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 | 811-03692 | |||||||
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Morgan Stanley Variable Investment Series | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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522 Fifth Avenue, New York, New York |
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(Address of principal executive offices) |
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Arthur Lev 522 Fifth Avenue, New York, New York 10036 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | 201-830-8894 |
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Date of fiscal year end: | December 31, 2012 |
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Date of reporting period: | June 30, 2012 |
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Item 1 - Report to Shareholders
MORGAN STANLEY
VARIABLE INVESTMENT SERIES
Semi-Annual Report
JUNE 30, 2012
The Portfolios are intended to be the funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.
Morgan Stanley Variable Investment Series
Table of Contents
Letter to the Shareholders | 1 | ||||||
Fund Performance | 15 | ||||||
Expense Examples | 17 | ||||||
Investment Advisory Agreement Approval | 21 | ||||||
Portfolio of Investments: | |||||||
Money Market | 25 | ||||||
Limited Duration | 28 | ||||||
Income Plus | 35 | ||||||
Global Infrastructure | 46 | ||||||
European Equity | 49 | ||||||
Multi Cap Growth | 52 | ||||||
Aggressive Equity | 55 | ||||||
Strategist | 58 | ||||||
Financial Statements: | |||||||
Statements of Assets and Liabilities | 68 | ||||||
Statements of Operations | 70 | ||||||
Statements of Changes in Net Assets | 72 | ||||||
Notes to Financial Statements | 80 | ||||||
Financial Highlights | 110 | ||||||
Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2012 (unaudited)
Dear Shareholder:
After starting the year on a relatively optimistic note, financial markets endured some disappointments but ultimately finished the six-month period ended June 30, 2012 mostly higher. While sluggish economic growth across Europe was expected given the ongoing debt crisis and the resulting austerity measures, indications of slowing in the U.S. and China further tempered investors' outlooks on the global economy. Some progress was made on containing Europe's debt woes, including the European Central Bank's (ECB) two long-term refinancing operations (or LTROs, in December 2011 and February 2012), which provided three-year loans to European banks, and coordinated monetary policy responses from central banks around the world, which boosted liquidity in the system. However, Greece's embattled legislative election in the spring and a bank bailout in Spain were a reminder that many fundamental issues have yet to be resolved. In the final days of the reporting period, the latest European summit yielded some positive developments, including a willingness to enable bank supervision at a federal, rather than national level and an easing of restrictions on access to rescue funds.
Domestic Equity Overview
In the first few months of 2012, improving data from the labor market, housing market, and consumer confidence and spending bolstered investor confidence about the U.S. economy's prospects. However, part of the improvement in jobs and consumer data was due to the unseasonably warm spring, and the positive momentum in these metrics did not last beyond April. The economy began to appear more sluggish in the second quarter of 2012. Concerns about the effects of the ongoing European debt crisis on economies in Europe and China also contributed to volatility in stock prices. Despite the challenging backdrop, corporate earnings generally remained within or above expectations during the period, although signs emerged after the close of the period (as second quarter earnings reports were being released) that earnings expectations would need to be lowered going forward. While U.S. stock market performance was weaker in the second quarter of 2012 than in the first quarter, the S&P 500 Index closed the six-month period up 9.49%.
Fixed Income Overview
In 2011, the Federal Open Market Committee announced that it expected to keep interest rates on hold until at least mid-2013. Yields on the short end of the yield curve remained anchored by the Fed's near-zero interest rate policy, keeping money market yields low. Given the weaker-than-expected economic conditions, the Federal Reserve (the Fed) extended its timeline to late-2014 at the beginning of this year. Since October 2011, the Fed has been buying longer-maturity Treasuries and selling short-term Treasuries
Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2012 (unaudited) continued
to put downward pressure on longer-term interest rates. This program was scheduled to end in June 2012, but has been extended to December 2012.
Treasury yields rose in the first quarter but then declined in the second quarter, reflecting weaker growth as well as a flight to quality due to the European debt crisis. The 10-year Treasury yield reached an all time low of 1.47% at the beginning of June.
Agency mortgage-backed securities performed well over the period. The sector offers an attractive yield advantage in the current low yield environment. Despite historically low mortgage rates, refinancing activity has been slower than it has been in the past under similar rate incentives. Many borrowers are unable to refinance due to tighter underwriting standards. The U.S. housing market appears to be trying to find a bottom. The headline home price index was still showing a negative year-over-year trend at the end of the review period, but the momentum of the decline had meaningfully slowed.
The corporate segment outperformed Treasuries, aided by strong corporate balance sheets and low borrowing costs. The high yield corporate sector saw increased volatility in the second quarter of 2012 amid worries about the European debt crisis. For the period overall, the financial sector was the best-performing corporate sector.
International Equity Overview
Despite the concerns about the European debt crisis and the slackening pace of China's economy, many international equity markets posted gains for the six-month period ended June 30, 2012. The outcome of the European summit on June 28 and 29 surprised the markets, leading to a rally in the final days of the reporting period. However, the proposals' implementation details have yet to be worked out and the larger issue of developing a more sustainable framework for economic growth in the region remains. Meanwhile, European economies continued to show signs of deterioration, even within the so-called "core" countries. China's economy also cooled during the period, as export demand from the U.S. and Europe declined and credit remained restricted. The country's central bank unexpectedly cut interest rates in June (and again in July, just after the end of the reporting period) in attempt to keep economic growth from sliding further.
Money Market Portfolio
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in such funds.
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
As of June 30, 2012, Variable Investment Series – Money Market Portfolio had net assets of approximately $97 million with an average portfolio maturity of 19 days. For the seven-day period ended June 30, 2012, the Portfolio's Class X shares provided an effective annualized yield of 0.01% (subsidized) and – 0.33% (non-subsidized) and a current yield of 0.01% (subsidized) and – 0.33% (non-subsidized), while its 30-day moving average yield for June was 0.01% (subsidized) and – 0.32% (non-subsidized). Yield quotations more closely reflect the current earnings of the Portfolio. The non-subsidized yield reflects what the yield would have been had a fee and/or expense waiver not been in place during the period shown. For the six-month period ended June 30, 2012, the Portfolio's Class X shares returned 0.00%. Past performance is no guarantee of future results.
For the seven-day period ended June 30, 2012, the Portfolio's Class Y shares provided an effective annualized yield of 0.01% (subsidized) and – 0.58% (non-subsidized) and a current yield of 0.01% (subsidized) and – 0.58% (non-subsidized), while its 30-day moving average yield for June was 0.01% (subsidized) and – 0.57% (non-subsidized). Yield quotations more closely reflect the current earnings of the Portfolio. The non-subsidized yield reflects what the yield would have been had a fee and/or expense waiver not been in place during the period shown. For the six-month period ended June 30, 2012, the Portfolio's Class Y shares returned 0.00%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
We continued to remain cautious in our investment approach, focusing on high liquidity and short durations. We believe our investment process and focus on credit research and risk management have placed the Portfolio in a favorable position to respond to market uncertainty. Most of our investment activity has been focused on rolling significant amounts of overnight and short-dated maturities, with occasional selective purchases of one-month, three-month, and six-month fixed rate maturities, as well as selective purchases of nine-month and one-year floating rate paper.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
Limited Duration Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – Limited Duration Portfolio Class X shares produced a total return of 1.86%, outperforming the Barclays Capital U.S. Government/Credit
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2012 (unaudited) continued
Index (1-5 Year) (the "Index"),1 which returned 1.13%. For the same period, the Portfolio's Class Y shares returned 1.71%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
The Portfolio's overweight to the credit sector was the main driver of performance as spread (or non-government) sectors outperformed Treasuries during the period. Short maturity corporate spreads retraced most of their widening from the second half of last year, and overall corporate spreads ended the period 60 basis points tighter. The financial sector was the best performing corporate sector, with short-maturity financial spreads tightening by about 100 basis points during the period. The Portfolio's allocation to short-maturity, high-quality asset-backed securities also helped performance.
Conversely, the Portfolio was underweight in the agency sector, which detracted slightly from relative performance as spreads tightened over the period. Interest-rate positioning did not have an impact on performance as the Portfolio had been positioned to be neutral relative to the Index.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
Income Plus Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – Income Plus Portfolio Class X shares produced a total return of 6.56%, outperforming the Barclays Capital U.S. Corporate Index (the "Index"),2 which returned 4.65%. For the same period, the Portfolio's Class Y shares returned 6.38%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
1 The Barclays Capital U.S. Government/Credit Index (1-5 Year) tracks the performance of U.S. government and corporate obligations, including U.S. government agency and Treasury securities, and corporate and Yankee bonds with maturities of one to five years. 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 Barclays Capital U.S. Corporate Index covers U.S. dollar-denominated, investment-grade, fixed rate, taxable securities sold by industrial, utility and financial issuers. It includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. 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.
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
Following a period of historic volatility in risk assets during the latter half of 2011, the Portfolio entered 2012 overweight investment grade corporate bonds and with exposure to high yield corporate bonds and convertible bonds as well. These positions were designed to attempt to benefit from a normalization of credit spreads, which we believed would be driven by supportive global monetary policy and a continued modest U.S. economic recovery.
Although fears of a European financial collapse dominated headlines late in 2011, sentiment dramatically reversed early in 2012, in large part due to supportive actions by the European Central Bank (ECB). In particular, the ECB's long-term refinancing operations, or LTROs, had a substantial positive impact on the market by reducing liquidity pressures on European banks. These actions helped lower yields across many asset classes, most notably those securities with direct exposure to Europe.
Financial sector corporate bonds, which remain one of the Portfolio's largest overweights, responded strongly to the improved sentiment surrounding Europe and these exposures generated the majority of the Portfolio's outperformance of the period. High yield bonds held in the Portfolio also performed well during this period. We responded to this strong relative performance by modestly decreasing risk in those sectors which outperformed the most, particularly financials, and rotating into less volatile segments of the market. Underweights to select non-financial corporate sectors, such as health care and pharmaceuticals, detracted from relative performance during the period.
Over the last few months of the period, the market once again became concerned about the European fiscal crisis. In addition, a slowing U.S. economy pressured risk assets. While the future of Europe is certain to remain volatile, we believe that absent a significant downward spiral in Europe, the U.S. economy will continue to follow a path of slow growth. This slow growth environment is expected to remain supportive of credit fundamentals, in our opinion, ultimately leading to tighter credit spreads and potentially benefiting the Portfolio's current positioning.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
Global Infrastructure Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – Global Infrastructure Portfolio Class X shares produced a total return of 7.06%, outperforming the Dow Jones Brookfield Global
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
Infrastructure IndexSM (the "Index"),3 which returned 6.44%, and the S&P Global BMI Index,4 which returned 6.09%. For the same period, the Portfolio's Class Y shares returned 6.93%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Infrastructure shares appreciated 6.44% during the first half of 2012, as measured by the Index. Among the major infrastructure sectors, the communications, European regulated utilities, and gas distribution utilities sectors exhibited relative outperformance over the Index, while the gas midstream, toll roads, pipeline companies, and transmission and distribution sectors underperformed the Index. In addition, all of the smaller sectors exhibited relative outperformance, with the water sector realizing the strongest gains.
Despite indications of slowing economic growth globally, the first half of 2012 ended on a high note for the broader equity markets as investors cheered the prospect of a common European banking regulator and the potential for direct bank bailouts within the European Union (EU) that will bypass sovereign governments (thus breaking the circular, co-dependent relationship between governments and banks that plagues the current crisis). While many would welcome these potential measures, we are cautious given the continued lack of specifics and the seemingly different interpretations of EU summit promises as expressed by members of the German and Spanish governments. Certain northern European countries have also threatened to block such initiatives unless current austerity drives are implemented in full.
If certain announcements in Europe are cause for optimism, such optimism may be in short supply as economic statistics elsewhere indicate a global economy struggling to escape from the global financial crisis. Job growth in the United States remains lackluster at best, and business optimism has started to deteriorate again, after improving earlier in the year. In Asia, the Chinese government has announced policy measures to stimulate growth and has lowered borrowing rates, but recent disclosure of various economic statistics indicate a broad slowing of growth in that country.
3 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 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.
4 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. As of the date of this Report, there are approximately 11,000 index members representing 26 developed and 20 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.
