (1.0%) | |||||||||||
Guardant Health, Inc. (a) | 88,540 | 11,411 | |||||||||
Health Care Technology (3.9%) | |||||||||||
Agilon Health Topco, Inc. (a)(b)(c) (acquisition cost — $1,272; acquired 11/7/18) | 3,363 | 1,982 | |||||||||
Veeva Systems, Inc., Class A (a) | 152,155 | 41,424 | |||||||||
43,406 | |||||||||||
Hotels, Restaurants & Leisure (0.6%) | |||||||||||
Airbnb, Inc., Class A (a) | 44,435 | 6,523 | |||||||||
Information Technology Services (22.1%) | |||||||||||
Adyen N.V. (Netherlands) (a) | 7,114 | 16,530 | |||||||||
Fastly, Inc., Class A (a) | 115,935 | 10,129 | |||||||||
MongoDB, Inc. (a) | 30,320 | 10,886 | |||||||||
Okta, Inc. (a) | 105,102 | 26,723 | |||||||||
Shopify, Inc., Class A (Canada) (a) | 48,544 | 54,949 | |||||||||
Snowflake, Inc., Class A (a) | 122,988 | 34,609 | |||||||||
Square, Inc., Class A (a) | 259,389 | 56,454 | |||||||||
Twilio, Inc., Class A (a) | 113,557 | 38,439 | |||||||||
248,719 | |||||||||||
Interactive Media & Services (14.9%) | |||||||||||
Facebook, Inc., Class A (a) | 143,148 | 39,103 | |||||||||
Pinterest, Inc., Class A (a) | 252,837 | 16,662 | |||||||||
Snap, Inc., Class A (a) | 839,589 | 42,038 | |||||||||
Twitter, Inc. (a) | 785,894 | 42,556 | |||||||||
Zillow Group, Inc., Class C (a) | 207,868 | 26,981 | |||||||||
167,340 | |||||||||||
Internet & Direct Marketing Retail (10.6%) | |||||||||||
Amazon.com, Inc. (a) | 25,550 | 83,216 | |||||||||
Chewy, Inc., Class A (a) | 122,332 | 10,996 | |||||||||
DoorDash, Inc., Class A (a) | 69,307 | 9,894 | |||||||||
Wayfair, Inc., Class A (a) | 69,976 | 15,801 | |||||||||
119,907 | |||||||||||
Life Sciences Tools & Services (2.8%) | |||||||||||
10X Genomics, Inc., Class A (a) | 94,603 | 13,396 | |||||||||
Illumina, Inc. (a) | 49,337 | 18,254 | |||||||||
31,650 |
Shares | Value (000) | ||||||||||
Metals & Mining (0.1%) | |||||||||||
Royal Gold, Inc. | 11,107 | $ | 1,181 | ||||||||
Oil, Gas & Consumable Fuels (0.2%) | |||||||||||
Texas Pacific Land Trust | 2,801 | 2,036 | |||||||||
Pharmaceuticals (0.9%) | |||||||||||
Royalty Pharma PLC, Class A | 200,902 | 10,055 | |||||||||
Road & Rail (4.7%) | |||||||||||
Uber Technologies, Inc. (a) | 1,046,443 | 53,369 | |||||||||
Semiconductors & Semiconductor Equipment (1.5%) | |||||||||||
NVIDIA Corp. | 32,996 | 17,230 | |||||||||
Software (11.2%) | |||||||||||
Cloudflare, Inc., Class A (a) | 145,954 | 11,091 | |||||||||
Coupa Software, Inc. (a) | 82,370 | 27,916 | |||||||||
Trade Desk, Inc. (The), Class A (a) | 38,956 | 31,204 | |||||||||
Unity Software, Inc. (a) | 66,597 | 10,220 | |||||||||
Zoom Video Communications, Inc., Class A (a) | 134,865 | 45,493 | |||||||||
125,924 | |||||||||||
Specialty Retail (2.8%) | |||||||||||
Carvana Co. (a) | 133,115 | 31,886 | |||||||||
Total Common Stocks (Cost $513,615) | 1,017,052 | ||||||||||
Preferred Stocks (1.8%) | |||||||||||
Electronic Equipment, Instruments & Components (0.0%) | |||||||||||
Magic Leap Series C (a)(b)(c) (acquisition cost — $1,526; acquired 12/22/15) | 66,235 | — | |||||||||
Internet & Direct Marketing Retail (1.8%) | |||||||||||
Airbnb, Inc. Series D (a)(b) (acquisition cost — $3,074; acquired 4/16/14) | 151,002 | 20,394 | |||||||||
Software (0.0%) | |||||||||||
Lookout, Inc. Series F (a)(b)(c) (acquisition cost — $1,618; acquired 6/17/14) | 141,612 | 439 | |||||||||
Total Preferred Stocks (Cost $6,218) | 20,833 | ||||||||||
Short-Term Investment (6.5%) | |||||||||||
Investment Company (6.5%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio — Institutional Class (See Note H) (Cost $72,673) | 72,673,031 | 72,673 | |||||||||
Total Investments Excluding Purchased Options (98.6%) (Cost $592,506) | 1,110,558 | ||||||||||
Total Purchased Options Outstanding (0.1%) (Cost $4,218) | 756 | ||||||||||
Total Investments (98.7%) (Cost $596,724) (d)(e) | 1,111,314 | ||||||||||
Other Assets in Excess of Liabilities (1.3%) | 14,421 | ||||||||||
Net Assets (100.0%) | $ | 1,125,735 |
The accompanying notes are an integral part of the financial statements.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
Growth Portfolio
(a) Non-income producing security.
(b) Security cannot be offered for public resale without first being registered under the Securities Act of 1933 and related rules ("restricted security"). Acquisition date represents the day on which an enforceable right to acquire such security is obtained and is presented along with related cost in the security description. The Fund has registration rights for certain restricted securities. Any costs related to such registration are borne by the issuer. The aggregate value of restricted securities (excluding 144A holdings) at December 31, 2020 amounts to approximately $22,815,000 and represents 2.0% of net assets.
(c) At December 31, 2020, the Fund held fair valued securities valued at approximately $2,421,000, representing 0.2% of net assets. These securities have been fair valued as determined in good faith under procedures established by and under the general supervision of the Company's (as defined herein) Directors.
(d) The approximate fair value and percentage of net assets, $16,530,000 and 1.5%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.
(e) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $604,310,000. The aggregate gross unrealized appreciation is approximately $522,489,000 and the aggregate gross unrealized depreciation is approximately $15,485,000, resulting in net unrealized appreciation of approximately $507,004,000.
Call Options Purchased:
The Fund had the following call options purchased open at December 31, 2020:
Counterparty | Description | Strike Price | Expiration Date | Number of Contracts | Notional Amount (000) | Value (000) | Premiums Paid (000) | Unrealized Depreciation (000) | |||||||||||||||||||||||||||
BNP Paribas | USD/CNH | CNH | 7.99 | Sep-21 | 155,868,409 | $ | 155,868 | $ | 148 | $ | 944 | $ | (796 | ) | |||||||||||||||||||||
BNP Paribas | USD/CNH | CNH | 7.64 | Nov-21 | 178,151,986 | 178,152 | 487 | 967 | (480 | ) | |||||||||||||||||||||||||
Royal Bank of Scotland | USD/CNH | CNH | 7.75 | Jan-21 | 142,018,241 | 142,018 | — | @ | 620 | (620 | ) | ||||||||||||||||||||||||
Royal Bank of Scotland | USD/CNH | CNH | 8.06 | Jul-21 | 175,450,794 | 175,451 | 105 | 931 | (826 | ) | |||||||||||||||||||||||||
Royal Bank of Scotland | USD/CNH | CNH | 8.48 | May-21 | 121,053,871 | 121,054 | 16 | 756 | (740 | ) | |||||||||||||||||||||||||
$ | 756 | $ | 4,218 | $ | (3,462 | ) |
@ Value is less than $500.
CNH — Chinese Yuan Renminbi Offshore
USD — United States Dollar
Portfolio Composition
Classification | Percentage of Total Investments | ||||||
Information Technology Services | 22.4 | % | |||||
Other* | 20.7 | ||||||
Interactive Media & Services | 15.1 | ||||||
Internet & Direct Marketing Retail | 12.6 | ||||||
Software | 11.4 | ||||||
Short-Term Investments | 6.5 | ||||||
Entertainment | 5.9 | ||||||
Health Care Equipment & Supplies | 5.4 | ||||||
Total Investments | 100.0 | % |
* Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Growth Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value (Cost $524,051) | $ | 1,038,641 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $72,673) | 72,673 | ||||||
Total Investments in Securities, at Value (Cost $596,724) | 1,111,314 | ||||||
Foreign Currency, at Value (Cost $1) | 1 | ||||||
Receivable for Investments Sold | 26,262 | ||||||
Receivable for Fund Shares Sold | 236 | ||||||
Tax Reclaim Receivable | 22 | ||||||
Receivable from Affiliate | 1 | ||||||
Other Assets | 35 | ||||||
Total Assets | 1,137,871 | ||||||
Liabilities: | |||||||
Payable for Investments Purchased | 5,265 | ||||||
Payable for Fund Shares Redeemed | 4,232 | ||||||
Due to Broker | 1,141 | ||||||
Payable for Advisory Fees | 842 | ||||||
Payable for Servicing Fees | 406 | ||||||
Payable for Distribution Fees — Class II Shares | 85 | ||||||
Payable for Administration Fees | 78 | ||||||
Payable for Professional Fees | 18 | ||||||
Payable for Custodian Fees | 10 | ||||||
Payable for Directors' Fees and Expenses | 10 | ||||||
Payable for Transfer Agency Fees | 3 | ||||||
Other Liabilities | 46 | ||||||
Total Liabilities | 12,136 | ||||||
NET ASSETS | $ | 1,125,735 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 333,757 | |||||
Total Distributable Earnings | 791,978 | ||||||
Net Assets | $ | 1,125,735 | |||||
CLASS I: | |||||||
Net Assets | $ | 737,155 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 10,495,051 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 70.24 | |||||
CLASS II: | |||||||
Net Assets | $ | 388,580 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 5,970,193 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 65.09 |
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Growth Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Dividends from Securities of Unaffiliated Issuers | $ | 58 | |||||
Dividends from Security of Affiliated Issuer (Note H) | 43 | ||||||
Income from Securities Loaned — Net | 1 | ||||||
Total Investment Income | 102 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 4,174 | ||||||
Servicing Fees (Note D) | 1,129 | ||||||
Distribution Fees — Class II Shares (Note E) | 741 | ||||||
Administration Fees (Note C) | 669 | ||||||
Professional Fees | 138 | ||||||
Shareholder Reporting Fees | 46 | ||||||
Custodian Fees (Note G) | 27 | ||||||
Directors' Fees and Expenses | 16 | ||||||
Transfer Agency Fees (Note F) | 13 | ||||||
Pricing Fees | 3 | ||||||
Reorganization Expense | (51 | )* | |||||
Other Expenses | 37 | ||||||
Total Expenses | 6,942 | ||||||
Waiver of Advisory Fees (Note B) | (1,432 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (45 | ) | |||||
Net Expenses | 5,465 | ||||||
Net Investment Loss | (5,363 | ) | |||||
Realized Gain: | |||||||
Investments Sold | 289,157 | ||||||
Foreign Currency Translation | 3 | ||||||
Net Realized Gain | 289,160 | ||||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments | 368,102 | ||||||
Foreign Currency Translation | 2 | ||||||
Net Change in Unrealized Appreciation (Depreciation) | 368,104 | ||||||
Net Realized Gain and Change in Unrealized Appreciation (Depreciation) | 657,264 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 651,901 |
* Over accrual of prior year expenses.