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2012 (unaudited) continued
Within infrastructure, the strength of operating fundamentals exhibited in the first half of the year varies by sector and region. One of the strongest areas from a fundamental perspective remains the communications sector, where U.S.-based wireless tower operators in particular are enjoying robust growth, driven by upgrades to telecommunications companies' wireless networks. Utility assets globally that focus on transmission, distribution, and storage initiatives are also witnessing very stable, steady growth. Within energy infrastructure in North America, there has been some softening in fundamentals off the very robust growth achieved over the last couple of years as lower natural gas, crude oil, and natural gas liquids (NGL) prices have curtailed exploration and production company drilling plans somewhat, lessening the utilization of existing infrastructure in certain parts of the value chain (in particular, gathering and processing). We view this softening as temporary, however, as the long-term need for takeaway capacity and processing is significant and the geographical location of both resource and demand centers continues to evolve. We would also note that recent merger and acquisition activity in the exploration and production space for North American commodity resources by Asian buyers underscores the medium- to long-term demand for natural gas, crude oil, and commodity byproducts that will require infrastructure investment for some time to come. It is important to note the distinction between energy infrastructure company share prices, some of which were weak in the first half of 2012 — in particular within gas midstream — and the magnitude of their capital programs, which remain very robust.
As a final note, while the operating fundamentals (i.e., traffic) of European toll road companies have for the most part been weak for the first half of the year, current valuation levels are difficult to ignore. Current share prices imply a long-term cost of capital and/or indefinite weakness in traffic, which is difficult to justify despite the current financial and economic crises surrounding the countries in which these concessionaires are domiciled.
For the first half of 2012, the Portfolio realized favorable performance from both bottom-up stock selection and top-down allocation. From a bottom-up perspective, the Portfolio benefited from stock selection in the gas distribution utilities, communications, European regulated utilities, and gas midstream sectors, but relative gains were partially offset by adverse selection in the pipeline companies sector. From a top-down perspective, the Portfolio benefited from an underweight to the gas midstream sector and overweights to the communications and gas distribution utilities sectors. This outperformance was partially offset by overweights to the toll roads and pipeline companies sectors.
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.
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2012 (unaudited) continued
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 Portfolio (amongst the largest sectors) to a group of companies in the gas distribution utilities, communications, toll road, and pipeline companies sectors, and an underweighting to companies in the gas midstream and transmission and distribution sectors. Since our year-end commentary dated December 31, 2011, the only change from a sector perspective is that we now hold close to a market-weight position in the European regulated utilities sector.
Looking forward, we continue to believe the toll road sector presents an attractive opportunity from a valuation perspective, and we also like the secular growth stories within the communications sector and energy infrastructure sector — in particular, gas distribution utilities within Asia and pipeline companies within North America. For more processing and fractionation-focused midstream companies, we remain underweight but believe they have become more attractively valued given the absolute declines observed in the first half of the year.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
European Equity Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – European Equity Portfolio Class X shares produced a total return of 3.04%, outperforming the MSCI Europe Index (the "Index"),5 which returned 2.40%. For the same period, the Portfolio's Class Y shares returned 2.90%. Past performance is no guarantee of future results.
5 The Morgan Stanley Capital International (MSCI) Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. 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. 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.
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
On a sector basis, the Portfolio's outperformance was driven by stock selection in capital goods, insurance, software and services, and banks. The largest contributor to relative performance was a holding in a Spanish IT company that is the world's largest provider of reservations management software and systems for the travel industry. Other major contributors included holdings in a French hotel chain that recently sold off its underperforming U.S. business operation, a German truck maker that was recently acquired, a U.K. insurance provider, and a U.K. aerospace equipment company. Strong stock selection and an underweight in the telecommunications sector also aided relative results.
However, stock selection in the materials, retail, and utilities sectors diminished relative gains. Relative weakness came from holdings in a Spanish bank that saw its credit rating lowered by Moody's Investor Service in June although the bank's financials have remained relatively healthy, a French utility company that we believed had an uncertain outlook, a U.K. mining company that has underperformed since its merger, and a U.K. supermarket chain that has been losing market share in the sluggish economic environment.
On a country level, positive contributors included stock selection in Germany, Finland, and Switzerland. Both stock selection and an underweight in Spain were beneficial as well. The only detractor on a country basis during the period was stock selection in the U.K.
In the first half of the period, the financials and other cyclical (or economically sensitive) sectors rallied strongly. However, from mid-March through the end of the period, the outperformance of these sectors faded amid rising concerns about the global economy (including emerging markets) and disappointing news from the development of the European debt crisis. At the same time, valuations of some of the more defensive (or less economically sensitive) stocks were quite expensive, as investors largely preferred to position defensively.
In this environment, we have sought to maintain what we believe is a balanced and diversified stance in the Portfolio. In fact, the Portfolio is overweight in energy and industrials, which are more cyclical sectors, counterbalanced by an overweight in consumer staples and health care, which are more defensive. On the contrary, we are underweight in defensive utilities and telecommunications sectors, but also underweight in cyclical materials, consumer discretionary (with no exposure to luxury goods due to expensive valuations), and financials (with an overweight in banks) sectors.
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
Central banks around the world have shifted their tone, as the markets expected a possible third quantitative easing program (dubbed QE3) from the U.S. Federal Reserve in second half of 2012. In addition, we saw recently action from the Bank of England, which pumped £50 billion into the system, the European Central Bank (ECB) cutting interest rates by 25 basis points, Brazil cutting by 50 basis points, and South Korea by 25 basis points. These coordinated easing actions have been in the past a positive catalyst for the equity markets. We also look with favor toward the recent trend in oil prices, which potentially point to further falls in inflation over the coming months. This trend should help those central banks wishing to add further monetary stimulus, but also lowers input costs for the corporate sector — thereby improving margin trends — and may provide support for consumers' disposable income.
Although concerns remain on sovereign debt for some European "peripheral" countries, we believe that the current scenario has provided opportunities in the market. In Europe we still see large economic imbalances (between north and south, "core" and "periphery") and a lack of fiscal integration. While it is possible to overcome these deficiencies, it will take some years.
Over the long term, we expect that the European economy should be a major beneficiary of a global recovery, with its high exposure to emerging markets. We see recent market weakness as an opportunity to selectively add quality stocks to the portfolio, as we believe European valuations are cheap compared to historical levels. Current equity valuations have priced a low-growth environment for Europe, which we believe seems to be the most likely scenario for the next few years. Economic growth in core European countries versus poor results from peripheral Europe, emerging markets exposure, asset allocation shift out of fixed income into developed equities and cheap valuations provide strong back up to our favorable thesis on the asset class. Our investment approach remains the same. We continue to seek high quality companies that we believe have high earnings visibility and predictability, stable and strong cash flow and low levels of debt trading at attractive valuations.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
Multi Cap Growth Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – Multi Cap Growth Portfolio Class X shares produced a total return of 9.85%, underperforming the Russell 3000® Growth Index (the
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
"Index"),6 which returned 9.98%. For the same period, the Portfolio's Class Y shares returned 9.72%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Stock selection in the technology sector was by far the largest detractor from performance. Several holdings in the computer services, software and systems industry were among the weakest performers in the portfolio during the period. Stock selection in materials and processing dampened relative performance, due to positions in two companies specializing in rare earth minerals production. Stock selection in financial services also hurt relative returns. The Portfolio's position in an auto insurance provider and a lack of exposure to real estate investment trusts (REITs), a group that performed well in the Index, were the main reasons for the Portfolio's underperformance within the sector.
Conversely, stock selection in health care was additive to relative performance. The Portfolio held several stocks that performed well, including a provider of billing services to medical group practices and companies making medical and dental instrument and supplies. Stock selection in consumer discretionary was another positive contributor, mostly due to strong gains from a position in an online retailer. Stock selection in producer durables further benefited relative returns. Within the sector, the Portfolio was helped by exposure to companies involved in back office support, human resources, and consulting, as well as holdings in commercial services providers.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
Aggressive Equity Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – Aggressive Equity Portfolio Class X shares produced a total return of 9.80%, underperforming the Russell 3000® Growth Index (the "Index"),6 which returned 9.98%. For the same period, the Portfolio's Class Y shares returned 9.70%. Past performance is no guarantee of future results.
6 The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000® Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. 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.
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Stock selection in the technology sector was by far the largest detractor from performance. Several holdings in the computer services, software and systems industry were among the weakest performers in the portfolio during the period. Stock selection in materials and processing dampened relative performance, due to positions in two companies specializing in rare earth minerals production. Stock selection in financial services also hurt relative returns. The Portfolio's position in an auto insurance provider and a lack of exposure to real estate investment trusts (REITs), a group that performed well in the Index, were the main reasons for the Portfolio's underperformance within the sector.
Conversely, stock selection in health care was additive to relative performance. The Portfolio held several stocks that performed well, including a provider of billing services to medical group practices and companies making medical and dental instrument and supplies. Stock selection in consumer discretionary was another positive contributor, mostly due to strong gains from a position in an online retailer. Stock selection in producer durables further benefited relative returns. Within the sector, the Portfolio was helped by exposure to companies involved in back office support, human resources, and consulting, as well as holdings in commercial services providers.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
Strategist Portfolio
For the six-month period ended June 30, 2012, Variable Investment Series – Strategist Portfolio Class X shares produced a total return of 4.41%, underperforming the S&P 500® Index (the "Index"),7 which returned 9.49%, and outperforming the Barclays Capital U.S. Government/Credit Index,8 which returned 2.65%. For the same period, the Portfolio's Class Y shares returned 4.28%. In addition, the Portfolio's Class X and Y shares outperformed their peers within the Lipper Variable Annuity Flexible Portfolio Underlying Funds category by 70 and 57 basis points, respectively, for the period under review, according to Lipper Analytics. Past performance is no guarantee of future results.
7 The Standard & Poor's 500® Index (S&P 500®) measures the performance of the large cap segment of the U.S. equities market, covering approximately 75% 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.
8 The Barclays Capital U.S. Government/Credit Index tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. 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.
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Letter to the Shareholders n June 30, 2012 (unaudited) continued
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Strategist Portfolio's flexible investment approach allows investment across stocks, bonds, cash and other investment classes. To determine the specific allocation among asset classes throughout the period, we rigorously evaluate a comprehensive array of quantitative and qualitative factors. The quantitative analysis comprises an extensive "top-down" asset class review of many macroeconomic variables, with primary focus on three core factors: monetary policy and its impact on liquidity, inflation trends and corporate profitability. A second, more qualitative process then broadens the analysis to determine which sectors and industries would offer the best opportunities, in our view, given the macroeconomic climate. Individual holdings are then selected in an effort to provide desired exposure to asset classes and sectors.
During the first half of 2012, there were no material changes to the Portfolio's asset allocation. At period-end, the Portfolio's asset allocation (as a percentage of total Portfolio assets) stood at approximately 61% equities, 24% fixed income and 15% cash equivalents. The Portfolio's equity exposure continued to be focused in large capitalization, high free-cash flow generating companies featuring dividend yields in excess of the average equity security. These stocks have tended to underperform the general market in periods of strong rallies and outperformed during market corrections. The equity portfolio's largest sector exposures include consumer discretionary, industrials and information technology holdings; these three sectors make up approximately half of the Portfolio's total equity exposure.
The fixed income portfolio is diversified among a number of sectors as well, with U.S. government-issued exposures totaling 61% of the fixed income portfolio and corporate credit exposures totaling 32%. The balance of the Portfolio's fixed income holdings is spread among asset-backed instruments, municipal bonds and cash equivalents.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
We appreciate your ongoing support of Morgan Stanley Variable Investment Series and look forward to continuing to serve your investment needs.
Very truly yours,
Arthur Lev
President and Principal Executive Officer
13
Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2012 (unaudited) continued
For More Information About Portfolio Holdings
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the 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 semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q and monthly holdings for each money market fund on Form N-MFP. Morgan Stanley does not deliver these reports to shareholders, nor are the first and third fiscal quarter reports posted to the Morgan Stanley public web site. However, the holdings for each money market fund are posted to the Morgan Stanley public web site. You may obtain the Form N-Q filings (as well as the Form N-CSR, N-CSRS and N-MFP filings) by accessing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's public reference room in Washington, DC. Information on the operation of the SEC's public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-1520.
Proxy Voting Policy and Procedures and Proxy Voting Record
You may obtain a copy of the Portfolio's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our web site at www.morganstanley.com. It is also available on the SEC's web site at http://www.sec.gov.
You may obtain information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our web site at www.morganstanley.com. This information is also available on the SEC's web site at http://www.sec.gov.
14
Morgan Stanley Variable Investment Series
Fund Performance n June 30, 2012 (unaudited)
Average Annual Total Returns—Period Ended June 30, 2012(1) | |||||||||||||||||||||||||||
Class X | 1 Year | 5 Years | 10 Years | Since Inception | Gross Expense Ratio | Date of Inception | |||||||||||||||||||||
Aggressive Equity | -2.82 | % | 3.96 | % | 8.13 | % | 5.39 | % | 1.06 | % | 5/4/1999 | ||||||||||||||||
European Equity | -14.04 | -5.61 | 3.81 | 8.06 | 1.17 | 3/1/1991 | |||||||||||||||||||||
Global Infrastructure | 10.88 | 2.52 | 8.71 | 7.87 | 0.86 | 3/1/1990 | |||||||||||||||||||||
Income Plus | 8.02 | 7.57 | 6.59 | 7.38 | 0.59 | 3/1/1987 | |||||||||||||||||||||
Limited Duration | 2.66 | -0.61 | 1.13 | 2.04 | 0.60 | 5/4/1999 | |||||||||||||||||||||
Money Market | 0.01 | 0.98 | 1.68 | 4.27 | 0.60 | 3/9/1984 | |||||||||||||||||||||
Multi Cap Growth | -2.49 | 5.07 | 7.37 | 10.89 | 0.56 | 3/9/1984 | |||||||||||||||||||||
Strategist | -4.91 | -0.92 | 5.20 | 7.49 | 0.61 | 3/1/1987 |
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please contact the issuing insurance company or speak with your Financial Advisor. Investment return and principal value will fluctuate. When you sell Portfolio shares, they may be worth less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance for Class Y shares will vary from the performance of Class X shares due to differences in expenses.
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. If performance information included the effect of these additional charges, the total returns would be lower.
15
Morgan Stanley Variable Investment Series
Fund Performance n June 30, 2012 (unaudited) continued
Average Annual Total Returns—Period Ended June 30, 2012(1) | |||||||||||||||||||||||||||
Class Y | 1 Year | 5 Years | 10 Years | Since Inception | Gross Expense Ratio | Date of Inception | |||||||||||||||||||||
Aggressive Equity | -3.03 | % | 3.71 | % | 7.86 | % | 2.31 | % | 1.31 | % | 6/5/2000 | ||||||||||||||||
European Equity | -14.27 | -5.84 | 3.55 | 0.11 | 1.42 | 6/5/2000 | |||||||||||||||||||||
Global Infrastructure | 10.62 | 2.27 | 8.44 | 2.89 | 1.11 | 6/5/2000 | |||||||||||||||||||||
Income Plus | 7.64 | 7.30 | 6.32 | 6.72 | 0.84 | 6/5/2000 | |||||||||||||||||||||
Limited Duration | 2.38 | -0.83 | 0.88 | 1.70 | 0.85 | 6/5/2000 | |||||||||||||||||||||
Money Market | 0.01 | 0.90 | 1.52 | 1.89 | 0.85 | 6/5/2000 | |||||||||||||||||||||
Multi Cap Growth | -2.72 | 4.80 | 7.10 | 1.98 | 0.81 | 6/5/2000 | |||||||||||||||||||||
Strategist | -5.15 | -1.16 | 4.93 | 2.74 | 0.86 | 6/5/2000 |
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please contact the issuing insurance company or speak with your Financial Advisor. Investment return and principal value will fluctuate. When you sell Portfolio shares, they may be worth less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance for Class Y shares will vary from the performance of Class X shares due to differences in expenses.
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. If performance information included the effect of these additional charges, the total returns would be lower.
16
Morgan Stanley Variable Investment Series
Expense Examples n June 30, 2012 (unaudited)
As a shareholder of the Portfolio, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period 01/01/12 – 06/30/12.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Portfolio 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 second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.
17
Morgan Stanley Variable Investment Series
Expense Examples n June 30, 2012 (unaudited) continued
Money Market
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (0.00% return) | $ | 1,000.00 | $ | 1,000.00 | $ | 1.29 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.57 | $ | 1.31 | |||||||||
Class Y | |||||||||||||||
Actual (0.00% return) | $ | 1,000.00 | $ | 1,000.00 | $ | 1.29 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.57 | $ | 1.31 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.26% and 0.26% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 0.63% and 0.88% for Class X and Class Y shares, respectively.
Limited Duration
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (1.86% return) | $ | 1,000.00 | $ | 1,018.60 | $ | 2.91 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.98 | $ | 2.92 | |||||||||
Class Y | |||||||||||||||
Actual (1.71% return) | $ | 1,000.00 | $ | 1,017.10 | $ | 4.16 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.74 | $ | 4.17 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.58% and 0.83% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).
Income Plus
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (6.56% return) | $ | 1,000.00 | $ | 1,065.60 | $ | 2.98 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.98 | $ | 2.92 | |||||||||
Class Y | |||||||||||||||
Actual (6.38% return) | $ | 1,000.00 | $ | 1,063.80 | $ | 4.26 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.74 | $ | 4.17 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.58% and 0.83% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).
18
Morgan Stanley Variable Investment Series
Expense Examples n June 30, 2012 (unaudited) continued
Global Infrastructure
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (7.06% return) | $ | 1,000.00 | $ | 1,070.60 | $ | 4.27 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.74 | $ | 4.17 | |||||||||
Class Y | |||||||||||||||
Actual (6.93% return) | $ | 1,000.00 | $ | 1,069.30 | $ | 5.56 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.49 | $ | 5.42 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.83% and 1.08% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).
European Equity
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (3.04% return) | $ | 1,000.00 | $ | 1,030.40 | $ | 5.05 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.89 | $ | 5.02 | |||||||||
Class Y | |||||||||||||||
Actual (2.90% return) | $ | 1,000.00 | $ | 1,029.00 | $ | 6.31 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,018.65 | $ | 6.27 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 1.00% and 1.25% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 1.20% and 1.45% for Class X and Class Y shares, respectively.
Multi Cap Growth
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (9.85% return) | $ | 1,000.00 | $ | 1,098.50 | $ | 2.97 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,022.03 | $ | 2.87 | |||||||||
Class Y | |||||||||||||||
Actual (9.72% return) | $ | 1,000.00 | $ | 1,097.20 | $ | 4.28 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.79 | $ | 4.12 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.57% and 0.82% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).
19
Morgan Stanley Variable Investment Series
Expense Examples n June 30, 2012 (unaudited) continued
Aggressive Equity
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (9.80% return) | $ | 1,000.00 | $ | 1,098.00 | $ | 5.63 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.49 | $ | 5.42 | |||||||||
Class Y | |||||||||||||||
Actual (9.70% return) | $ | 1,000.00 | $ | 1,097.00 | $ | 6.93 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,018.25 | $ | 6.67 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 1.08% and 1.33% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 1.09% and 1.34% for Class X and Class Y shares, respectively.
Strategist
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/12 | 06/30/12 | 01/01/12 – 06/30/12 | |||||||||||||
Class X | |||||||||||||||
Actual (4.41% return) | $ | 1,000.00 | $ | 1,044.10 | $ | 3.05 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.88 | $ | 3.02 | |||||||||
Class Y | |||||||||||||||
Actual (4.28% return) | $ | 1,000.00 | $ | 1,042.80 | $ | 4.32 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.64 | $ | 4.27 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.60% and 0.85% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 0.63% and 0.88% for Class X and Class Y shares, respectively.
20
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2012 (unaudited)
Nature, Extent and Quality of Services
The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser (as defined herein) under the advisory agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board reviewed similar information and factors regarding the Sub-Advisers (as defined herein), to the extent applicable. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Administrator (as defined herein) under the administration agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser's expense. (The Investment Adviser, Sub-Advisers and Administrator together are referred to as the "Adviser" and the advisory, sub-advisory and administration agreements together are referred to as the "Management Agreement.") The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper, Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and advisory services to the Portfolios. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Portfolios and supported its decision to approve the Management Agreement.
Performance, Fees and Expenses of the Portfolios
The Board reviewed the performance, fees and expenses of the Portfolios compared to their peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Portfolios. When considering a fund's performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance, as of December 31, 2011, or since inception, as applicable). When a fund underperforms its benchmark and/or its peer group average, they discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel.
Performance
The Board noted that the performance of the Strategist Portfolio was below its peer group averages for the one-, three- and five-year periods.
21
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2012 (unaudited) continued
The Board noted that the performance of the Money Market and Limited Duration Portfolios was better than the peer group averages for the one-year period but below the peer group averages for the three- and five-year periods.
The Board noted that the performance of the Income Plus, Multi Cap Growth and Aggressive Equity Portfolios was better than the peer group averages for the three- and five-year periods but below the peer group averages for the one-year period.
The Board noted that the performance of the Global Infrastructure and European Equity Portfolios was better than the peer group averages for the one- and five-year periods but below the peer group averages for the three-year period.
Performance Conclusions
With respect to the Money Market, Limited Duration and Strategist Portfolios, after discussion, the Board concluded that performance was acceptable.
With respect to the Income Plus, Multi Cap Growth, Global Infrastructure, Aggressive Equity and European Equity Portfolios, after discussion, the Board concluded that performance was competitive with the peer group averages.
Fees and Expenses
The Board members discussed with the Adviser the level of the advisory and administration fees (together, the "management fee") for the Portfolios relative to comparable funds and/or other accounts advised by the Adviser and/or compared to their peers as determined by Lipper. In addition to the management fee, the Board also reviewed the Portfolios' total expense ratios. When a fund's management fee and/or its expense ratio are higher than comparable funds or peers, the Board and the Adviser discuss the reasons for this and, where appropriate, they discuss possible waivers and/or caps.
The Board noted that the management fees and total expense ratios for the Money Market, Limited Duration, Income Plus, Multi Cap Growth, Global Infrastructure, European Equity and Strategist Portfolios were lower than the peer group averages.
The Board noted for the Aggressive Equity Portfolio that the management fee and the total expense ratio was higher but close to its peer group average.
Fee and Expense Conclusions
With respect to the Money Market, Limited Duration, Income Plus, Multi Cap Growth, Global Infrastructure, Aggressive Equity, European Equity and Strategist Portfolios, after discussion, the Board concluded that the management fees and total expense ratios were competitive with the peer group averages.
22
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2012 (unaudited) continued
Economies of Scale
The Board considered the size and growth prospects of the Portfolios and how that relates to the Portfolios' total expense ratios and particularly the Portfolios' management fee rates (which, for all the Portfolios except Limited Duration, include one or more breakpoints). In conjunction with its review of the Adviser's profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Portfolios and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of each Portfolio supports its decision to approve the Management Agreement.
Profitability of the Adviser and Affiliates
The Board considered information concerning the costs incurred and profits realized by the Adviser and its affiliates during the last year from their relationship with the Portfolios and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. The Board has determined that its review of the analysis of the Adviser's expenses and profitability supports its decision to approve the Management Agreement.
Other Benefits of the Relationship
The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Portfolios and other funds advised by the Adviser. These benefits may include, among other things, "float" benefits derived from handling of checks for purchases and sales, research received by the Adviser generated from commission dollars spent on funds' portfolio trading and fees for distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of the Adviser's costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.
Resources of the Adviser and Historical Relationship Between the Portfolios and the Adviser
The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board also reviewed and considered the historical relationship between the Portfolios and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Portfolios' operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Portfolios to continue their relationship with the Adviser.
23
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2012 (unaudited) continued
Other Factors and Current Trends
The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund's Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund's business.
General Conclusion
After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of each Portfolio and its shareholders to approve renewal of the Management Agreement for another year. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors over the course of numerous meetings, some of which were in executive session with only the independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors differently in reaching their individual decisions to approve the Management Agreement.