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Growth Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Loss | $ | (5,363 | ) | $ | (2,479 | ) | |||||
Net Realized Gain | 289,160 | 100,790 | |||||||||
Net Change in Unrealized Appreciation (Depreciation) | 368,104 | 189 | |||||||||
Net Increase in Net Assets Resulting from Operations | 651,901 | 98,500 | |||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (56,486 | ) | (20,830 | ) | |||||||
Class II | (33,542 | ) | (12,370 | ) | |||||||
Total Dividends and Distributions to Shareholders | (90,028 | ) | (33,200 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 19,685 | 10,618 | |||||||||
Issued due to a Tax-free Reorganization | — | 245,109 | |||||||||
Distributions Reinvested | 56,486 | 20,830 | |||||||||
Redeemed | (89,600 | ) | (49,722 | ) | |||||||
Class II: | |||||||||||
Subscribed | 78,680 | 28,971 | |||||||||
Issued due to a Tax-free Reorganization | — | 61,369 | |||||||||
Distributions Reinvested | 33,542 | 12,370 | |||||||||
Redeemed | (135,411 | ) | (60,606 | ) | |||||||
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | (36,618 | ) | 268,939 | ||||||||
Total Increase in Net Assets | 525,255 | 334,239 | |||||||||
Net Assets: | |||||||||||
Beginning of Period | 600,480 | 266,241 | |||||||||
End of Period | $ | 1,125,735 | $ | 600,480 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 388 | 308 | |||||||||
Shares Issued due to a Tax-free Reorganization | — | 6,914 | |||||||||
Shares Issued on Distributions Reinvested | 1,087 | 585 | |||||||||
Shares Redeemed | (1,783 | ) | (1,439 | ) | |||||||
Net Increase (Decrease) in Class I Shares Outstanding | (308 | ) | 6,368 | ||||||||
Class II: | |||||||||||
Shares Subscribed | 1,646 | 913 | |||||||||
Shares Issued due to a Tax-free Reorganization | — | 1,840 | |||||||||
Shares Issued on Distributions Reinvested | 696 | 370 | |||||||||
Shares Redeemed | (2,753 | ) | (1,912 | ) | |||||||
Net Increase (Decrease) in Class II Shares Outstanding | (409 | ) | 1,211 |
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Growth Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 35.80 | $ | 28.62 | $ | 32.38 | $ | 24.65 | $ | 29.93 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Loss(2) | (0.28 | ) | (0.14 | ) | (0.14 | ) | (0.13 | ) | (0.03 | ) | |||||||||||||
Net Realized and Unrealized Gain (Loss) | 40.32 | 9.23 | 3.34 | 10.44 | (0.57 | ) | |||||||||||||||||
Total from Investment Operations | 40.04 | 9.09 | 3.20 | 10.31 | (0.60 | ) | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Realized Gain | (5.60 | ) | (1.91 | ) | (6.96 | ) | (2.58 | ) | (4.68 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 70.24 | $ | 35.80 | $ | 28.62 | $ | 32.38 | $ | 24.65 | |||||||||||||
Total Return(3) | 117.31 | % | 31.81 | % | 7.54 | % | 43.15 | % | (1.64 | )% | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 737,155 | $ | 386,720 | $ | 126,941 | $ | 133,745 | $ | 104,504 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 0.74 | % | 0.78 | % | N/A | 0.81 | % | 0.79 | % | ||||||||||||||
Ratio of Expenses After Expense Limitation | 0.56 | %(4) | 0.61 | %(4)(5) | 0.79 | %(4) | 0.79 | %(4) | 0.76 | %(4) | |||||||||||||
Ratio of Net Investment Loss | (0.55 | )%(4) | (0.41 | )%(4) | (0.39 | )%(4) | (0.43 | )%(4) | (0.11 | )%(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.01 | % | 0.01 | % | 0.00 | %(6) | 0.01 | % | 0.00 | %(6) | |||||||||||||
Portfolio Turnover Rate | 55 | % | 95 | % | 56 | % | 54 | % | 39 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation would have been 0.03% higher and the Ratio of Net Investment Loss would have been 0.03% lower had the custodian not reimbursed the Fund.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Loss reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective April 29, 2019, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.57% for Class I shares. Prior to April 29, 2019, the maximum ratio was 0.80% for Class I shares.
(6) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
Growth Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 33.51 | $ | 26.95 | $ | 30.89 | $ | 23.66 | $ | 29.00 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Loss(2) | (0.38 | ) | (0.21 | ) | (0.21 | ) | (0.19 | ) | (0.09 | ) | |||||||||||||
Net Realized and Unrealized Gain (Loss) | 37.56 | 8.68 | 3.23 | 10.00 | (0.57 | ) | |||||||||||||||||
Total from Investment Operations | 37.18 | 8.47 | 3.02 | 9.81 | (0.66 | ) | |||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Realized Gain | (5.60 | ) | (1.91 | ) | (6.96 | ) | (2.58 | ) | (4.68 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 65.09 | $ | 33.51 | $ | 26.95 | $ | 30.89 | $ | 23.66 | |||||||||||||
Total Return(3) | 116.76 | % | 31.47 | % | 7.30 | % | 42.82 | % | (1.92 | )% | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 388,580 | $ | 213,760 | $ | 139,300 | $ | 124,268 | $ | 80,081 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 0.99 | % | 1.03 | % | N/A | 1.06 | % | 1.04 | % | ||||||||||||||
Ratio of Expenses After Expense Limitation | 0.81 | %(4) | 0.86 | %(4)(5) | 1.04 | %(4) | 1.04 | %(4) | 1.01 | %(4) | |||||||||||||
Ratio of Net Investment Loss | (0.80 | )%(4) | (0.66 | )%(4) | (0.64 | )%(4) | (0.68 | )%(4) | (0.36 | )%(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.01 | % | 0.01 | % | 0.00 | %(6) | 0.01 | % | 0.00 | %(6) | |||||||||||||
Portfolio Turnover Rate | 55 | % | 95 | % | 56 | % | 54 | % | 39 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation would have been 0.03% higher and the Ratio of Net Investment Loss would have been 0.03% lower had the custodian not reimbursed the Fund.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Loss reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective April 29, 2019, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.82% for Class II shares. Prior to April 29, 2019, the maximum ratio was 1.05% for Class II shares.
(6) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the Growth Portfolio. The Fund seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of large capitalization companies. The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
On April 26, 2019, the Fund acquired the net assets of Morgan Stanley Variable Investment Series Multi Cap Growth ("Multi Cap Growth"), an open-end investment company, based on the respective valuations as of the close of business on April 26, 2019, pursuant to a Plan of Reorganization approved by the shareholders of Multi Cap Growth on February 6, 2019 ("Reorganization"). The purpose of the transaction was to combine two portfolios managed by Morgan Stanley Investment Management Inc., (the "Adviser") with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 6,914,222 Class I shares of the Fund at a net asset value ("NAV") of $35.45 for 6,427,253 Class X shares of Multi Cap Growth; 1,840,161 Class II shares of the Fund at a NAV of $33.35 for 1,745,017 Class Y shares of Multi Cap Growth. The net assets of Multi Cap Growth before the Reorganization were approximately $306,479,000, including unrealized appreciation (depreciation) of approximately $84,991,000 at April 26, 2019. The investment portfolio of Multi Cap Growth, with a fair value of approximately $306,245,000 and identified cost of approximately $221,254,000, on April 26, 2019, was the principal asset acquired by the Fund. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from Multi Cap Growth was carried forward to align ongoing reporting of the Fund's realized and unrealized gains and losses with amounts distributable to
shareholders for tax purposes. Immediately prior to the Reorganization, the net assets of the Fund were approximately $309,573,000. Immediately after the Reorganization, the net assets of the Fund were approximately $616,052,000.
Upon closing of the Reorganization, shareholders of Multi Cap Growth received shares of the Fund as follows:
Multi Cap Growth | Growth Portfolio | ||||||
Class X | Class I | ||||||
Class Y | Class II |
Assuming the acquisition had been completed on January 1, 2019, the beginning of the annual reporting period of the Fund, the Fund's pro-forma results of operations for the period ended December 31, 2019, are approximately as follows:
Net investment loss(1) | $ | (1,530,000 | ) | ||||
Net realized gain and unrealized gain(2) | $ | 217,538,000 | |||||
Net increase in net assets resulting from operations | $ | 216,008,000 |
(1) Approximately $(2,479,000) as reported, plus approximately $388,000 from Multi Cap Growth prior to the Reorganization, plus approximately $561,000 of estimated pro-forma eliminated expenses.