24
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2012 (unaudited)
PRINCIPAL AMOUNT (000) | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
Repurchase Agreements (54.7%) | |||||||||||||||||||
$ | 5,000 | ABN Amro Securities (USA) LLC, (dated 06/29/12; proceeds $5,000,067; fully collateralized by a U.S. Government Obligation; U.S. Treasury Note 2.63% due 12/31/14; valued at $5,100,040) | 0.16 | % | 07/02/12 | $ | 5,000,000 | ||||||||||||
2,000 | Bank of Montreal, (dated 06/19/12; proceeds $2,000,198; fully collateralized by U.S. Government Agencies; Federal National Mortgage Association 4.00% due 08/01/22 - 12/01/40; valued at $2,067,723) | 0.17 | 07/10/12 | 2,000,000 | |||||||||||||||
10,000 | Bank of Nova Scotia, (dated 06/29/12; proceeds $10,000,125; fully collateralized by a U.S. Government Obligation; U.S. Treasury Note 0.63% due 07/15/14; valued at $10,228,820) | 0.15 | 07/02/12 | 10,000,000 | |||||||||||||||
11,208 | BNP Paribas Securities Corp., (dated 06/29/12; proceeds $11,208,177; fully collateralized by a U.S. Government Agency; Federal National Mortgage Association 3.40% due 11/01/41; valued at $11,528,888) | 0.19 | 07/02/12 | 11,208,000 | |||||||||||||||
20,000 | Credit Agricole CIB, (dated 06/29/12; proceeds $20,000,250; fully collateralized by a U.S. Government Obligation; U.S. Treasury Strip Zero Coupon due 04/04/13; valued at $20,400,000) | 0.15 | 07/02/12 | 20,000,000 | |||||||||||||||
5,000 | TD Securities (USA) LLC, (dated 06/28/12; proceeds $5,000,136; fully collateralized by a U.S. Government Obligation; U.S. Treasury Bond 4.50% due 05/15/38; valued at $5,100,011) | 0.14 | 07/05/12 | 5,000,000 | |||||||||||||||
Total Repurchase Agreements (Cost $53,208,000) | 53,208,000 | ||||||||||||||||||
Commercial Paper (16.9%) | |||||||||||||||||||
International Banks | |||||||||||||||||||
1,000 | BNZ International Funding Ltd. (a) | 0.55 | 08/16/12 | 999,295 | |||||||||||||||
1,000 | ING US Funding LLC | 0.42 | 07/06/12 | 999,931 | |||||||||||||||
3,000 | National Australia Funding Corp. (a) | 0.13 | 07/05/12 | 2,999,946 | |||||||||||||||
2,000 | NRW Bank (a) | 0.25 | 07/02/12 | 1,999,972 | |||||||||||||||
500 | Oversea Chinese Banking | 0.48 | 01/02/13 | 498,786 |
See Notes to Financial Statements
25
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 4,500 | Rabobank USA Financial Corp. | 0.54 - 0.67 | % | 07/30/12 - 10/02/12 | $ | 4,496,676 | ||||||||||||
1,000 | Sumitomo Mitsui Banking Corp. (a) | 0.39 | 07/06/12 | 999,937 | |||||||||||||||
1,000 | Toyota Motor Credit Corp. | 0.13 | 07/10/12 | 999,964 | |||||||||||||||
2,500 | Westpac Banking Corp. (a) | 0.48 | 09/14/12 | 2,497,467 | |||||||||||||||
Total Commercial Paper (Cost $16,491,974) | 16,491,974 | ||||||||||||||||||
Certificates of Deposit (13.4%) | |||||||||||||||||||
International Banks | |||||||||||||||||||
3,000 | Bank of Montreal | 0.16 | 07/06/12 | 3,000,000 | |||||||||||||||
1,000 | Deutsche Bank AG | 0.52 | 10/18/12 | 1,000,000 | |||||||||||||||
3,000 | Skandin Ens Banken | 0.44 - 0.49 | 08/15/12 - 09/07/12 | 2,999,990 | |||||||||||||||
3,000 | Sumitomo Mitsui Banking Corp. | 0.36 - 0.38 | 07/06/12 - 08/01/12 | 3,000,000 | |||||||||||||||
1,000 | Svenska Handelsbanken AB | 0.60 | 08/02/12 | 1,000,000 | |||||||||||||||
2,000 | Toronto Dominion Bank | 0.17 | 07/19/12 - 07/20/12 | 2,000,000 | |||||||||||||||
Total Certificates of Deposit (Cost $12,999,990) | 12,999,990 |
COUPON RATE(b) | DEMAND DATE(c) | ||||||||||||||||||||||
Floating Rate Notes (12.9%) | |||||||||||||||||||||||
International Banks | |||||||||||||||||||||||
3,000 | Bank of Nova Scotia | 0.47 - 0.51 | % | 07/26/12 - 10/02/12 | 04/26/13 - 07/02/13 | 2,999,836 | |||||||||||||||||
4,000 | Barclays Bank PLC | 0.92 | 08/06/12 | 11/05/12 | 4,000,000 | ||||||||||||||||||
1,600 | Commonwealth Bank of Australia (a) | 0.63 | 08/23/12 | 11/16/12 | 1,600,883 | ||||||||||||||||||
3,000 | Deutsche Bank AG | 0.67 | 09/17/12 | 03/15/13 | 3,000,000 | ||||||||||||||||||
1,000 | Westpac Banking Corp. | 0.48 | 07/05/12 | 07/05/12 | 1,000,000 | ||||||||||||||||||
Total Floating Rate Notes (Cost $12,600,719) | 12,600,719 |
See Notes to Financial Statements
26
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE(b) | DEMAND DATE(c) | MATURITY DATE | VALUE | |||||||||||||||||||
Tax-Exempt Instruments (3.1%) | |||||||||||||||||||||||
Weekly Variable Rate Bonds | |||||||||||||||||||||||
$ | 3,000 | Miami-Dade County, FL, Professional Sports Franchise Facilities Tax Ser 2009 E (Cost $3,000,000) | 0.18 | % | 07/06/12 | 10/01/48 | $ | 3,000,000 |
Total Investments (Cost $98,300,683) | 101.0 | % | 98,300,683 | ||||||||||||||||
Liabilities in Excess of Other Assets | (1.0 | ) | (1,004,857 | ) | |||||||||||||||
Net Assets | 100.0 | % | $ | 97,295,826 |
(a) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(b) Rate shown is the rate in effect at June 30, 2012.
(c) Date of next interest rate reset.
MATURITY SCHEDULE†
1 - 30 Days | 75 | % | |||||
31 - 60 Days | 14 | ||||||
61 - 90 Days | 7 | ||||||
91 - 120 Days | 3 | ||||||
121 + Days | 1 | ||||||
100 | % |
† As a percentage of total investments.
See Notes to Financial Statements
27
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Corporate Bonds (54.9%) | |||||||||||||||||||
Basic Materials (2.9%) | |||||||||||||||||||
$ | 350 | Anglo American Capital PLC (United Kingdom) (a) | 9.375 | % | 04/08/14 | $ | 393,767 | ||||||||||||
190 | ArcelorMittal (Luxembourg) | 9.00 | 02/15/15 | 213,657 | |||||||||||||||
230 | Barrick Gold Corp. (Canada) | 1.75 | 05/30/14 | 232,933 | |||||||||||||||
115 | Ecolab, Inc. | 3.00 | 12/08/16 | 121,366 | |||||||||||||||
260 | Kinross Gold Corp. (Canada) | 3.625 | 09/01/16 | 262,281 | |||||||||||||||
350 | Potash Corp. of Saskatchewan, Inc. (Canada) | 5.25 | 05/15/14 | 376,353 | |||||||||||||||
1,600,357 | |||||||||||||||||||
Communications (5.3%) | |||||||||||||||||||
375 | AT&T, Inc. | 2.50 | 08/15/15 | 390,672 | |||||||||||||||
300 | Comcast Corp. | 6.50 | 01/15/15 | 338,595 | |||||||||||||||
215 | COX Communications, Inc. | 4.625 | 06/01/13 | 222,595 | |||||||||||||||
220 | DirecTV Holdings LLC/DirecTV Financing Co., Inc. | 4.75 | 10/01/14 | 236,280 | |||||||||||||||
290 | NBC Universal Media LLC | 2.10 | 04/01/14 | 295,277 | |||||||||||||||
145 | News America, Inc. | 5.30 | 12/15/14 | 159,016 | |||||||||||||||
200 | Time Warner Cable, Inc. | 8.25 | 02/14/14 | 222,762 | |||||||||||||||
250 | Verizon Communications, Inc. | 1.25 | 11/03/14 | 253,221 | |||||||||||||||
350 | Viacom, Inc. | 4.375 | 09/15/14 | 374,851 | |||||||||||||||
340 | Vodafone Group PLC (United Kingdom) | 5.00 | 12/16/13 | 360,551 | |||||||||||||||
2,853,820 | |||||||||||||||||||
Consumer, Cyclical (2.6%) | |||||||||||||||||||
305 | Best Buy Co., Inc. | 3.75 | 03/15/16 | 298,029 | |||||||||||||||
280 | Daimler Finance North America LLC (a) | 1.875 | 09/15/14 | 281,645 | |||||||||||||||
220 | Home Depot, Inc. | 5.40 | 03/01/16 | 253,835 | |||||||||||||||
430 | Volkswagen International Finance N.V. (Germany) (a) | 1.625 | 03/22/15 | 431,775 | |||||||||||||||
135 | Wesfarmers Ltd. (Australia) (a) | 2.983 | 05/18/16 | 139,101 | |||||||||||||||
1,404,385 | |||||||||||||||||||
Consumer, Non-Cyclical (8.1%) | |||||||||||||||||||
250 | Altria Group, Inc. | 4.125 | 09/11/15 | 271,549 | |||||||||||||||
165 | Anheuser-Busch InBev Worldwide, Inc. (Belgium) | 4.125 | 01/15/15 | 177,929 | |||||||||||||||
205 | Anheuser-Busch InBev Worldwide, Inc. (Belgium) | 5.375 | 11/15/14 | 226,123 | |||||||||||||||
265 | Bacardi Ltd. (Bermuda) (a) | 7.45 | 04/01/14 | 292,680 | |||||||||||||||
260 | Bunge Ltd. Finance Corp. | 5.35 | 04/15/14 | 274,469 | |||||||||||||||
430 | Coca-Cola Co. (The) | 0.75 | 03/13/15 | 431,155 | |||||||||||||||
330 | Delhaize Group SA (Belgium) | 5.875 | 02/01/14 | 347,630 | |||||||||||||||
275 | Diageo Capital PLC (United Kingdom) | 1.50 | 05/11/17 | 276,335 | |||||||||||||||
15 | Express Scripts Holding Co. (a) | 2.65 | 02/15/17 | 15,277 | |||||||||||||||
200 | Express Scripts Holding Co. (a) | 2.75 | 11/21/14 | 204,396 |
See Notes to Financial Statements
28
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 350 | Gilead Sciences, Inc. | 3.05 | % | 12/01/16 | $ | 369,879 | ||||||||||||
120 | GlaxoSmithKline Capital PLC (United Kingdom) | 0.75 | 05/08/15 | 120,071 | |||||||||||||||
300 | Kraft Foods, Inc. | 6.75 | 02/19/14 | 328,755 | |||||||||||||||
225 | Kroger Co. (The) | 7.50 | 01/15/14 | 246,752 | |||||||||||||||
370 | McKesson Corp. | 3.25 | 03/01/16 | 397,513 | |||||||||||||||
175 | PepsiCo, Inc. | 0.75 | 03/05/15 | 174,636 | |||||||||||||||
250 | Stryker Corp. | 2.00 | 09/30/16 | 256,396 | |||||||||||||||
4,411,545 | |||||||||||||||||||
Energy (3.1%) | |||||||||||||||||||
225 | Enterprise Products Operating LLC, Series O | 9.75 | 01/31/14 | 253,942 | |||||||||||||||
380 | Marathon Petroleum Corp. | 3.50 | 03/01/16 | 398,673 | |||||||||||||||
275 | Phillips 66 (a) | 1.95 | 03/05/15 | 277,149 | |||||||||||||||
320 | Plains All American Pipeline L.P./PAA Finance Corp. | 4.25 | 09/01/12 | 321,471 | |||||||||||||||
305 | Spectra Energy Capital LLC | 5.90 | 09/15/13 | 320,517 | |||||||||||||||
100 | TransCanada PipeLines Ltd. (Canada) | 0.875 | 03/02/15 | 99,885 | |||||||||||||||
1,671,637 | |||||||||||||||||||
Finance (25.0%) | |||||||||||||||||||
265 | ABB Treasury Center USA, Inc. (Switzerland) (a) | 2.50 | 06/15/16 | 274,329 | |||||||||||||||
255 | Abbey National Treasury Services PLC (United Kingdom) | 2.875 | 04/25/14 | 248,782 | |||||||||||||||
110 | Aflac, Inc. | 3.45 | 08/15/15 | 117,156 | |||||||||||||||
475 | American Express Co. | 7.25 | 05/20/14 | 526,976 | |||||||||||||||
260 | American International Group, Inc. | 3.65 | 01/15/14 | 265,699 | |||||||||||||||
620 | Bank of America Corp., Series 1 | 3.75 | 07/12/16 | 625,622 | |||||||||||||||
300 | Barclays Bank PLC (United Kingdom) | 5.20 | 07/10/14 | 316,229 | |||||||||||||||
330 | BBVA Bancomer SA (Mexico) (a) | 4.50 | 03/10/16 | 333,300 | |||||||||||||||
320 | BNP Paribas SA (France) | 3.60 | 02/23/16 | 323,954 | |||||||||||||||
205 | BP Capital Markets PLC (United Kingdom) | 3.875 | 03/10/15 | 219,820 | |||||||||||||||
390 | Canadian Imperial Bank of Commerce (Canada) | 1.45 | 09/13/13 | 393,962 | |||||||||||||||
300 | Capital One Financial Corp. | 7.375 | 05/23/14 | 329,702 | |||||||||||||||
405 | Citigroup, Inc. (See Note 6) | 4.45 | 01/10/17 | 424,972 | |||||||||||||||
250 | Commonwealth Bank of Australia (Australia) | 1.95 | 03/16/15 | 251,777 | |||||||||||||||