(2) Approximately $100,979,000 as reported, plus approximately $116,559,000 from Multi Cap Growth prior to the Reorganization.
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Multi Cap Growth that have been included in the Fund's Statement of Operations since April 26, 2019.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) listed options are valued at the last reported sales price on the exchange on which they are listed (or at the exchange official closing price if such exchange reports an official closing price). If an official closing price or last reported sales price is unavailable, the listed option should be fair valued at the mean between its latest bid and ask prices. Unlisted options are valued at the mean between their latest bid and ask prices from a broker/dealer or valued by a pricing service/vendor; (4) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If the Adviser, a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a
price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (5) when market quotations are not readily available, including circumstances under which the Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (6) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE; and (7) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Biotechnology | $ | 8,962 | $ | — | $ | — | $ | 8,962 | |||||||||||
Entertainment | 65,452 | — | — | 65,452 | |||||||||||||||
Food & Staples Retailing | 11,723 | — | — | 11,723 | |||||||||||||||
Health Care Equipment & Supplies | 60,278 | — | — | 60,278 | |||||||||||||||
Health Care Providers & Services | 11,411 | — | — | 11,411 | |||||||||||||||
Health Care Technology | 41,424 | — | 1,982 | 43,406 | |||||||||||||||
Hotels, Restaurants & Leisure | 6,523 | — | — | 6,523 | |||||||||||||||
Information Technology Services | 232,189 | 16,530 | — | 248,719 | |||||||||||||||
Interactive Media & Services | 167,340 | — | — | 167,340 | |||||||||||||||
Internet & Direct Marketing Retail | 119,907 | — | — | 119,907 | |||||||||||||||
Life Sciences Tools & Services | 31,650 | — | — | 31,650 | |||||||||||||||
Metals & Mining | 1,181 | — | — | 1,181 | |||||||||||||||
Oil, Gas & Consumable Fuels | 2,036 | — | — | 2,036 | |||||||||||||||
Pharmaceuticals | 10,055 | — | — | 10,055 | |||||||||||||||
Road & Rail | 53,369 | — | — | 53,369 | |||||||||||||||
Semiconductors & Semiconductor Equipment | 17,230 | — | — | 17,230 | |||||||||||||||
Software | 125,924 | — | — | 125,924 | |||||||||||||||
Specialty Retail | 31,886 | — | — | 31,886 | |||||||||||||||
Total Common Stocks | 998,540 | 16,530 | 1,982 | 1,017,052 |
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Preferred Stocks | |||||||||||||||||||
Electronic Equipment, Instruments & Components | $ | — | $ | — | $ | — | † | $ | — | † | |||||||||
Internet & Direct Marketing Retail | — | 20,394 | — | 20,394 | |||||||||||||||
Software | — | — | 439 | 439 | |||||||||||||||
Total Preferred Stocks | — | 20,394 | 439 | † | 20,833 | † | |||||||||||||
Call Options Purchased | — | 756 | — | 756 | |||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 72,673 | — | — | 72,673 | |||||||||||||||
Total Assets | $ | 1,071,213 | $ | 37,680 | $ | 2,421 | † | $ | 1,111,314 | † |
† Includes a security valued at zero.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Common Stock (000) | Preferred Stocks (000) | ||||||||||
Beginning Balance | $ | 1,511 | $ | 11,897 | |||||||
Purchases | — | — | |||||||||
Sales | — | — | |||||||||
Amortization of discount | — | — | |||||||||
Transfers in | — | — | |||||||||
Transfers out | — | (9,919 | )†† | ||||||||
Corporate actions | — | — | |||||||||
Change in unrealized appreciation (depreciation) | 471 | (1,539 | ) | ||||||||
Realized gains (losses) | — | — | |||||||||
Ending Balance | $ | 1,982 | $ | 439 | † | ||||||
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2020 | $ | 471 | $ | (1,539 | ) |
† Includes a security valued at zero.
†† A security transferred out of level 3 due to an Initial Public Offering.
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of December 31, 2020. Various valuation techniques were used in the valuation of certain investments and weighted based on the level of significance. The Fund calculated the weighted averages of the unobservable inputs relative to each investment's fair value as of December 31, 2020.
Fair Value at December 31, 2020 (000) | Valuation Technique | Unobservable Input | Amount* | Impact to Valuation from an Increase in Input** | |||||||||||||||||||
Common Stock | $ | 1,982 | Discounted Cash Flow | Weighted Average Cost of Capital | 13.0 | % | Decrease | ||||||||||||||||
Perpetual Growth Rate | 3.5 | % | Increase | ||||||||||||||||||||
Market Comparable Companies | Enterprise Value/ Revenue | 1.3 | x | Increase | |||||||||||||||||||
Discount for Lack of Marketability | 13.0 | % | Decrease | ||||||||||||||||||||
Preferred Stock | $ | 439 | Discounted Cash Flow | Weighted Average Cost of Capital | 14.5 | % | Decrease | ||||||||||||||||
Perpetual Growth Rate | 3.5 | % | Increase | ||||||||||||||||||||
Market Comparable Companies | Enterprise Value/ Revenue | 5.0 | x | Increase | |||||||||||||||||||
Discount for Lack of Marketability | 15.0 | % | Decrease | ||||||||||||||||||||
Comparable Transactions | Enterprise Value/ Revenue | 4.0 | x | Increase |
* Amount is indicative of the weighted average.
** Represents the expected directional change in the fair value of the Level 3 investments that would result from an increase in the corresponding input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs could result in significantly higher or lower fair value measurements.
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
3. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange
rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
4. Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Fund's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission ("SEC") rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives to further the Fund's investment objectives, there is no assurance that the use of derivatives will achieve this result.
Following is a description of the derivative instruments and techniques that the Fund used during the period and their associated risks:
Options: With respect to options, the Fund is subject to equity risk, interest rate risk and foreign currency exchange risk in the normal course of pursuing its investment objectives. If the Fund buys an option, it buys a legal contract giving it the right to buy or sell a specific amount of the underlying instrument or foreign currency, or futures contract on the underlying instrument or foreign currency, at an agreed-upon price during a period of time or on a specified date typically in exchange for a premiums paid by the Fund. The Fund may purchase and/or sell put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying (or similar) instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying (or similar) instrument. When entering into purchased option contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the purchased option contracts; however the risk of loss is limited to the premium paid. Purchased options are reported as part of "Total Investments in Securities" in the Statement of Assets and Liabilities. Premiums paid for purchasing options which expired are treated as realized losses. If the Fund sells an option, it sells to another party the right to buy from or sell to the Fund a specific amount of the underlying instrument or foreign currency, or futures contract on the underlying instrument or foreign currency, at an agreed-upon price during a period of time or on a specified date typically in exchange for a premium received
by the Fund. When options are purchased OTC, the Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. Options may also be illiquid and the Fund may have difficulty closing out its position. A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well-conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.
FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The following table sets forth the fair value of the Fund's derivative contracts by primary risk exposure as of December 31, 2020:
Asset Derivatives Statement of Assets and Liabilities Location | Primary Risk Exposure | Value (000) | |||||||||||||
Purchased Options | Investments, at Value (Purchased Options) | Currency Risk | $ | 756 | (a) |
(a) Amounts are included in Investments in Securities in the Statement of Assets and Liabilities.
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the year ended December 31, 2020 in accordance with ASC 815:
Realized Gain (Loss) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Investments (Purchased Options) | $ | (1,781 | )(b) |
(b) Amounts are included in Investments Sold in the Statement of Operations.
Change in Unrealized Appreciation (Depreciation) | |||||||||||
Primary Risk Exposure | Derivative Type | Value (000) | |||||||||
Currency Risk | Investments (Purchased Options) | $ | (1,887 | )(c) |
(c) Amounts are included in Investments in the Statement of Operations.
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
At December 31, 2020, the Fund's derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities | |||||||||||
Derivatives | Assets(d) (000) | Liabilities(d) (000) | |||||||||
Purchased Options | $ | 756 | (a) | $ | — |
(a) Amounts are included in Investments in Securities in the Statement of Assets and Liabilities.
(d) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Fund exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of the Fund's net liability may be delayed or denied.
The following table presents derivative financial instruments that are subject to enforceable netting arrangements as of December 31, 2020:
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | Gross Asset Derivatives Presented in the Statement of Assets and Liabilities(a) (000) | Financial Instrument (000) | Collateral Received(e) (000) | Net Amount (not less than $0) (000) | |||||||||||||||
BNP Paribas | $ | 635 | $ | — | $ | (635 | ) | $ | 0 | ||||||||||
Royal Bank of Scotland | 121 | — | (121 | ) | 0 | ||||||||||||||
Total | $ | 756 | $ | — | $ | (756 | ) | $ | 0 |
(a) Amounts are included in Investments in Securities in the Statement of Assets and Liabilities.
(e) In some instances, the actual collateral received may be more than the amount shown here due to overcollateralization.
For the year ended December 31, 2020, the approximate average monthly amount outstanding for each derivative type is as follows:
Purchased Options: | |||||||
Average monthly notional amount | 517,462,000 |
5. Restricted Securities: The Fund invests in unregistered or otherwise restricted securities. The term "restricted securities" refers to securities that are unregistered or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale. As a result, restricted securities may be more difficult to value and the Fund may have difficulty disposing of such assets either in a timely manner or for a reasonable price. In order to dispose of an unregistered security, the Fund, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered so that the Fund can sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and the acquirer of the securities. The Fund would, in either case, bear market risks during that period. Restricted securities are identified in the Portfolio of Investments.
6. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
7. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
8. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $1 billion | Next $1 billion | Next $1 billion | Over $3 billion | ||||||||||||
0.50 | % | 0.45 | % | 0.40 | % | 0.35 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.32% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.57% for Class I shares and 0.82% for Class II shares. The fee waivers and/or expense reimbursements will
continue for at least two years from the date of the Reorganization or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $1,432,000 of advisory fees were waived pursuant to this arrangement.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $439,902,000 and $662,074,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $45,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 5,219 | $ | 370,175 | $ | 302,721 | $ | 43 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) |
Liquidity Funds | $ | — | $ | — | $ | 72,673 |
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund engaged in cross-trade sales of approximately
$25,191,000, which resulted in net realized gains of approximately $24,031,000.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to short-term capital gains being treated as ordinary income for
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2019 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 13,028 | $ | 77,000 | $ | — | $ | 33,200 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
The Fund had no permanent differences causing reclassifications among the components of net assets for the year ended December 31, 2020.