115 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) | 3.375 | 01/19/17 | 118,481 | |||||||||||||||
340 | Credit Suisse (Switzerland) | 5.50 | 05/01/14 | 360,607 | |||||||||||||||
355 | Deutsche Bank AG (Germany) | 2.375 | 01/11/13 | 357,185 | |||||||||||||||
205 | DNB Bank ASA (Norway) (a) | 3.20 | 04/03/17 | 207,568 | |||||||||||||||
975 | General Electric Capital Corp. | 2.95 | 05/09/16 | 1,007,046 | |||||||||||||||
300 | Genworth Life Institutional Funding Trust (a) | 5.875 | 05/03/13 | 305,110 | |||||||||||||||
425 | Goldman Sachs Group, Inc. (The) | 3.625 | 02/07/16 | 425,402 | |||||||||||||||
250 | Harley-Davidson Funding Corp. (a) | 5.25 | 12/15/12 | 254,144 |
See Notes to Financial Statements
29
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 200 | HCP, Inc. | 2.70 | % | 02/01/14 | $ | 203,273 | ||||||||||||
350 | HSBC Finance Corp. | 5.25 | 04/15/15 | 374,793 | |||||||||||||||
200 | ING Bank (Netherlands) (a) | 3.75 | 03/07/17 | 199,273 | |||||||||||||||
425 | JPMorgan Chase & Co. | 1.875 | 03/20/15 | 424,951 | |||||||||||||||
135 | JPMorgan Chase & Co. | 3.15 | 07/05/16 | 138,965 | |||||||||||||||
200 | LVMH Moet Hennessy Louis Vuitton SA (France) (a) | 1.625 | 06/29/17 | 200,181 | |||||||||||||||
230 | Macquarie Group Ltd. (Australia) (a) | 7.30 | 08/01/14 | 244,983 | |||||||||||||||
200 | Metropolitan Life Global Funding I (See Note 6) (a) | 1.70 | 06/29/15 | 200,296 | |||||||||||||||
325 | Metropolitan Life Global Funding I (See Note 6) (a) | 2.00 | 01/10/14 | 328,443 | |||||||||||||||
350 | Monumental Global Funding III (a) | 5.25 | 01/15/14 | 371,443 | |||||||||||||||
250 | National Australia Bank (Australia) | 2.00 | 03/09/15 | 250,797 | |||||||||||||||
270 | Nationwide Building Society (United Kingdom) (a) | 4.65 | 02/25/15 | 279,706 | |||||||||||||||
30 | Nissan Motor Acceptance Corp. (Japan) (a) | 3.25 | 01/30/13 | 30,294 | |||||||||||||||
200 | Nordea Bank AB (Sweden) (a) | 2.25 | 03/20/15 | 200,853 | |||||||||||||||
270 | Principal Financial Group, Inc. | 7.875 | 05/15/14 | 300,826 | |||||||||||||||
320 | Prudential Financial, Inc., MTN | 4.75 | 09/17/15 | 344,773 | |||||||||||||||
300 | Standard Chartered PLC (United Kingdom) (a) | 3.85 | 04/27/15 | 314,026 | |||||||||||||||
250 | Svenska Handelsbanken AB (Sweden) | 2.875 | 04/04/17 | 253,713 | |||||||||||||||
365 | UBS AG (Switzerland) | 3.875 | 01/15/15 | 377,408 | |||||||||||||||
330 | US Bancorp | 2.20 | 11/15/16 | 340,695 | |||||||||||||||
470 | Wells Fargo & Co. | 3.676 | 06/15/16 | 500,728 | |||||||||||||||
13,568,243 | |||||||||||||||||||
Industrials (3.7%) | |||||||||||||||||||
385 | Agilent Technologies, Inc. | 4.45 | 09/14/12 | 387,650 | |||||||||||||||
200 | BAA Funding Ltd. (United Kingdom) (a) | 2.50 | 06/25/15 | 201,263 | |||||||||||||||
200 | BAT International Finance PLC (United Kingdom) (a) | 1.40 | 06/05/15 | 200,119 | |||||||||||||||
125 | Cardinal Health, Inc. | 1.90 | 06/15/17 | 126,084 | |||||||||||||||
100 | Covidien International Finance SA | 1.35 | 05/29/15 | 100,201 | |||||||||||||||
90 | Danaher Corp. | 1.30 | 06/23/14 | 90,980 | |||||||||||||||
210 | Experian Finance PLC (United Kingdom) (a)(b) | 2.375 | 06/15/17 | 210,479 | |||||||||||||||
75 | Kellogg Co. | 1.125 | 05/15/15 | 75,414 | |||||||||||||||
150 | Kraft Foods Group, Inc. (a) | 1.625 | 06/04/15 | 151,695 | |||||||||||||||
75 | McDonald's Corp. | 0.75 | 05/29/15 | 75,045 | |||||||||||||||
60 | Tyco Electronics Group SA (Luxembourg) | 1.60 | 02/03/15 | 60,289 | |||||||||||||||
45 | United Technologies Corp. | 1.20 | 06/01/15 | 45,556 | |||||||||||||||
250 | Waste Management, Inc. | 2.60 | 09/01/16 | 256,796 | |||||||||||||||
1,981,571 |
See Notes to Financial Statements
30
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Technology (1.5%) | |||||||||||||||||||
$ | 160 | Applied Materials, Inc. | 2.65 | % | 06/15/16 | $ | 167,673 | ||||||||||||
285 | Hewlett-Packard Co. | 3.30 | 12/09/16 | 298,204 | |||||||||||||||
330 | Texas Instruments, Inc. | 1.375 | 05/15/14 | 333,798 | |||||||||||||||
799,675 | |||||||||||||||||||
Utilities (2.7%) | |||||||||||||||||||
300 | Commonwealth Edison Co. | 1.625 | 01/15/14 | 304,159 | |||||||||||||||
350 | Enel Finance International N.V. (Italy) (a) | 3.875 | 10/07/14 | 344,292 | |||||||||||||||
215 | FirstEnergy Solutions Corp. | 4.80 | 02/15/15 | 228,378 | |||||||||||||||
265 | NextEra Energy Capital Holdings, Inc. | 5.35 | 06/15/13 | 276,071 | |||||||||||||||
320 | Sempra Energy | 2.00 | 03/15/14 | 325,139 | |||||||||||||||
1,478,039 | |||||||||||||||||||
Total Corporate Bonds (Cost $29,649,561) | 29,769,272 | ||||||||||||||||||
U.S. Treasury Securities (17.0%) | |||||||||||||||||||
U.S. Treasury Notes | |||||||||||||||||||
1,650 | 0.75 | 06/15/14 | 1,663,923 | ||||||||||||||||
730 | 0.875 | 12/31/16 | 736,673 | ||||||||||||||||
3,253 | 1.25 | 10/31/15 | 3,334,579 | ||||||||||||||||
3,275 | 2.25 | 03/31/16 | 3,483,270 | ||||||||||||||||
Total U.S. Treasury Securities (Cost $9,217,033) | 9,218,445 | ||||||||||||||||||
Asset-Backed Securities (16.1%) | |||||||||||||||||||
Ally Master Owner Trust | |||||||||||||||||||
100 | (a) | 1.992 | (c) | 01/15/15 | 100,816 | ||||||||||||||
200 | 2.15 | 01/15/16 | 203,703 | ||||||||||||||||
225 | (a) | 2.88 | 04/15/15 | 228,047 | |||||||||||||||
800 | American Express Credit Account Master Trust | 1.492 | (c) | 03/15/17 | 820,391 | ||||||||||||||
37 | ARI Fleet Lease Trust (a) | 1.692 | (c) | 08/15/18 | 37,236 | ||||||||||||||
807 | Capital One Multi-Asset Execution Trust | 0.322 | (c) | 09/15/15 | 806,834 | ||||||||||||||
225 | CarMax Auto Owner Trust | 1.29 | 09/15/15 | 226,314 | |||||||||||||||
37 | Chesapeake Funding LLC (a) | 2.242 | (c) | 12/15/20 | 37,376 | ||||||||||||||
600 | Citibank Credit Card Issuance Trust (See Note 6) | 2.25 | 12/23/14 | 605,406 | |||||||||||||||
CNH Equipment Trust | |||||||||||||||||||
421 | 1.17 | 05/15/15 | 422,575 | ||||||||||||||||
40 | 1.54 | 07/15/14 | 40,187 | ||||||||||||||||
Ford Credit Floorplan Master Owner Trust | |||||||||||||||||||
775 | 1.792 | (c) | 09/15/14 | 777,537 | |||||||||||||||
375 | (a) | 4.20 | 02/15/17 | 405,063 |
See Notes to Financial Statements
31
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 330 | GE Dealer Floorplan Master Note Trust | 0.844 | (c)% | 07/20/16 | $ | 331,520 | ||||||||||||
214 | GE Equipment Midticket LLC (a) | 0.94 | 07/14/14 | 214,533 | |||||||||||||||
555 | Harley-Davidson Motorcycle Trust | 1.16 | 02/15/15 | 556,110 | |||||||||||||||
310 | Hyundai Auto Lease Securitization Trust 2011-A (a) | 1.02 | 08/15/14 | 311,072 | |||||||||||||||
326 | Hyundai Auto Receivables Trust | 1.50 | 10/15/14 | 327,182 | |||||||||||||||
294 | Macquarie Equipment Funding Trust (a) | 1.21 | 09/20/13 | 294,422 | |||||||||||||||
118 | MMAF Equipment Finance LLC (a) | 2.37 | 11/15/13 | 118,123 | |||||||||||||||
MMCA Automobile Trust | |||||||||||||||||||
225 | (a) | 1.22 | 01/15/15 | 225,786 | |||||||||||||||
148 | (a) | 1.39 | 01/15/14 | 148,002 | |||||||||||||||
531 | Nissan Auto Lease Trust | 1.12 | 12/15/13 | 532,265 | |||||||||||||||
200 | Nissan Master Owner Trust Receivables (a) | 1.392 | (c) | 01/15/15 | 201,149 | ||||||||||||||
North Carolina State Education Assistance Authority | |||||||||||||||||||
216 | 0.916 | (c) | 01/25/21 | 216,133 | |||||||||||||||
225 | 1.266 | (c) | 07/25/25 | 224,435 | |||||||||||||||
100 | Panhandle-Plains Higher Education Authority, Inc. | 1.411 | (c) | 07/01/24 | 100,356 | ||||||||||||||
125 | Toyota Auto Receivables Owner Trust | 1.27 | 12/16/13 | 125,228 | |||||||||||||||
32 | Wheels SPV LLC (a) | 1.792 | (c) | 03/15/18 | 31,995 | ||||||||||||||
60 | World Omni Automobile Lease Securitization Trust | 0.93 | 11/16/15 | 60,087 | |||||||||||||||
Total Asset-Backed Securities (Cost $8,637,600) | 8,729,883 | ||||||||||||||||||
Non-U.S. Government - Guaranteed (4.5%) | |||||||||||||||||||
900 | Commonwealth Bank of Australia (Australia) (a) | 2.50 | 12/10/12 | 907,594 | |||||||||||||||
1,545 | Swedbank AB (Sweden) (a) | 2.90 | 01/14/13 | 1,564,535 | |||||||||||||||
Total Non-U.S. Government - Guaranteed (Cost $1,880,889) | 2,472,129 | ||||||||||||||||||
Agency Adjustable Rate Mortgages (3.6%) | |||||||||||||||||||
77 | Federal Home Loan Mortgage Corporation, Conventional Pool | 5.433 | 01/01/38 | 83,212 | |||||||||||||||
Federal National Mortgage Association, Conventional Pools: | |||||||||||||||||||
386 | 2.306 | 02/01/36 | 409,762 | ||||||||||||||||
250 | 2.332 | 05/01/35 | 265,660 | ||||||||||||||||
644 | 2.587 | 09/01/37 | 687,779 | ||||||||||||||||
465 | 3.137 | 04/01/38 | 498,635 | ||||||||||||||||
Total Agency Adjustable Rate Mortgages (Cost $1,936,597) | 1,945,048 |
See Notes to Financial Statements
32
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Agency Fixed Rate Mortgages (0.7%) | |||||||||||||||||||
Federal National Mortgage Association, Conventional Pools: | |||||||||||||||||||
$ | 191 | 6.50 | % | 01/01/32 - 11/01/33 | $ | 219,530 | |||||||||||||
115 | 7.00 | 08/01/29 - 06/01/32 | 136,674 | ||||||||||||||||
Total Agency Fixed Rate Mortgages (Cost $320,393) | 356,204 | ||||||||||||||||||
Collateralized Mortgage Obligation - Agency Collateral Series (0.6%) | |||||||||||||||||||
282 | Federal Home Loan Mortgage Corporation, REMIC (Cost $301,340) | 7.50 | 09/15/29 | 332,012 | |||||||||||||||
Municipal Bond (0.5%) | |||||||||||||||||||
300 | New Jersey Economic Development Authority (Cost $300,000) | 1.468 | (c) | 06/15/13 | 301,158 | ||||||||||||||
Sovereign (0.4%) | |||||||||||||||||||
200 | Qatar Government International Bond (Qatar) (Cost $211,500) (a) | 4.00 | 01/20/15 | 211,200 | |||||||||||||||
Short-Term Investments (1.1%) | |||||||||||||||||||
U.S. Treasury Security (0.7%) | |||||||||||||||||||
385 | U.S. Treasury Bill (Cost $384,914) (d)(e) | 0.136 | 08/30/12 | 384,970 | |||||||||||||||
NUMBER OF SHARES (000) | |||||||||||||||||||
Investment Company (0.4%) | |||||||||||||||||||
231 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $231,019) | 231,019 | |||||||||||||||||
Total Short-Term Investments (Cost $615,933) | 615,989 | ||||||||||||||||||
Total Investments (Cost $53,070,846) (f) | 99.4 | % | 53,951,340 | ||||||||||||||||
Other Assets in Excess of Liabilities | 0.6 | 312,584 | |||||||||||||||||
Net Assets | 100.0 | % | $ | 54,263,924 |
See Notes to Financial Statements
33
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2012 (unaudited) continued
MTN Medium Term Note.
REMIC Real Estate Mortgage Investment Conduit.
(a) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(b) When-issued security.
(c) Variable/Floating Rate Security — Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 2012.
(d) Rate shown is the yield to maturity at June 30, 2012.
(e) A portion of this security has been physically segregated in connection with open futures contracts.
(f) Securities are available for collateral in connection with purchase of when-issued securities and futures contracts.
FUTURES CONTRACTS OPEN AT JUNE 30, 2012:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
23 | Long | U.S. Treasury 2 yr. Note, Sep-12 | $ | 5,064,313 | $ | (2,139 | ) | ||||||||||||
40 | Long | U.S. Treasury 5 yr. Note, Sep-12 | 4,958,750 | 7,844 | |||||||||||||||
Net Unrealized Appreciation | $ | 5,705 |
LONG TERM CREDIT ANALYSIS++ | |||||||
AAA | 21.6 | % | |||||
AA | 33.1 | ||||||
A | 28.5 | ||||||
BBB | 16.5 | ||||||
Not Rated | 0.3 | ||||||
100.0 | %+ |
+ Does not include open long futures contracts with an underlying face amount of $10,023,063 with net unrealized appreciation of $5,705.
++ The ratings shown are based on the Portfolio's security ratings as determined by Standard & Poor's, Moody's or Fitch, each a Nationally Recognized Statistical Ratings Organization ("NRSRO").
See Notes to Financial Statements
34
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Corporate Bonds (96.3%) | |||||||||||||||||||
Basic Materials (6.0%) | |||||||||||||||||||
$ | 820 | ArcelorMittal (Luxembourg) | 9.85 | % | 06/01/19 | $ | 977,094 | ||||||||||||
EUR | 811 | ArcelorMittal, Series MT (Luxembourg) | 7.25 | 04/01/14 | 225,208 | ||||||||||||||
$ | 540 | Barrick Gold Corp. (Canada) | 3.85 | 04/01/22 | 560,210 | ||||||||||||||
1,570 | CF Industries, Inc. | 6.875 | 05/01/18 | 1,866,338 | |||||||||||||||
575 | Eastman Chemical Co. | 3.60 | 08/15/22 | 587,674 | |||||||||||||||
540 | FMG Resources August 2006 Pty Ltd. (Australia) (a) | 6.375 | 02/01/16 | 549,450 | |||||||||||||||
205 | FMG Resources August 2006 Pty Ltd. (Australia) (a) | 6.875 | 02/01/18 | 207,819 | |||||||||||||||
595 | Georgia-Pacific LLC | 8.875 | 05/15/31 | 841,060 | |||||||||||||||
203 | Goldcorp, Inc. (Canada) | 2.00 | 08/01/14 | 229,644 | |||||||||||||||
535 | Incitec Pivot Ltd. (Australia) (a) | 4.00 | 12/07/15 | 550,878 | |||||||||||||||
600 | Inversiones CMPC SA (Chile) (a) | 4.50 | 04/25/22 | 596,871 | |||||||||||||||
580 | Kinross Gold Corp. (Canada) | 5.125 | 09/01/21 | 587,855 | |||||||||||||||
545 | Lubrizol Corp. | 8.875 | 02/01/19 | 745,027 | |||||||||||||||
675 | LyondellBasell Industries N.V. (a) | 5.00 | 04/15/19 | 711,281 | |||||||||||||||
1,000 | MeadWestvaco Corp. | 7.375 | 09/01/19 | 1,192,016 | |||||||||||||||
290 | Syngenta Finance N.V. (Switzerland) | 4.375 | 03/28/42 | 313,460 | |||||||||||||||
280 | Teck Resources Ltd. (Canada) | 6.25 | 07/15/41 | 314,593 | |||||||||||||||
195 | Vale Overseas Ltd. (Brazil) | 6.875 | 11/21/36 | 227,166 | |||||||||||||||
210 | Vale Overseas Ltd. (Brazil) | 6.875 | 11/10/39 | 246,409 | |||||||||||||||
11,530,053 | |||||||||||||||||||
Communications (11.4%) | |||||||||||||||||||
1,700 | AT&T, Inc. | 5.35 | 09/01/40 | 1,958,557 | |||||||||||||||
875 | AT&T, Inc. | 6.30 | 01/15/38 | 1,093,707 | |||||||||||||||
310 | Cablevision Systems Corp. | 7.75 | 04/15/18 | 331,700 | |||||||||||||||
470 | CenturyLink, Inc. | 5.80 | 03/15/22 | 468,746 | |||||||||||||||
655 | CenturyLink, Inc. | 6.45 | 06/15/21 | 682,734 | |||||||||||||||
325 | CenturyLink, Inc., Series Q | 6.15 | 09/15/19 | 335,725 | |||||||||||||||
920 | Comcast Corp. | 6.40 | 05/15/38 | 1,125,374 | |||||||||||||||
625 | Corning, Inc. | 4.75 | 03/15/42 | 657,588 | |||||||||||||||
195 | CSC Holdings LLC (a) | 6.75 | 11/15/21 | 208,650 | |||||||||||||||
315 | Deutsche Telekom International Finance BV (Germany) | 6.75 | 08/20/18 | 379,731 | |||||||||||||||
300 | Deutsche Telekom International Finance BV (Germany) | 8.75 | 06/15/30 | 417,491 | |||||||||||||||
1,425 | DirecTV Holdings LLC/DirecTV Financing Co., Inc. | 3.80 | 03/15/22 | 1,444,001 | |||||||||||||||
510 | DISH DBS Corp. | 7.125 | 02/01/16 | 562,275 |
See Notes to Financial Statements
35
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 381 | Liberty Interactive LLC | 3.125 | % | 03/30/23 | $ | 467,201 | ||||||||||||
600 | Motorola Solutions, Inc. | 3.75 | 05/15/22 | 592,911 | |||||||||||||||
1,045 | NBC Universal Media LLC | 4.375 | 04/01/21 | 1,151,738 | |||||||||||||||
200 | News America, Inc. | 6.40 | 12/15/35 | 231,337 | |||||||||||||||
575 | Omnicom Group, Inc. | 3.625 | 05/01/22 | 585,461 | |||||||||||||||
263 | Priceline.com, Inc. (a) | 1.00 | 03/15/18 | 278,451 | |||||||||||||||
260 | Qwest Corp. | 6.875 | 09/15/33 | 260,000 | |||||||||||||||
213 | Sable International Finance Ltd. (United Kingdom) (a) | 7.75 | 02/15/17 | 221,520 | |||||||||||||||
351 | SBA Communications Corp. | 1.875 | 05/01/13 | 487,890 | |||||||||||||||
198 | SBA Telecommunications, Inc. | 8.25 | 08/15/19 | 217,800 | |||||||||||||||
350 | Symantec Corp., Series B | 1.00 | 06/15/13 | 360,063 | |||||||||||||||
655 | Telecom Italia Capital SA (Italy) | 7.175 | 06/18/19 | 655,000 | |||||||||||||||
375 | Telefonaktiebolaget LM Ericsson (Sweden) | 4.125 | 05/15/22 | 376,794 | |||||||||||||||
580 | Telefonica Europe BV (Spain) | 8.25 | 09/15/30 | 562,307 | |||||||||||||||
1,200 | Time Warner Cable, Inc. | 6.75 | 07/01/18 | 1,463,671 | |||||||||||||||
610 | Time Warner, Inc. | 6.50 | 11/15/36 | 724,282 | |||||||||||||||
1,295 | Time Warner, Inc. | 7.70 | 05/01/32 | 1,695,863 | |||||||||||||||
150 | Verizon Communications, Inc. | 6.40 | 02/15/38 | 195,475 | |||||||||||||||
715 | Verizon Communications, Inc. | 8.95 | 03/01/39 | 1,181,617 | |||||||||||||||
335 | Vivendi SA (France) (a) | 6.625 | 04/04/18 | 370,741 | |||||||||||||||
21,746,401 | |||||||||||||||||||
Consumer, Cyclical (4.9%) | |||||||||||||||||||
1,105 | Chrysler Group LLC/CG Co-Issuer, Inc. | 8.00 | 06/15/19 | 1,140,913 | |||||||||||||||
395 | Daimler Finance North America LLC (Germany) | 8.50 | 01/18/31 | 605,996 | |||||||||||||||
925 | Gap, Inc. (The) | 5.95 | 04/12/21 | 960,404 | |||||||||||||||
105 | Ingram Micro, Inc. | 5.25 | 09/01/17 | 112,692 | |||||||||||||||
208 | International Game Technology | 3.25 | 05/01/14 | 230,620 | |||||||||||||||
285 | Levi Strauss & Co. | 7.625 | 05/15/20 | 304,238 | |||||||||||||||
350 | Macy's Retail Holdings, Inc. | 3.875 | 01/15/22 | 368,699 | |||||||||||||||
1,450 | McDonald's Corp. | 2.625 | 01/15/22 | 1,479,497 | |||||||||||||||
620 | QVC, Inc. (a) | 7.125 | 04/15/17 | 658,748 | |||||||||||||||
565 | Volkswagen International Finance N.V. (Germany) (a) | 2.375 | 03/22/17 | 574,580 | |||||||||||||||
780 | Wyndham Worldwide Corp. | 4.25 | 03/01/22 | 786,927 | |||||||||||||||
500 | Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. (a) | 5.375 | 03/15/22 | 503,750 | |||||||||||||||
265 | Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | 7.75 | 08/15/20 | 294,813 | |||||||||||||||
1,040 | Yum! Brands, Inc. | 6.875 | 11/15/37 | 1,382,073 | |||||||||||||||
9,403,950 |
See Notes to Financial Statements
36
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Consumer, Non-Cyclical (8.6%) | |||||||||||||||||||
$ | 245 | Amgen, Inc. | 3.875 | % | 11/15/21 | $ | 259,194 | ||||||||||||
950 | BAT International Finance PLC (United Kingdom) (a) | 2.125 | 06/07/17 | 949,853 | |||||||||||||||
795 | Boston Scientific Corp. | 6.00 | 01/15/20 | 949,609 | |||||||||||||||
720 | Cigna Corp. | 5.375 | 02/15/42 | 768,973 | |||||||||||||||
220 | Covidien International Finance SA | 3.20 | 06/15/22 | 227,296 | |||||||||||||||
1,185 | Delhaize Group SA (Belgium) | 5.70 | 10/01/40 | 998,602 | |||||||||||||||
475 | Diageo Investment Corp. (United Kingdom) | 2.875 | 05/11/22 | 488,990 | |||||||||||||||
690 | Express Scripts Holding Co. (a) | 2.65 | 02/15/17 | 702,744 | |||||||||||||||
370 | Express Scripts Holding Co. (a) | 3.90 | 02/15/22 | 384,278 | |||||||||||||||
420 | Gilead Sciences, Inc. | 1.00 | 05/01/14 | 523,950 | |||||||||||||||
320 | Gilead Sciences, Inc. | 5.65 | 12/01/41 | 374,437 | |||||||||||||||
490 | Grupo Bimbo SAB de CV (Mexico) (a) | 4.875 | 06/30/20 | 545,074 | |||||||||||||||
700 | Kraft Foods, Inc. | 6.875 | 02/01/38 | 918,596 | |||||||||||||||
400 | Kraft Foods, Inc. | 6.875 | 01/26/39 | 521,518 | |||||||||||||||
415 | Life Technologies Corp. | 6.00 | 03/01/20 | 487,628 | |||||||||||||||
835 | Lorillard Tobacco Co. | 8.125 | 06/23/19 | 1,037,726 | |||||||||||||||
875 | PepsiCo, Inc. | 2.75 | 03/05/22 | 885,015 | |||||||||||||||
600 | Philip Morris International, Inc. | 4.50 | 03/20/42 | 640,758 | |||||||||||||||
550 | SABMiller Holdings, Inc. (a) | 3.75 | 01/15/22 | 586,075 | |||||||||||||||
305 | SABMiller Holdings, Inc. (a) | 4.95 | 01/15/42 | 338,959 | |||||||||||||||
800 | Sigma Alimentos SA de CV (Mexico) (a) | 5.625 | 04/14/18 | 866,000 | |||||||||||||||
260 | Smithfield Foods, Inc. | 4.00 | 06/30/13 | 290,550 | |||||||||||||||