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 34,650 | $ | 250,363 |
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 69.1%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to
the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
Growth Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Growth Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Growth Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020.
The Fund designated and paid approximately $77,000,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
25
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
26
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
27
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
28
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFCGANN
3386948 EXP 02.28.22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
U.S. Real Estate Portfolio
The Fund is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Table of Contents
Expense Example | 2 | ||||||
Investment Overview | 3 | ||||||
Portfolio of Investments | 5 | ||||||
Statement of Assets and Liabilities | 7 | ||||||
Statement of Operations | 8 | ||||||
Statements of Changes in Net Assets | 9 | ||||||
Financial Highlights | 10 | ||||||
Notes to Financial Statements | 12 | ||||||
Report of Independent Registered Public Accounting Firm | 18 | ||||||
Liquidity Risk Management Program | 19 | ||||||
Federal Tax Notice | 20 | ||||||
Director and Officer Information | 21 |
1
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Expense Example (unaudited)
U.S. Real Estate Portfolio
As a shareholder of the U.S. Real Estate Portfolio (the "Fund"), you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution (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.
This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2020 and held for the entire six-month period.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and 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 costs 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 insurance company charges. Therefore, the table below is useful in comparing ongoing costs, but will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
Beginning Account Value 7/1/20 | Actual Ending Account Value 12/31/20 | Hypothetical Ending Account Value | Actual Expenses Paid During Period* | Hypothetical Expenses Paid During Period* | Net Expense Ratio During Period** | ||||||||||||||||||||||
U.S. Real Estate Portfolio Class I | $ | 1,000.00 | $ | 1,141.80 | $ | 1,021.01 | $ | 4.41 | $ | 4.17 | 0.82 | % | |||||||||||||||
U.S. Real Estate Portfolio Class II | 1,000.00 | 1,140.20 | 1,019.76 | 5.76 | 5.43 | 1.07 |
* Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/366 (to reflect the most recent one-half year period).
** Annualized.
2
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited)
U.S. Real Estate Portfolio
The Fund seeks to provide above average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts ("REITs").
Performance
For the fiscal year ended December 31, 2020, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of -16.85%, net of fees, and -17.10%, net of fees, for Class II shares. The Fund's Class I and Class II shares underperformed the Fund's benchmark, the FTSE Nareit (National Association of Real Estate Investment Trusts) Equity REITs Index (the "Index"), which returned -8.00%, and underperformed the S&P 500® Index, which returned 18.40%.
Factors Affecting Performance
• U.S. real estate securities declined during 2020 as the impacts of COVID-19 and the widespread economic and social shutdowns experienced in the country disproportionately impacted fundamentals for the property sector. Real estate securities did recover throughout the year, as markets responded positively to fiscal and monetary stimulus policies. Additionally, the sector was supported by relatively stable earnings and dividends and improving rent collection data. Importantly, real estate posted strong gains in the fourth quarter of 2020, after a strong rally in November on news that the Pfizer-BioNTech and Moderna vaccines were over 90% effective in preventing COVID-19.
• The largest declines for the year were experienced in the retail, hotel and office property sectors.
• Retail real estate experienced a pullback for the year given the direct impact social distancing and quarantining measures have had on earnings. The retail sector underperformed as malls declined 37.5% and shopping centers declined 27.7% for the full year.i The temporary closure of a significant faction of retail real estate impaired cash rent collections. Additionally, the strain that the pandemic has placed on retail tenants has called into question the solvency of such tenants going forward, leading to greater uncertainty in cash flow projections for retail landlords.
• The Fund's security selection and overweight allocation to regional malls detracted from performance for the year. However, the underweight to shopping centers overall,
coupled with positive security selection contributed to performance for the Fund.
• Office real estate also underperformed for the year, as growing uncertainty regarding the potential structural impact of the work-from-home theme impacted the sector. Despite this increased uncertainty, office companies have continued to have high rent collections and limited tenant bankruptcies.
• Within office, primary central business district (CBD) offices declined 22.0%, and secondary CBD/suburban offices declined 15.6%.i The Fund's overweight allocation to offices detracted from performance. Stock selection in the office sector also detracted from performance.
• Hotel stocks underperformed for the year (-25.8%) due to a significant decline in demand stemming from a pullback in both business and leisure travel as a result of the pandemic. Despite this headwind, the Fund's positions in select hotel companies favorably contributed to performance.
• Data centers and industrial were top performers over the course of the year, returning 21% and 13%, respectively.i Both of these sectors benefited from increased demand as a result of the COVID-19 pandemic stemming from the increased need for digital infrastructure and e-commerce fulfillment. An underweight in data centers detracted from performance.
• Despite an underweight position in the industrial sector detracting from the Fund's performance, favorable security selection was additive for the year.
Management Strategies
• While real estate securities posted a negative return for the year, recent market strength in the asset class is supported by a number of macro and fundamental factors, including continued monetary stimulus, vaccine discovery and clarity on the timeline for successful vaccine dissemination and the reopening of economies. Additionally, the relative valuation of real estate securities is attractive compared to investable alternatives including the broader equity market, fixed income and direct property investment.
• For these reasons, we have a favorable outlook for real estate over the next year, however, continue to believe active management with a keen focus on relative value is important.
(i) Returns provided are a sub-segment of the FTSE Nareit Equity REITs Index. Data as of December 31, 2020.
3
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Investment Overview (unaudited) (cont'd)
U.S. Real Estate Portfolio
• The investment philosophy of the Fund has evolved to incorporate equity multiples and cash flow growth estimates, in addition to the more traditional net asset value approach. By incorporating both an equity market valuation and more traditional real estate valuation, we believe the Fund will be better prepared to identify securities with the best expected total returns.
In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class II shares will vary from the performance of Class I shares based upon its different inception date and will be negatively impacted by additional fees assessed to that class.
Performance Compared to the FTSE Nareit Equity REITs Index(1) and the S&P 500® Index(2)
Period Ended December 31, 2020 | |||||||||||||||||||
Total Returns(3) | |||||||||||||||||||
Average Annual | |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(6) | ||||||||||||||||
Fund – Class I(4) | –16.85 | % | 0.10 | % | 5.25 | % | 8.06 | % | |||||||||||
FTSE Nareit Equity REITs Index | –8.00 | 4.77 | 8.31 | 8.71 | |||||||||||||||
S&P 500® Index | 18.40 | 15.22 | 13.88 | 8.76 | |||||||||||||||
Fund – Class II(5) | –17.10 | –0.15 | 4.99 | 8.34 | |||||||||||||||
FTSE Nareit Equity REITs Index | –8.00 | 4.77 | 8.31 | 9.70 | |||||||||||||||
S&P 500® Index | 18.40 | 15.22 | 13.88 | 10.31 |
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. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please contact the issuing insurance company or speak with your financial advisor. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance shown does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would be lower.
(1) The FTSE Nareit (National Association of Real Estate Investment Trusts) Equity REITs Index is free float-adjusted market capitalization weighted index of tax-qualified REITs listed on the New York Stock Exchange, NYSE Amex and the NASDAQ National Market Systems. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) The Standard and Poor's 500® Index (S&P 500® Index) measures the performance of the large cap segment of the U.S. equities market, covering approximately 80% of the U.S. equities market. The Index includes 500 leading companies in leading industries of the U.S. economy. The Index is unmanaged and its 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) Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.
(4) Commenced operations on March 3, 1997.
(5) Commenced offering on November 5, 2002.
(6) For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date or initial offering of the respective share class of the Fund, not the inception of the Index.