665 | Teva Pharmaceutical Finance IV BV (Israel) | 3.65 | 11/10/21 | 700,820 | |||||||||||||||
520 | TreeHouse Foods, Inc. | 7.75 | 03/01/18 | 564,850 | |||||||||||||||
630 | Verisk Analytics, Inc. | 5.80 | 05/01/21 | 704,371 | |||||||||||||||
280 | Vertex Pharmaceuticals, Inc. | 3.35 | 10/01/15 | 367,150 | |||||||||||||||
235 | Viropharma, Inc. | 2.00 | 03/15/17 | 334,288 | |||||||||||||||
16,417,304 | |||||||||||||||||||
Energy (8.3%) | |||||||||||||||||||
356 | Alpha Natural Resources, Inc. | 2.375 | 04/15/15 | 303,045 | |||||||||||||||
85 | Alpha Natural Resources, Inc. | 6.00 | 06/01/19 | 72,888 | |||||||||||||||
370 | Alpha Natural Resources, Inc. | 6.25 | 06/01/21 | 314,500 | |||||||||||||||
1,075 | BP Capital Markets PLC (United Kingdom) | 3.245 | 05/06/22 | 1,115,387 | |||||||||||||||
450 | Canadian Natural Resources Ltd. (Canada) | 6.25 | 03/15/38 | 553,228 | |||||||||||||||
225 | Canadian Oil Sands Ltd. (Canada) (a) | 6.00 | 04/01/42 | 239,569 | |||||||||||||||
550 | Canadian Oil Sands Ltd. (Canada) (a) | 7.75 | 05/15/19 | 675,056 | |||||||||||||||
394 | Chesapeake Energy Corp. | 2.75 | 11/15/35 | 361,987 | |||||||||||||||
300 | Chesapeake Energy Corp. | 6.775 | 03/15/19 | 292,875 | |||||||||||||||
150 | Concho Resources, Inc. | 7.00 | 01/15/21 | 161,250 |
See Notes to Financial Statements
37
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 745 | Continental Resources, Inc. | 7.125 | % | 04/01/21 | $ | 834,400 | ||||||||||||
275 | Enterprise Products Operating LLC | 5.25 | 01/31/20 | 315,512 | |||||||||||||||
850 | Enterprise Products Operating LLC | 5.95 | 02/01/41 | 964,731 | |||||||||||||||
490 | EQT Corp. | 4.875 | 11/15/21 | 501,440 | |||||||||||||||
500 | Halliburton Co. | 4.50 | 11/15/41 | 526,482 | |||||||||||||||
325 | Marathon Petroleum Corp. | 5.125 | 03/01/21 | 364,516 | |||||||||||||||
775 | Marathon Petroleum Corp. | 6.50 | 03/01/41 | 883,790 | |||||||||||||||
325 | MarkWest Energy Partners LP/MarkWest Energy Finance Corp. | 6.25 | 06/15/22 | 336,375 | |||||||||||||||
820 | Murphy Oil Corp. | 4.00 | 06/01/22 | 836,798 | |||||||||||||||
925 | Phillips 66 (a) | 4.30 | 04/01/22 | 975,010 | |||||||||||||||
1,095 | Plains All American Pipeline LP/PAA Finance Corp. | 6.70 | 05/15/36 | 1,284,260 | |||||||||||||||
675 | Plains All American Pipeline LP/PAA Finance Corp. | 8.75 | 05/01/19 | 891,489 | |||||||||||||||
355 | Sinopec Group Overseas Development 2012 Ltd. (China) (a)(b) | 2.75 | 05/17/17 | 361,901 | |||||||||||||||
225 | Spectra Energy Capital LLC | 8.00 | 10/01/19 | 288,652 | |||||||||||||||
900 | Total Capital International SA (France) | 2.875 | 02/17/22 | 914,393 | |||||||||||||||
700 | Valero Energy Corp. | 6.125 | 02/01/20 | 809,439 | |||||||||||||||
550 | Weatherford International Ltd. | 4.50 | 04/15/22 | 564,786 | |||||||||||||||
15,743,759 | |||||||||||||||||||
Finance (38.8%) | |||||||||||||||||||
EUR | 200 | Aabar Investments PJSC (United Arab Emirates) | 4.00 | 05/27/16 | 241,331 | ||||||||||||||
$ | 630 | ABN Amro Bank N.V. (Netherlands) (a) | 4.25 | 02/02/17 | 643,009 | ||||||||||||||
1,125 | Aegon N.V. (Netherlands) | 4.625 | 12/01/15 | 1,201,455 | |||||||||||||||
264 | Affiliated Managers Group, Inc. | 3.95 | 08/15/38 | 286,110 | |||||||||||||||
475 | Alexandria Real Estate Equities, Inc. | 4.60 | 04/01/22 | 487,283 | |||||||||||||||
1,285 | American Financial Group, Inc. | 9.875 | 06/15/19 | 1,615,911 | |||||||||||||||
1,000 | American Honda Finance Corp. (a) | 2.125 | 02/28/17 | 1,012,807 | |||||||||||||||
720 | American International Group, Inc. | 6.40 | 12/15/20 | 816,015 | |||||||||||||||
1,415 | Amgen, Inc. | 2.125 | 05/15/17 | 1,433,261 | |||||||||||||||
432 | Ares Capital Corp. (a) | 5.75 | 02/01/16 | 441,720 | |||||||||||||||
1,150 | Banco de Credito del Peru (Peru) (a) | 4.75 | 03/16/16 | 1,187,375 | |||||||||||||||
990 | Banco Votorantim SA (Brazil) (a) | 5.25 | 02/11/16 | 1,017,225 | |||||||||||||||
780 | Barclays Bank PLC (United Kingdom) (a) | 6.05 | 12/04/17 | 791,757 | |||||||||||||||
1,135 | BBVA Bancomer SA (Mexico) (a) | 4.50 | 03/10/16 | 1,146,350 | |||||||||||||||
610 | Bear Stearns Cos. LLC (The) | 5.55 | 01/22/17 | 659,047 | |||||||||||||||
300 | Billion Express Investments Ltd. (China) (b) | 0.75 | 10/18/15 | 297,375 | |||||||||||||||
540 | BNP Paribas SA (France) | 5.00 | 01/15/21 | 555,279 | |||||||||||||||
490 | Brookfield Asset Management, Inc. (Canada) | 5.80 | 04/25/17 | 533,857 |
See Notes to Financial Statements
38
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 780 | Capital One Bank, USA NA | 8.80 | % | 07/15/19 | $ | 983,638 | ||||||||||||
800 | Capital One Capital VI | 8.875 | 05/15/40 | 817,000 | |||||||||||||||
970 | CIT Group, Inc. | 5.00 | 05/15/17 | 999,706 | |||||||||||||||
1,735 | Citigroup, Inc. (See Note 6) | 5.875 | 05/29/37 | 1,896,870 | |||||||||||||||
1,230 | Citigroup, Inc. (See Note 6) | 8.50 | 05/22/19 | 1,521,142 | |||||||||||||||
700 | CNA Financial Corp. | 7.35 | 11/15/19 | 829,321 | |||||||||||||||
680 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) | 3.875 | 02/08/22 | 693,099 | |||||||||||||||
260 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) (a) | 11.00 | (c) | 06/30/19(d) | 328,783 | ||||||||||||||
600 | Credit Agricole SA (France) (a) | 8.375 | (c) | 10/13/19(d) | 499,500 | ||||||||||||||
765 | Credit Suisse (Switzerland) | 5.40 | 01/14/20 | 796,880 | |||||||||||||||
280 | Credit Suisse (Switzerland) | 6.00 | 02/15/18 | 299,948 | |||||||||||||||
800 | Dexus Diversified Trust/Dexus Office Trust (Australia) (a) | 5.60 | 03/15/21 | 830,304 | |||||||||||||||
425 | Discover Bank | 7.00 | 04/15/20 | 495,404 | |||||||||||||||
715 | Discover Bank | 8.70 | 11/18/19 | 889,574 | |||||||||||||||
990 | DNB Bank ASA (Norway) (a) | 3.20 | 04/03/17 | 1,002,401 | |||||||||||||||
270 | ERP Operating LP | 4.625 | 12/15/21 | 293,820 | |||||||||||||||
750 | Farmers Insurance Exchange (a) | 8.625 | 05/01/24 | 975,820 | |||||||||||||||
1,060 | Ford Motor Credit Co., LLC (a) | 4.207 | 04/15/16 | 1,101,641 | |||||||||||||||
600 | Ford Motor Credit Co., LLC | 5.00 | 05/15/18 | 638,629 | |||||||||||||||
400 | Ford Motor Credit Co., LLC | 5.875 | 08/02/21 | 445,797 | |||||||||||||||
545 | General Electric Capital Corp. | 5.30 | 02/11/21 | 612,769 | |||||||||||||||
1,550 | General Electric Capital Corp., MTN | 5.875 | 01/14/38 | 1,785,642 | |||||||||||||||
1,650 | General Electric Capital Corp., Series G | 6.00 | 08/07/19 | 1,933,472 | |||||||||||||||
1,195 | Genworth Financial, Inc. | 7.70 | 06/15/20 | 1,182,388 | |||||||||||||||
565 | Goldman Sachs Group, Inc. (The) | 5.75 | 01/24/22 | 597,515 | |||||||||||||||
815 | Goldman Sachs Group, Inc. (The) | 6.15 | 04/01/18 | 884,598 | |||||||||||||||
1,565 | Goldman Sachs Group, Inc. (The) | 6.75 | 10/01/37 | 1,538,364 | |||||||||||||||
950 | Goodman Funding Pty Ltd. (Australia) (a) | 6.375 | 04/15/21 | 991,372 | |||||||||||||||
550 | Harley-Davidson Funding Corp. (a) | 6.80 | 06/15/18 | 656,528 | |||||||||||||||
600 | Hartford Financial Services Group, Inc. | 5.50 | 03/30/20 | 627,419 | |||||||||||||||
1,675 | HBOS PLC, Series G (United Kingdom) (a) | 6.75 | 05/21/18 | 1,582,156 | |||||||||||||||
185 | HCP, Inc. | 5.625 | 05/01/17 | 204,490 | |||||||||||||||
300 | Health Care REIT, Inc. | 4.75 | 07/15/27 | 353,250 | |||||||||||||||
485 | HSBC Finance Corp. | 6.676 | 01/15/21 | 525,976 | |||||||||||||||
1,890 | HSBC Holdings PLC (United Kingdom) | 4.00 | 03/30/22 | 1,966,528 | |||||||||||||||
705 | HSBC Holdings PLC (United Kingdom) | 6.50 | 05/02/36 | 779,709 | |||||||||||||||
595 | Huntington Bancshares, Inc. | 7.00 | 12/15/20 | 697,840 | |||||||||||||||
575 | ING Bank (Netherlands) (a) | 3.75 | 03/07/17 | 572,911 |
See Notes to Financial Statements
39
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 945 | International Lease Finance Corp. | 6.25 | % | 05/15/19 | $ | 962,955 | ||||||||||||
1,325 | JPMorgan Chase & Co. | 4.50 | 01/24/22 | 1,430,103 | |||||||||||||||
660 | JPMorgan Chase Capital XXVII | 7.00 | 11/01/39 | 661,650 | |||||||||||||||
260 | Lloyds TSB Bank PLC (United Kingdom) | 6.375 | 01/21/21 | 295,147 | |||||||||||||||
500 | Mack-Cali Realty LP | 4.50 | 04/18/22 | 514,033 | |||||||||||||||
710 | Macquarie Bank Ltd. (Australia) (a) | 6.625 | 04/07/21 | 713,071 | |||||||||||||||
705 | Macquarie Group Ltd. (Australia) (a) | 6.00 | 01/14/20 | 702,402 | |||||||||||||||
930 | Merrill Lynch & Co., Inc. | 7.75 | 05/14/38 | 1,063,989 | |||||||||||||||
3,625 | Merrill Lynch & Co., Inc., MTN | 6.875 | 04/25/18 | 4,061,051 | |||||||||||||||
600 | Metlife Capital Trust IV (See Note 6) (a) | 7.875 | 12/15/37 | 669,000 | |||||||||||||||
840 | Mizuho Corporate Bank Ltd. (Japan) (a) | 2.55 | 03/17/17 | 853,196 | |||||||||||||||
1,315 | Nationwide Building Society (United Kingdom) (a) | 6.25 | 02/25/20 | 1,420,698 | |||||||||||||||
525 | Nationwide Financial Services (a) | 5.375 | 03/25/21 | 543,995 | |||||||||||||||
1,100 | Nordea Bank AB (Sweden) (a) | 4.875 | 05/13/21 | 1,073,673 | |||||||||||||||
370 | Platinum Underwriters Finance, Inc., Series B | 7.50 | 06/01/17 | 405,635 | |||||||||||||||