4
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments
U.S. Real Estate Portfolio
Shares | Value (000) | ||||||||||
Common Stocks (97.5%) | |||||||||||
Apartments (15.7%) | |||||||||||
American Campus Communities, Inc. REIT | 90,246 | $ | 3,860 | ||||||||
Apartment Income Corp. REIT (a) | 93,116 | 3,577 | |||||||||
AvalonBay Communities, Inc. REIT | 113,054 | 18,137 | |||||||||
Camden Property Trust REIT | 78,205 | 7,814 | |||||||||
Equity Residential REIT | 248,522 | 14,733 | |||||||||
Essex Property Trust, Inc. REIT | 26,604 | 6,316 | |||||||||
UDR, Inc. REIT | 56,938 | 2,188 | |||||||||
56,625 | |||||||||||
Data Centers (9.7%) | |||||||||||
Digital Realty Trust, Inc. REIT | 133,666 | 18,648 | |||||||||
Equinix, Inc. REIT | 20,192 | 14,421 | |||||||||
QTS Realty Trust, Inc., Class A REIT | 30,320 | 1,876 | |||||||||
34,945 | |||||||||||
Diversified (4.7%) | |||||||||||
JBG SMITH Properties REIT | 210,408 | 6,580 | |||||||||
Mack-Cali Realty Corp. REIT | 259,458 | 3,233 | |||||||||
VEREIT, Inc. REIT | 189,264 | 7,152 | |||||||||
16,965 | |||||||||||
Free Standing (1.4%) | |||||||||||
NETSTREIT Corp. REIT | 265,140 | 5,168 | |||||||||
Health Care (11.9%) | |||||||||||
Healthcare Realty Trust, Inc. REIT | 269,990 | 7,992 | |||||||||
Healthcare Trust of America, Inc., Class A REIT | 118,352 | 3,259 | |||||||||
Healthpeak Properties, Inc. REIT | 336,298 | 10,166 | |||||||||
Medical Properties Trust, Inc. REIT | 297,431 | 6,481 | |||||||||
Sabra Health Care, Inc. REIT | 146,594 | 2,546 | |||||||||
Ventas, Inc. REIT | 176,213 | 8,642 | |||||||||
Welltower, Inc. REIT | 56,860 | 3,674 | |||||||||
42,760 | |||||||||||
Industrial (11.1%) | |||||||||||
Duke Realty Corp. REIT | 90,779 | 3,628 | |||||||||
First Industrial Realty Trust, Inc. REIT | 29,899 | 1,260 | |||||||||
Granite REIT (Canada) | 31,633 | 1,936 | |||||||||
ProLogis, Inc. REIT | 331,761 | 33,063 | |||||||||
39,887 | |||||||||||
Lodging/Resorts (6.0%) | |||||||||||
Host Hotels & Resorts, Inc. REIT | 618,689 | 9,051 | |||||||||
RLJ Lodging Trust REIT | 286,622 | 4,056 | |||||||||
Sunstone Hotel Investors, Inc. REIT | 740,492 | 8,390 | |||||||||
21,497 | |||||||||||
Manufactured Homes (1.5%) | |||||||||||
Equity Lifestyle Properties, Inc. REIT | 88,000 | 5,576 | |||||||||
Office (12.5%) | |||||||||||
Alexandria Real Estate Equities, Inc. REIT | 33,390 | 5,951 | |||||||||
Boston Properties, Inc. REIT | 111,833 | 10,571 | |||||||||
Cousins Properties, Inc. REIT | 158,247 | 5,301 | |||||||||
Douglas Emmett, Inc. REIT | 61,208 | 1,786 | |||||||||
Highwoods Properties, Inc. REIT | 32,290 | 1,280 |
Shares | Value (000) | ||||||||||
Hudson Pacific Properties, Inc. REIT | 349,577 | $ | 8,397 | ||||||||
Kilroy Realty Corp. REIT | 74,396 | 4,270 | |||||||||
SL Green Realty Corp. REIT | 123,310 | 7,347 | |||||||||
44,903 | |||||||||||
Regional Malls (5.0%) | |||||||||||
Simon Property Group, Inc. REIT | 209,690 | 17,882 | |||||||||
Self Storage (7.2%) | |||||||||||
CubeSmart REIT | 234,700 | 7,888 | |||||||||
Public Storage REIT | 78,250 | 18,070 | |||||||||
25,958 | |||||||||||
Shopping Centers (5.1%) | |||||||||||
Brixmor Property Group, Inc. REIT | 389,432 | 6,445 | |||||||||
Regency Centers Corp. REIT | 143,630 | 6,548 | |||||||||
Weingarten Realty Investors REIT | 250,055 | 5,419 | |||||||||
18,412 | |||||||||||
Single Family Homes (4.2%) | |||||||||||
Invitation Homes, Inc. REIT | 504,971 | 14,998 | |||||||||
Specialty (1.5%) | |||||||||||
Gaming and Leisure Properties, Inc. REIT | 127,533 | 5,407 | |||||||||
Total Common Stocks (Cost $272,634) | 350,983 | ||||||||||
Short-Term Investment (1.5%) | |||||||||||
Investment Company (1.5%) | |||||||||||
Morgan Stanley Institutional Liquidity Funds — Treasury Portfolio — Institutional Class (See Note H) (Cost $5,321) | 5,320,846 | 5,321 | |||||||||
Total Investments (99.0%) (Cost $277,955) (b) | 356,304 | ||||||||||
Other Assets in Excess of Liabilities (1.0%) | 3,541 | ||||||||||
Net Assets (100.0%) | $ | 359,845 |
(a) Non-income producing security.
(b) At December 31, 2020, the aggregate cost for federal income tax purposes is approximately $285,228,000. The aggregate gross unrealized appreciation is approximately $74,536,000 and the aggregate gross unrealized depreciation is approximately $3,460,000, resulting in net unrealized appreciation of approximately $71,076,000.
REIT Real Estate Investment Trust.
The accompanying notes are an integral part of the financial statements.
5
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Portfolio of Investments (cont'd)
U.S. Real Estate Portfolio
Portfolio Composition
Classification | Percentage of Total Investments | ||||||
Apartments | 15.9 | % | |||||
Other* | 15.0 | ||||||
Office | 12.6 | ||||||
Health Care | 12.0 | ||||||
Industrial | 11.2 | ||||||
Data Centers | 9.8 | ||||||
Self Storage | 7.3 | ||||||
Lodging/Resorts | 6.0 | ||||||
Shopping Centers | 5.2 | ||||||
Regional Malls | 5.0 | ||||||
Total Investments | 100.0 | % |
* Industries and/or investment types representing less than 5% of total investments.
The accompanying notes are an integral part of the financial statements.
6
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
U.S. Real Estate Portfolio
Statement of Assets and Liabilities | December 31, 2020 (000) | ||||||
Assets: | |||||||
Investments in Securities of Unaffiliated Issuers, at Value (Cost $272,634) | $ | 350,983 | |||||
Investment in Security of Affiliated Issuer, at Value (Cost $5,321) | 5,321 | ||||||
Total Investments in Securities, at Value (Cost $277,955) | 356,304 | ||||||
Foreign Currency, at Value (Cost $5) | 5 | ||||||
Dividends Receivable | 2,355 | ||||||
Receivable for Investments Sold | 2,337 | ||||||
Receivable for Fund Shares Sold | 127 | ||||||
Receivable from Affiliate | — | @ | |||||
Other Assets | 31 | ||||||
Total Assets | 361,159 | ||||||
Liabilities: | |||||||
Payable for Fund Shares Redeemed | 592 | ||||||
Payable for Advisory Fees | 452 | ||||||
Payable for Servicing Fees | 132 | ||||||
Payable for Distribution Fees — Class II Shares | 41 | ||||||
Payable for Administration Fees | 25 | ||||||
Payable for Professional Fees | 17 | ||||||
Payable for Custodian Fees | 5 | ||||||
Payable for Transfer Agency Fees | 3 | ||||||
Other Liabilities | 47 | ||||||
Total Liabilities | 1,314 | ||||||
NET ASSETS | $ | 359,845 | |||||
Net Assets Consist of: | |||||||
Paid-in-Capital | $ | 317,268 | |||||
Total Distributable Earnings | 42,577 | ||||||
Net Assets | $ | 359,845 | |||||
CLASS I: | |||||||
Net Assets | $ | 169,291 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 9,883,765 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 17.13 | |||||
CLASS II: | |||||||
Net Assets | $ | 190,554 | |||||
Net Asset Value, Offering and Redemption Price Per Share Applicable to 11,188,357 Outstanding $0.001 Par Value Shares (Authorized 500,000,000 Shares) | $ | 17.03 |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
7
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
U.S. Real Estate Portfolio
Statement of Operations | Year Ended December 31, 2020 (000) | ||||||
Investment Income: | |||||||
Dividends from Securities of Unaffiliated Issuers (Net of $2 of Foreign Taxes Withheld) | $ | 9,938 | |||||
Dividends from Security of Affiliated Issuer (Note H) | 12 | ||||||
Total Investment Income | 9,950 | ||||||
Expenses: | |||||||
Advisory Fees (Note B) | 2,407 | ||||||
Servicing Fees (Note D) | 502 | ||||||
Distribution Fees — Class II Shares (Note E) | 457 | ||||||
Administration Fees (Note C) | 275 | ||||||
Professional Fees | 109 | ||||||
Shareholder Reporting Fees | 51 | ||||||
Custodian Fees (Note G) | 17 | ||||||
Transfer Agency Fees (Note F) | 14 | ||||||
Directors' Fees and Expenses | 10 | ||||||
Pricing Fees | 3 | ||||||
Other Expenses | 16 | ||||||
Total Expenses | 3,861 | ||||||
Waiver of Advisory Fees (Note B) | (586 | ) | |||||
Rebate from Morgan Stanley Affiliate (Note H) | (12 | ) | |||||
Net Expenses | 3,263 | ||||||
Net Investment Income | 6,687 | ||||||
Realized Loss: | |||||||
Investments Sold | (36,827 | ) | |||||
Foreign Currency Translation | (1 | ) | |||||
Net Realized Loss | (36,828 | ) | |||||
Change in Unrealized Appreciation (Depreciation): | |||||||
Investments | (37,337 | ) | |||||
Foreign Currency Translation | — | @ | |||||
Net Change in Unrealized Appreciation (Depreciation) | (37,337 | ) | |||||
Net Realized Loss and Change in Unrealized Appreciation (Depreciation) | (74,165 | ) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (67,478 | ) |
@ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
8
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
U.S. Real Estate Portfolio
Statements of Changes in Net Assets | Year Ended December 31, 2020 (000) | Year Ended December 31, 2019 (000) | |||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net Investment Income | $ | 6,687 | $ | 9,607 | |||||||
Net Realized Gain (Loss) | (36,828 | ) | 13,948 | ||||||||
Net Change in Unrealized Appreciation (Depreciation) | (37,337 | ) | 49,796 | ||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (67,478 | ) | 73,351 | ||||||||
Dividends and Distributions to Shareholders: | |||||||||||
Class I | (9,097 | ) | (11,305 | ) | |||||||
Class II | (9,892 | ) | (12,425 | ) | |||||||
Total Dividends and Distributions to Shareholders | (18,989 | ) | (23,730 | ) | |||||||
Capital Share Transactions:(1) | |||||||||||
Class I: | |||||||||||
Subscribed | 28,573 | 15,265 | |||||||||
Distributions Reinvested | 9,097 | 11,305 | |||||||||
Redeemed | (28,557 | ) | (34,028 | ) | |||||||
Class II: | |||||||||||
Subscribed | 28,140 | 13,892 | |||||||||
Distributions Reinvested | 9,892 | 12,425 | |||||||||
Redeemed | (29,553 | ) | (43,241 | ) | |||||||
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | 17,592 | (24,382 | ) | ||||||||
Total Increase (Decrease) in Net Assets | (68,875 | ) | 25,239 | ||||||||
Net Assets: | |||||||||||
Beginning of Period | 428,720 | 403,481 | |||||||||
End of Period | $ | 359,845 | $ | 428,720 | |||||||
(1) Capital Share Transactions: | |||||||||||
Class I: | |||||||||||
Shares Subscribed | 1,848 | 703 | |||||||||
Shares Issued on Distributions Reinvested | 616 | 531 | |||||||||
Shares Redeemed | (1,728 | ) | (1,572 | ) | |||||||
Net Increase (Decrease) in Class I Shares Outstanding | 736 | (338 | ) | ||||||||
Class II: | |||||||||||
Shares Subscribed | 1,846 | 642 | |||||||||
Shares Issued on Distributions Reinvested | 673 | 587 | |||||||||
Shares Redeemed | (1,795 | ) | (2,015 | ) | |||||||
Net Increase (Decrease) in Class II Shares Outstanding | 724 | (786 | ) |
The accompanying notes are an integral part of the financial statements.
9
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
U.S. Real Estate Portfolio
Class I | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 21.93 | $ | 19.52 | $ | 21.72 | $ | 21.39 | $ | 20.28 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.35 | 0.51 | 0.51 | 0.45 | 0.35 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | (4.20 | ) | 3.15 | (2.13 | ) | 0.20 | 1.04 | ||||||||||||||||
Total from Investment Operations | (3.85 | ) | 3.66 | (1.62 | ) | 0.65 | 1.39 | ||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.48 | ) | (0.42 | ) | (0.58 | ) | (0.32 | ) | (0.28 | ) | |||||||||||||
Net Realized Gain | (0.47 | ) | (0.83 | ) | — | — | — | ||||||||||||||||
Total Distributions | (0.95 | ) | (1.25 | ) | (0.58 | ) | (0.32 | ) | (0.28 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 17.13 | $ | 21.93 | $ | 19.52 | $ | 21.72 | $ | 21.39 | |||||||||||||
Total Return(3) | (16.85 | )% | 18.94 | % | (7.71 | )% | 3.11 | % | 6.81 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 169,291 | $ | 200,635 | $ | 185,191 | $ | 228,487 | $ | 251,517 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 0.99 | % | 0.97 | % | 1.03 | % | 1.07 | % | 1.06 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 0.82 | %(4) | 0.82 | %(4) | 0.86 | %(4)(5) | 0.92 | %(4)(6) | 0.97 | %(4)(7) | |||||||||||||
Ratio of Net Investment Income | 2.07 | %(4) | 2.36 | %(4) | 2.47 | %(4) | 2.13 | %(4) | 1.66 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(8) | 0.00 | %(8) | 0.00 | %(8) | 0.00 | %(8) | 0.01 | % | |||||||||||||
Portfolio Turnover Rate | 50 | % | 20 | % | 40 | % | 44 | % | 21 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class I shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective July 1, 2018, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.82% for Class I shares. Prior to July 1, 2018, the maximum ratio was 0.90% for Class I shares.
(6) Effective July 1, 2017, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.90% for Class I shares. Prior to July 1, 2017, the maximum ratio was 0.95% for Class I shares.
(7) Effective July 1, 2016, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.95% for Class I shares. Prior to July 1, 2016, the maximum ratio was 1.00% for Class I shares.
(8) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
10
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Financial Highlights
U.S. Real Estate Portfolio
Class II | |||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
Selected Per Share Data and Ratios | 2020 | 2019 | 2018 | 2017 | 2016(1) | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 21.80 | $ | 19.40 | $ | 21.59 | $ | 21.26 | $ | 20.16 | |||||||||||||
Income (Loss) from Investment Operations: | |||||||||||||||||||||||
Net Investment Income(2) | 0.30 | 0.45 | 0.46 | 0.40 | 0.29 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | (4.17 | ) | 3.14 | (2.13 | ) | 0.20 | 1.04 | ||||||||||||||||
Total from Investment Operations | (3.87 | ) | 3.59 | (1.67 | ) | 0.60 | 1.33 | ||||||||||||||||
Distributions from and/or in Excess of: | |||||||||||||||||||||||
Net Investment Income | (0.43 | ) | (0.36 | ) | (0.52 | ) | (0.27 | ) | (0.23 | ) | |||||||||||||
Net Realized Gain | (0.47 | ) | (0.83 | ) | — | — | — | ||||||||||||||||
Total Distributions | (0.90 | ) | (1.19 | ) | (0.52 | ) | (0.27 | ) | (0.23 | ) | |||||||||||||
Net Asset Value, End of Period | $ | 17.03 | $ | 21.80 | $ | 19.40 | $ | 21.59 | $ | 21.26 | |||||||||||||
Total Return(3) | (17.10 | )% | 18.68 | % | (7.97 | )% | 2.87 | % | 6.55 | % | |||||||||||||
Ratios to Average Net Assets and Supplemental Data: | |||||||||||||||||||||||
Net Assets, End of Period (Thousands) | $ | 190,554 | $ | 228,085 | $ | 218,290 | $ | 283,481 | $ | 298,254 | |||||||||||||
Ratio of Expenses Before Expense Limitation | 1.24 | % | 1.22 | % | 1.28 | % | 1.32 | % | 1.31 | % | |||||||||||||
Ratio of Expenses After Expense Limitation | 1.07 | %(4) | 1.07 | %(4) | 1.11 | %(4)(5) | 1.17 | %(4)(6) | 1.22 | %(4)(7) | |||||||||||||
Ratio of Net Investment Income | 1.82 | %(4) | 2.11 | %(4) | 2.22 | %(4) | 1.88 | %(4) | 1.41 | %(4) | |||||||||||||
Ratio of Rebate from Morgan Stanley Affiliates | 0.00 | %(8) | 0.00 | %(8) | 0.00 | %(8) | 0.00 | %(8) | 0.01 | % | |||||||||||||
Portfolio Turnover Rate | 50 | % | 20 | % | 40 | % | 44 | % | 21 | % |
(1) Reflects prior period custodian out-of-pocket expenses that were reimbursed in September 2016. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of Class II shares. The Ratio of Expenses After Expense Limitation and the Ratio of Net Investment Income would be unchanged as the reimbursement of custodian fees was offset against expense waivers/reimbursements with no impact to net expenses or net investment income.
(2) Per share amount is based on average shares outstanding.
(3) Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total return would be lower.
(4) The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."
(5) Effective July 1, 2018, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.07% for Class II shares. Prior to July 1, 2018, the maximum ratio was 1.15% for Class II shares.
(6) Effective July 1, 2017, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.15% for Class II shares. Prior to July 1, 2017, the maximum ratio was 1.20% for Class II shares.
(7) Effective July 1, 2016, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.20% for Class II shares. Prior to July 1, 2016, the maximum ratio was 1.25% for Class II shares.
(8) Amount is less than 0.005%.
The accompanying notes are an integral part of the financial statements.
11
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements
Morgan Stanley Variable Insurance Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of ten separate active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance.
The accompanying financial statements relate to the U.S. Real Estate Portfolio. The Fund seeks to provide above average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts ("REITs"). The Fund offers two classes of shares — Class I and Class II. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights.
The Company is intended to be a funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
1. Security Valuation: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such
market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges. If only bid prices are available then the latest bid price may be used. If Morgan Stanley Investment Management Inc. (the "Adviser"), a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor or exchange does not reflect the security's fair value or is unable to provide a price, prices from brokers or dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers or dealers; (4) when market quotations are not readily available, including circumstances under which the Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices 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 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 of the New York Stock Exchange ("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
12
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; and (5) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Directors have responsibility for determining in good faith the fair value of the investments, and the Directors may appoint others, such as the Company's Adviser or a valuation committee, to assist the Directors in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The Fund invests a significant portion of its assets in securities of REITs. The market's perception of prospective declines in private real estate values and other financial assets may result in increased volatility of market prices that can negatively impact the valuation of certain issuers held by the Fund.
2. Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
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 a summary of the inputs used to value the Fund's investments as of December 31, 2020:
Investment Type | Level 1 Unadjusted quoted prices (000) | Level 2 Other significant observable inputs (000) | Level 3 Significant unobservable inputs (000) | Total (000) | |||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Apartments | $ | 56,625 | $ | — | $ | — | $ | 56,625 | |||||||||||
Data Centers | 34,945 | — | — | 34,945 | |||||||||||||||
Diversified | 16,965 | — | — | 16,965 | |||||||||||||||
Free Standing | 5,168 | — | — | 5,168 | |||||||||||||||
Health Care | 42,760 | — | — | 42,760 | |||||||||||||||
Industrial | 39,887 | — | — | 39,887 | |||||||||||||||
Lodging/Resorts | 21,497 | — | — | 21,497 | |||||||||||||||
Manufactured Homes | 5,576 | — | — | 5,576 | |||||||||||||||
Office | 44,903 | — | — | 44,903 | |||||||||||||||
Regional Malls | 17,882 | — | — | 17,882 | |||||||||||||||
Self Storage | 25,958 | — | — | 25,958 | |||||||||||||||
Shopping Centers | 18,412 | — | — | 18,412 | |||||||||||||||
Single Family Homes | 14,998 | — | — | 14,998 | |||||||||||||||
Specialty | 5,407 | — | — | 5,407 | |||||||||||||||
Total Common Stocks | 350,983 | — | — | 350,983 | |||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 5,321 | — | — | 5,321 | |||||||||||||||
Total Assets | $ | 356,304 | $ | — | $ | — | $ | 356,304 |
13
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.
3. Foreign Currency Translation and Foreign Investments: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, 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 fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic instability.
Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Portfolio of Investments) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares.
4. Indemnifications: The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
5. Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Company can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.
The Fund owns shares of REITs which report information on the source of their distributions annually in the following calendar year. A portion of distributions received from REITs during the year is estimated to be a return of capital and is recorded as a reduction of their cost.
6. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment
14
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
B. Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Fund with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at the annual rate based on the daily net assets as follows:
First $500 million | Next $500 million | Over $1 billion | |||||||||
0.70 | % | 0.65 | % | 0.60 | % |
For the year ended December 31, 2020, the advisory fee rate (net of waiver/rebate) was equivalent to an annual effective rate of 0.53% of the Fund's average daily net assets.
The Adviser has agreed to reduce its advisory fee and/or reimburse the Fund so that total annual Fund operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.82% for Class I shares and 1.07% for Class II shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's prospectus or until such time as the Directors act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended December 31, 2020, approximately $586,000 of advisory fees were waived pursuant to this arrangement.
C. Administration Fees: The Adviser also serves as Administrator to the Company and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Fund's average daily net assets.
Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Company. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
D. Servicing Fees: The Company accrues daily and pays quarterly a servicing fee of up to 0.17% of the average daily value of shares of the Fund held in an insurance company's account. Certain insurance companies have entered into a servicing agreement with the Company to provide administrative and other contract-owner related services on behalf of the Fund.
E. Distribution Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser and an indirect subsidiary of Morgan Stanley, serves as the Distributor of the Fund and provides the Fund's Class II shareholders with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1
under the Act. Under the Plan, the Fund is authorized to pay the Distributor a distribution fee, which is accrued daily and paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets attributable to Class II shares.
F. Dividend Disbursing and Transfer Agent: The Company's dividend disbursing and transfer agent is DST Asset Manager Solutions, Inc. ("DST"). Pursuant to a Transfer Agency Agreement, the Company pays DST a fee based on the number of classes, accounts and transactions relating to the Funds of the Company.
G. Custodian Fees: State Street (the "Custodian") also serves as Custodian for the Company in accordance with a Custodian Agreement. The Custodian holds cash, securities and other assets of the Company as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
H. Security Transactions and Transactions with Affiliates: For the year ended December 31, 2020, purchases and sales of investment securities for the Fund, other than long-term U.S. Government securities and short-term investments were approximately $179,935,000 and $167,769,000, respectively. There were no purchases and sales of long-term U.S. Government securities for the year ended December 31, 2020.
The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Treasury Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2020, advisory fees paid were reduced by approximately $12,000 relating to the Fund's investment in the Liquidity Funds.
A summary of the Fund's transactions in shares of affiliated investments during the year ended December 31, 2020 is as follows:
Affiliated Investment Company | Value December 31, 2019 (000) | Purchases at Cost (000) | Proceeds from Sales (000) | Dividend Income (000) | |||||||||||||||
Liquidity Funds | $ | 4,416 | $ | 59,572 | $ | 58,667 | $ | 12 |
Affiliated Investment Company (cont'd) | Realized Gain (Loss) (000) | Change in Unrealized Appreciation (Depreciation) (000) | Value December 31, 2020 (000) | ||||||||||||
Liquidity Funds | $ | — | $ | — | $ | 5,321 |
15
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2020, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Director to defer payment of all, or a portion, of the fees he or she 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 NAV of the Fund.
I. Federal Income Taxes: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2020 remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown for GAAP purposes due to
short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2020 and 2019 was as follows:
2020 Distributions Paid From: | 2019 Distributions Paid From: | ||||||||||||||
Ordinary Income (000) | Long-Term Capital Gain (000) | Ordinary Income (000) | Long-Term Capital Gain (000) | ||||||||||||
$ | 9,512 | $ | 9,477 | $ | 8,744 | $ | 14,986 |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
Permanent differences, due to an adjustment to prior period equalization debits, resulted in the following reclassifications among the components of net assets at December 31, 2020:
Total Distributable Earnings (000) | Paid-in Capital (000) | ||||||
$ | 2 | $ | (2 | ) |
At December 31, 2020, the components of distributable earnings for the Fund on a tax basis were as follows:
Undistributed Ordinary Income (000) | Undistributed Long-Term Capital Gain (000) | ||||||
$ | 7,684 | $ | — |
At December 31, 2020, the Fund had available for federal income tax purposes unused short-term and long-term capital losses of approximately $2,162,000 and $33,996,000, respectively, that do not have an expiration date.
To the extent that capital loss carryforwards are used to offset any future capital gains realized, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders.
J. Credit Facility: The Company and other Morgan Stanley funds participated in a $300,000,000 committed, unsecured revolving line of credit facility (the "Facility") with State Street. This Facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or 1 month LIBOR rate plus a spread. The Facility also has a commitment fee of 0.25% per annum based on the unused
16
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Notes to Financial Statements (cont'd)
portion of the Facility. During the year ended December 31, 2020, the Fund did not have any borrowings under the Facility.
K. Other: At December 31, 2020, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 62.8%.
L. Market Risk: Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak could impact the operations and financial performance of certain of the Fund's investments. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Fund's investments is impacted because of these factors for an extended period, the Fund's investment results may be adversely affected.
17
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Morgan Stanley Variable Insurance Fund, Inc. —
U.S. Real Estate Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of U.S. Real Estate Portfolio (the "Fund") (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc. (the "Company")), including the portfolio of investments, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of U.S. Real Estate Portfolio (one of the funds constituting Morgan Stanley Variable Insurance Fund, Inc.) at December 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Morgan Stanley investment companies since 2000.
Boston, Massachusetts
February 19, 2021
18
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Liquidity Risk Management Program (unaudited)
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the "Liquidity Rule"), the Fund has adopted and implemented a liquidity risk management program (the "Program"), which is reasonably designed to assess and manage the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors' interests in the Fund (i.e., liquidity risk). The Fund's Board of Directors (the "Board") previously approved the designation of the Liquidity Risk Subcommittee (the "LRS") as Program administrator. The LRS is comprised of representatives from various divisions within Morgan Stanley Investment Management.
At a meeting held on April 22-23, 2020, the Board reviewed a written report prepared by the LRS that addressed the Program's operation and assessed its adequacy, and effectiveness of implementation for the period from December 1, 2018, through December 31, 2019, as required under the Liquidity Rule. The report concluded that the Program operated effectively and was adequately and effectively implemented in all material aspects, and that the relevant controls and safeguards were appropriately designed to enable the LRS to administer the Program in compliance with the Liquidity Rule.
In accordance with the Program, the LRS assessed each Fund's liquidity risk no less frequently than annually taking into consideration certain factors, as applicable, such as (i) investment strategy and liquidity of portfolio investments, (ii) short-term and long-term cash flow projections and (iii) holdings of cash and cash equivalents and borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories, which classification is assessed at least monthly by the LRS. The classification is based on a determination of the number of days it is reasonably expected to take to convert the investment into cash, or sell or dispose of the investment, in current market conditions without significantly changing the market value of the investment. Liquidity classification determinations take into account various market, trading and investment-specific considerations, as well as market depth, and in some cases utilize third-party vendor data.
The Liquidity Rule limits a fund's investments in illiquid investments to 15% of its net assets and requires funds that do not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund's net assets to be invested in highly liquid investments (highly liquid investment minimum or "HLIM"). The LRS believes that the Program includes provisions reasonably designed to review, monitor and comply with the 15% limit on illiquid investments and for determining, periodically reviewing and complying with the HLIM requirement, as applicable.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Fund's prospectus for more information regarding the Fund's exposure to liquidity risk and other risks to which it may be subject.
19
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Federal Tax Notice (unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2020. For corporate shareholders 0.02% of the dividends qualified for the dividends received deduction.
The Fund designated and paid approximately $9,477,000 as a long-term capital gain distribution.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
20
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited)
Independent Directors:
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Frank L. Bowman c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1944 | Director | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 79 | Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Trustee of Fairhaven United Methodist Church; Member of the Board of Advisors of the Dolphin Scholarship Foundation; Director of other various non-profit organizations; formerly, Director of BP plc (November 2010-May 2019). | ||||||||||||||||||
Kathleen A. Dennis c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1953 | Director | Since August 2006 | Chairperson of the Governance Committee (January 2021), Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since August 2006); President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 79 | Board Member, University of Albany Foundation (2012-present); Board Member, Mutual Funds Directors Forum (2014-present); Director of various non-profit organizations. | ||||||||||||||||||
Nancy C. Everett c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1955 | Director | Since January 2015 | Chairperson of the Equity Investment Committee (since January 2021); Director or Trustee of various Morgan Stanley Funds (since January 2015); Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 80 | Formerly, Member of Virginia Commonwealth University School of Business Foundation (2005-2016); Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). |
21
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Jakki L. Haussler c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1957 | Director | Since January 2015 | Director or Trustee of various Morgan Stanley Funds (since January 2015) Chairman, Opus Capital Group (1996); formerly, Chief Executive Officer, Opus Capital Group (1996-2019); Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 80 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Chairman, Governance and Nominating Committee; Director of Service Corporation International and Member, Audit Committee and Investment Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008); and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
Dr. Manuel H. Johnson c/o Johnson Smick International, Inc. 220 I Street, NE — Suite 200 Washington, D.C. 20002 Birth Year: 1949 | Director | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee (January 2021), Chairperson of the Investment Committee (2006-2020); and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 79 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
Joseph J. Kearns c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1942 | Director | Since August 1994 | Senior Adviser, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust (1982-1999). | 80 | Director, Rubicon Investment (since February 2019); Prior to August 2016, Director of Electro Rent Corporation (equipment leasing); Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
Michael F. Klein c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1958 | Director | Since August 2006 | Chairperson of the Risk Committee (since January 2021); Managing Director, Aetos Alternatives Management, LP (since March 2000); Co-President, Aetos Alternatives Management, LP (since January 2004) and Co-Chief Executive Officer of Aetos Alternatives Management, LP (since August 2013); Chairperson of the fixed Income Sub-Committee of the Investment committee (2006-2020) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management and President, various Morgan Stanley Funds (June 1998-March 2000); Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 79 | Director of certain investment funds managed or sponsored by Aetos Alternatives Management, LP; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). |
22
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Independent Directors (cont'd):
Name, Address and Birth Year of Independent Director | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Funds in Fund Complex Overseen by Independent Director** | Other Directorships Held by Independent Director*** | ||||||||||||||||||
Patricia Maleski c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1960 | Director | Since January 2017 | Director or Trustee of various Morgan Stanley Funds (since January 2017); Managing Director, JPMorgan Asset Management (2004-2016); Oversight and Control Head of Fiduciary and Conflicts of Interest Program (2015-2016); Chief Control Officer-Global Asset Management (2013-2015); President, JPMorgan Funds (2010-2013); Chief Administrative Officer (2004-2013); various other positions including Treasurer and Board Liaison (since 2001). | 80 | None. | ||||||||||||||||||
W. Allen Reed c/o Perkins Coie LLP Counsel to the Independent Directors 1155 Avenue of the Americas, 22nd Floor New York, NY 10036 Birth Year: 1947 | Chair of the Board and Director | Chair of the Boards since August 2020 and Director since August 2006 | Chair of the Boards of various Morgan Stanley Funds (since August 2020); Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Vice Chair of the Boards of various Morgan Stanley Funds (January 2020-August 2020); President and Chief Executive Officer of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 79 | Formerly, Director of Legg Mason, Inc. (2006-2019); and Director of the Auburn University Foundation (2010-2015). |
* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2020) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.
23
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Director and Officer Information (unaudited) (cont'd)
Executive Officers:
Name, Address and Birth Year of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
John H. Gernon 522 Fifth Avenue New York, NY 10036 Birth Year: 1963 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Public Markets Product Development (since 2006). | ||||||||||||
Timothy J. Knierim 1633 Broadway New York, NY 10019 Birth Year: 1959 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016). | ||||||||||||
Francis J. Smith 522 Fifth Avenue New York, NY 10036 Birth Year: 1965 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
Mary E. Mullin 1633 Broadway New York, NY 10019 Birth Year: 1967 | Secretary | Since June 1999 | Managing Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
Michael J. Key 522 Fifth Avenue New York, NY 10036 Birth Year: 1979 | Vice President | Since June 2017 | Vice President of the Equity and Fixed Income Funds, Liquidity Funds, various money market funds and the Morgan Stanley AIP Funds in the Fund Complex (since June 2017); Executive Director of the Adviser; Head of Product Development for Equity and Fixed Income Funds (since August 2013). |
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
24
Morgan Stanley Variable Insurance Fund, Inc.
Annual Report – December 31, 2020
Adviser and Administrator
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Distributor
Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036
Dividend Disbursing and Transfer Agent
DST Asset Manager Solutions, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
1155 Avenue of the Americas,
22nd Floor
New York, New York 10036
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Reporting to Shareholders
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its Semi-Annual and the Annual Reports within 60 days of the end of the fund's second and fourth fiscal quarters. The Semi-Annual and Annual Reports are filed electronically with the Securities and Exchange Commission ("SEC") on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the Semi-Annual and Annual Reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im/shareholderreports. Each Morgan Stanley non-money market fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters as an attachment to Form N-PORT. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, but makes the complete schedule of portfolio holdings for the fund's first and third fiscal quarters available on its public website. The holdings for each money market fund are also posted to the Morgan Stanley public website. You may obtain the Form N-PORT filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov).
Proxy Voting Policies and Procedures and Proxy Voting Record
You may obtain a copy of the Company's Proxy Voting Policy and Procedures and information regarding how the Company voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im/shareholderreports. This information is also available on the SEC's website at www.sec.gov.
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 Company's Statement of Additional Information contains additional information about the Fund, including its Directors. It is available, without charge, by calling 1 (800) 548-7786.
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.
UIFREIANN
3386951 EXP 02.28.22
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The registrant’s Code of Ethics is attached hereto as Exhibit 13 A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors has determined that Joseph J. Kearns, an “independent” Trustee, is an “audit committee financial expert" serving on its audit committee. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Directors in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2020
Registrant | Covered Entities(1) | |||||||
Audit Fees | $ | 531,866 | N/A | |||||
Non-Audit Fees | ||||||||
Audit-Related Fees | $ | — | (2) | $ | — | (2) | ||
Tax Fees | $ | — | (3) | $ | 231,320 | (4) | ||
All Other Fees | $ | — | $ | — | (5) | |||
Total Non-Audit Fees | — | $ | 231,320 | |||||
Total | $ | 531,866 | $ | 231,320 |
2019
Registrant | Covered Entities(1) | |||||||
Audit Fees | $ | 524,866 | N/A | |||||
Non-Audit Fees | ||||||||
Audit-Related Fees | $ | — | (2) | $ | — | (2) | ||
Tax Fees | $ | 55,966 | (3) | $ | 535,939 | (4) | ||
All Other Fees | $ | — | $ | 30,000 | (5) | |||
Total Non-Audit Fees | $ | 55,966 | $ | 565,939 | ||||
Total | $ | 580,832 | $ | 565,939 |
N/A- Not applicable, as not required by Item 4.
(1) | Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. |
(2) | Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. |
(3) | Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant’s tax returns. |
(4) | Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. |
(5) | All other fees represent project management for future business applications and improving business and operational processes. |
(e)(1) The audit committee’s pre-approval policies and procedures are as follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004 AND JUNE 12 AND 13, 20193
1. | Statement of Principles |
The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor’s independence from the Fund.
The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s administration of the engagement of the independent auditor. The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee or its delegate (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the Independent Auditors to management.
The Fund’s Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors’ independence.
3 This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the “Policy”), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time.
2. | Delegation |
As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
3. | Audit Services |
The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix A. All other Audit services not listed in Appendix A must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
4. | Audit-related Services |
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-CEN and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix A. All other Audit-related services not listed in Appendix A must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
5. | Tax Services |
The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix A. All Tax services in Appendix A must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
6. | All Other Services |
The Audit Committee believes, based on the SEC’s rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix A. Permissible All Other services not listed in Appendix A must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
7. | Pre-Approval Fee Levels or Budgeted Amounts |
Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.
8. | Procedures |
All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund’s Principal Financial and Accounting Officer and must include a detailed description of the services to be rendered. The Fund’s Principal Financial and Accounting Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee or Chairperson of the Audit Committee will be submitted to the Audit Committee by the Fund's Principal Financial and Accounting Officer, who, after consultation with the Independent Auditors, will discuss whether, the request or application is consistent with the SEC’s rules on auditor independence.
The Audit Committee has designated the Fund’s Principal Financial and Accounting Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund’s Principal Financial and Accounting Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund’s Principal Financial and Accounting Officer and management will immediately report to the Chairperson of the Audit Committee any breach of this Policy that comes to the attention of the Fund’s Principal Financial and Accounting Officer or any member of management.
9. | Additional Requirements |
The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with the PCAOB’s Ethics and Independence Rule 3526, and discussing with the Independent Auditors its methods and procedures for ensuring independence.
10. | Covered Entities |
Covered Entities include the Fund’s investment adviser(s) and any entity controlling, controlled by or under common control with the Fund’s investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund’s audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include:
Morgan Stanley Funds
Morgan Stanley & Co. LLC
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley Services Company, Inc.
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
Morgan Stanley Smith Barney LLC
Morgan Stanley Capital Management LLC
Morgan Stanley Asia Limited
Morgan Stanley Services Group
(e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee’s pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Directors has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services.
APPENDIX A
Pre-Approved Audit Services
Service Range of Fees | ||
The Fund(s) | Covered Entities | |
Statutory audits or financial audits for the Funds
|
For a complete list of fees, please contact the legal department **
|
N/A |
Services associated with SEC registration statements (including new fund filings/seed audits), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end fund offerings, consents), and assistance in responding to SEC comment letters
|
*
|
* |
Consultations by the Fund’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard setting bodies (Note: Under SEC rules, some consultations may be “audit related” services rather than “audit” services)
|
*
|
* |
Pre-Approved Audit-Related Services
Service Range of Fees | ||
The Fund(s) | Covered Entities | |
Attest procedures not required by statute or regulation | *
| * |
Due diligence services pertaining to potential fund mergers
|
* |
* |
Consultations by the Fund’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be “audit” services rather than “audit-related” services)
|
*
|
* |
General assistance with implementation of the requirements of SEC rules or listing standards promulgated pursuant to the Sarbanes-Oxley Act
|
* |
* |
Pre-Approved Tax Services
Service Range of Fees | ||
The Fund(s) | Covered Entities | |
U.S. federal, state and local tax planning and advice
|
* |
* |
U.S. federal, state and local tax compliance |
* |
* |
International tax planning and advice |
* |
* |
International tax compliance
|
* |
* |
Review/preparation of federal, state, local and international income, franchise, and other tax returns
|
$400,000 PwC |
N/A
|
Identification of Passive Foreign Investment Companies
PwC ITV Tool – assist in determining which Fund holdings have foreign capital gains tax exposure | $150,000 PwC
$125,000 PwC | *
* |
Foreign Tax Services - Preparation of local foreign tax returns and assistance with local tax compliance issues (including maintenance of transaction schedules, assistance in periodic tax remittances, tax registration, representing funds before foreign revenue authorities and assistance with assessment orders) | $500,000 PwC/EY | * |
Assistance with tax audits and appeals before the IRS and similar state, local and foreign agencies
|
*
|
* |
Tax advice and assistance regarding statutory, regulatory or administrative developments (e.g., excise tax reviews, evaluation of Fund’s tax compliance function)
|
*
|
*
|
Pre-Approved All Other Services
Service Range of Fees | ||
The Fund(s) | Covered Entities | |
Risk management advisory services, e.g., assessment and testing of security infrastructure controls
|
*
|
*
|
*Aggregate fees related to the pre-approved services will be limited to 10% of the 2020/2021 annual fees for audit and tax services (see fee schedule distributed by the Auditors).
** Audit and tax services for new funds/portfolios will be subject to the maximum audit and tax fee for a fund/portfolio on fee schedule distributed by the Auditors.
Prohibited Non-Audit Services
· | Bookkeeping or other services related to the accounting records or financial statements of the audit client |
· | Financial information systems design and implementation |
· | Appraisal or valuation services, fairness opinions or contribution-in-kind reports |
· | Actuarial services |
· | Internal audit outsourcing services |
· | Management functions |
· | Human resources |
· | Broker-dealer, investment adviser or investment banking services |
· | Legal services |
· | Expert services unrelated to the audit |
Item 5. Audit Committee of Listed Registrants.
(a) The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Joseph J. Kearns, Jakki L. Haussler, Michael F. Klein and W. Allen Reed.
(b) Not applicable.
Item 6. Schedule of Investments
(a) Refer to Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominee to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
Item 11. Controls and Procedures
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the registrant 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed End Management Investment Companies.
Not Applicable
Item 13. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers.
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 Variable Insurance Fund, Inc.
/s/ John H. Gernon | |
John H. Gernon | |
Principal Executive Officer | |
February 16, 2021 |
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/ John H. Gernon | |
John H. Gernon | |
Principal Executive Officer | |
February 16, 2021 |
/s/ Francis Smith | |
Francis Smith | |
Principal Financial Officer | |
February 16, 2021 |