1,025 | Principal Financial Group, Inc. | 8.875 | 05/15/19 | 1,330,382 | |||||||||||||||
925 | Protective Life Corp. | 7.375 | 10/15/19 | 1,070,684 | |||||||||||||||
635 | Prudential Financial, Inc., MTN | 6.625 | 12/01/37 | 720,546 | |||||||||||||||
775 | QBE Capital Funding III Ltd. (Australia) (a) | 7.25 | (c) | 05/24/41 | 700,479 | ||||||||||||||
785 | Royal Bank of Scotland PLC (The) (United Kingdom) | 4.875 | 03/16/15 | 812,789 | |||||||||||||||
360 | Santander Holdings USA, Inc. (Spain) | 4.625 | 04/19/16 | 348,185 | |||||||||||||||
700 | Santander US Debt SAU (Spain) (a) | 3.724 | 01/20/15 | 651,466 | |||||||||||||||
1,060 | SLM Corp., MTN | 6.25 | 01/25/16 | 1,118,300 | |||||||||||||||
495 | SLM Corp., MTN | 8.00 | 03/25/20 | 544,500 | |||||||||||||||
885 | Standard Chartered Bank (United Kingdom) (a) | 6.40 | 09/26/17 | 987,625 | |||||||||||||||
900 | Svenska Handelsbanken AB (Sweden) | 2.875 | 04/04/17 | 913,366 | |||||||||||||||
250 | Wachovia Bank NA | 6.60 | 01/15/38 | 316,594 | |||||||||||||||
900 | Wells Operating Partnership II LP | 5.875 | 04/01/18 | 936,877 | |||||||||||||||
74,021,762 | |||||||||||||||||||
Industrials (10.7%) | |||||||||||||||||||
415 | ABB Finance USA, Inc. (Switzerland) | 2.875 | 05/08/22 | 420,692 | |||||||||||||||
522 | Anixter, Inc. | 5.625 | 05/01/19 | 541,575 | |||||||||||||||
1,060 | BAA Funding Ltd. (United Kingdom) (a) | 4.875 | 07/15/21 | 1,120,633 | |||||||||||||||
540 | Ball Corp. | 7.375 | 09/01/19 | 599,400 | |||||||||||||||
500 | Bemis Co., Inc. | 4.50 | 10/15/21 | 540,624 | |||||||||||||||
255 | Bombardier, Inc. (Canada) (a) | 7.50 | 03/15/18 | 280,819 | |||||||||||||||
505 | Bombardier, Inc. (Canada) (a) | 7.75 | 03/15/20 | 564,338 | |||||||||||||||
675 | Boston Properties LP | 3.85 | 02/01/23 | 682,784 | |||||||||||||||
1,000 | Burlington Northern Santa Fe LLC | 3.05 | 03/15/22 | 1,011,064 |
See Notes to Financial Statements
40
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 885 | Cardinal Health, Inc. | 1.90 | % | 06/15/17 | $ | 892,676 | ||||||||||||
300 | Comcast Corp. (e) | 4.65 | 07/15/42 | 301,349 | |||||||||||||||
820 | CRH America, Inc. | 6.00 | 09/30/16 | 898,452 | |||||||||||||||
480 | CRH America, Inc. | 8.125 | 07/15/18 | 572,471 | |||||||||||||||
585 | Crown Americas LLC/Crown Americas Capital Corp. III | 6.25 | 02/01/21 | 642,037 | |||||||||||||||
630 | Deere & Co. | 3.90 | 06/09/42 | 628,658 | |||||||||||||||
450 | Discovery Communications LLC | 3.30 | 05/15/22 | 455,101 | |||||||||||||||
645 | Experian Finance PLC (United Kingdom) (a)(e) | 2.375 | 06/15/17 | 646,472 | |||||||||||||||
248 | General Cable Corp. | 4.50 | 11/15/29 | 242,730 | |||||||||||||||
545 | Holcim US Finance Sarl & Cie SCS (Switzerland) (a) | 6.00 | 12/30/19 | 572,264 | |||||||||||||||
975 | International Business Machines Corp. | 1.875 | 05/15/19 | 986,947 | |||||||||||||||
950 | Koninklijke Philips Electronics N.V. (Netherlands) | 3.75 | 03/15/22 | 987,988 | |||||||||||||||
915 | L-3 Communications Corp. | 4.95 | 02/15/21 | 991,278 | |||||||||||||||
670 | Lafarge SA (France) (a) | 6.20 | 07/09/15 | 717,282 | |||||||||||||||
750 | Odebrecht Finance Ltd. (Brazil) (a) | 6.00 | 04/05/23 | 793,725 | |||||||||||||||
374 | Owens-Brockway Glass Container, Inc. (a) | 3.00 | 06/01/15 | 359,040 | |||||||||||||||
675 | Pioneer Natural Resources Co. | 3.95 | 07/15/22 | 677,996 | |||||||||||||||
950 | Republic Services, Inc. | 3.55 | 06/01/22 | 962,264 | |||||||||||||||
135 | Sonoco Products Co. | 4.375 | 11/01/21 | 142,660 | |||||||||||||||
470 | Sonoco Products Co. | 5.75 | 11/01/40 | 534,574 | |||||||||||||||
525 | United Technologies Corp. | 4.50 | 06/01/42 | 579,122 | |||||||||||||||
975 | URS Corp. (a) | 3.85 | 04/01/17 | 963,873 | |||||||||||||||
20,310,888 | |||||||||||||||||||
Technology (1.8%) | |||||||||||||||||||
703 | Fidelity National Information Services, Inc. (a) | 5.00 | 03/15/22 | 718,817 | |||||||||||||||
235 | Hewlett-Packard Co. | 2.60 | 09/15/17 | 236,179 | |||||||||||||||
845 | Hewlett-Packard Co. | 4.65 | 12/09/21 | 887,424 | |||||||||||||||
234 | Intel Corp. | 2.95 | 12/15/35 | 265,883 | |||||||||||||||
255 | Lam Research Corp. | 1.25 | 05/15/18 | 252,769 | |||||||||||||||
434 | Microsoft Corp. (a) | 0.00 | 06/15/13 | 462,752 | |||||||||||||||
284 | Rovi Corp. | 2.625 | 02/15/40 | 274,770 | |||||||||||||||
276 | SanDisk Corp. | 1.50 | 08/15/17 | 285,315 | |||||||||||||||
3,383,909 | |||||||||||||||||||
Utilities (5.8%) | |||||||||||||||||||
1,110 | AES Corp. (The) | 8.00 | 06/01/20 | 1,279,275 | |||||||||||||||
775 | Boston Gas Co. (a) | 4.487 | 02/15/42 | 821,720 | |||||||||||||||
495 | CMS Energy Corp. | 5.05 | 03/15/22 | 515,908 | |||||||||||||||
280 | CMS Energy Corp. | 6.25 | 02/01/20 | 312,348 |
See Notes to Financial Statements
41
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 750 | EDP Finance BV (Portugal) (a) | 4.90 | % | 10/01/19 | $ | 604,888 | ||||||||||||
675 | Enel Finance International N.V. (Italy) (a) | 5.125 | 10/07/19 | 645,762 | |||||||||||||||
2,100 | Exelon Generation Co., LLC | 4.00 | 10/01/20 | 2,116,788 | |||||||||||||||
975 | FirstEnergy Solutions Corp. | 6.05 | 08/15/21 | 1,072,724 | |||||||||||||||
975 | FirstEnergy Solutions Corp. | 6.80 | 08/15/39 | 1,027,140 | |||||||||||||||
575 | Iberdrola Finance Ireland Ltd. (Spain) (a) | 5.00 | 09/11/19 | 531,819 | |||||||||||||||
900 | PPL WEM Holdings PLC (a) | 3.90 | 05/01/16 | 944,091 | |||||||||||||||
1,150 | Puget Energy, Inc. | 6.50 | 12/15/20 | 1,254,805 | |||||||||||||||
11,127,268 | |||||||||||||||||||
Total Corporate Bonds (Cost $171,443,789) | 183,685,294 | ||||||||||||||||||
Asset-Backed Securities (0.9%) | |||||||||||||||||||
CVS Pass-Through Trust | |||||||||||||||||||
1,435 | 6.036 | 12/10/28 | 1,622,978 | ||||||||||||||||
114 | (a) | 8.353 | 07/10/31 | 149,080 | |||||||||||||||
Total Asset-Backed Securities (Cost $1,554,468) | 1,772,058 | ||||||||||||||||||
Municipal Bond (0.4%) | |||||||||||||||||||
600 | State of California, General Obligation Bonds (Cost $603,036) | 5.95 | 04/01/16 | 685,080 | |||||||||||||||
Sovereign (0.2%) | |||||||||||||||||||
395 | Korea Development Bank (The) (Korea, Republic of) (Cost $393,218) | 3.875 | 05/04/17 | 420,935 | |||||||||||||||
Agency Fixed Rate Mortgage (0.0%) | |||||||||||||||||||
1 | Federal Home Loan Mortgage Corporation, Gold Pool (Cost $1,417) | 6.50 | 12/01/28 | 1,561 | |||||||||||||||
NUMBER OF SHARES | |||||||||||||||||||
Convertible Preferred Stocks (0.3%) | |||||||||||||||||||
Diversified Financial Services (0.2%) | |||||||||||||||||||
350 | Bank of America Corp., Series L | 341,250 | |||||||||||||||||
Electric Utilities (0.1%) | |||||||||||||||||||
4,430 | PPL Corp. | 234,347 | |||||||||||||||||
Total Convertible Preferred Stocks (Cost $585,890) | 575,597 |
See Notes to Financial Statements
42
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Short-Term Investments (1.4%) | |||||||||||||||||||
U.S. Treasury Securities (0.1%) | |||||||||||||||||||
U.S. Treasury Bills | |||||||||||||||||||
$ | 25 | (f)(g) | 0.101 | % | 08/30/12 | $ | 24,997 | ||||||||||||
175 | (f)(g) | 0.136 | 08/30/12 | 174,987 | |||||||||||||||
Total U.S. Treasury Securities (Cost $199,957) | 199,984 | ||||||||||||||||||
NUMBER OF SHARES (000) | |||||||||||||||||||
Investment Company (1.3%) | |||||||||||||||||||
2,384 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $2,384,162) | 2,384,162 | |||||||||||||||||
Total Short-Term Investments (Cost $2,584,119) | 2,584,146 | ||||||||||||||||||
Total Investments (Cost $177,165,937) (h) | 99.5 | % | 189,724,671 | ||||||||||||||||
Other Assets in Excess of Liabilities | 0.5 | 996,664 | |||||||||||||||||
Net Assets | 100.0 | % | $ | 190,721,335 |
MTN Medium Term Note.
REIT Real Estate Investment Trust.
(a) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(b) Security trades on the Hong Kong exchange.
(c) Variable/Floating Rate Security — Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 2012.
(d) Perpetual — Security does not have a predetermined maturity date. Rate for this security is fixed for a period of time then reverts to a floating rate. The interest shown is the rate in effect at June 30, 2012.
(e) When-issued security.
(f) Rate shown is the yield to maturity at June 30, 2012.
(g) A portion of this security has been physically segregated in connection with open futures contracts.
(h) Securities are available for collateral in connection with purchase of when-issued securities, open foreign currency exchange contracts, futures contracts and swap agreements.
See Notes to Financial Statements
43
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2012 (unaudited) continued
FOREIGN CURRENCY EXCHANGE CONTRACTS OPEN AT JUNE 30, 2012:
COUNTERPARTY | CONTRACTS TO DELIVER | IN EXCHANGE FOR | DELIVERY DATE | UNREALIZED DEPRECIATION | |||||||||||||||
Goldman Sachs International | EUR | 396,597 | $ | 491,290 | 07/13/12 | $ | (10,642 | ) |
FUTURES CONTRACTS OPEN AT JUNE 30, 2012:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
135 | Long | U.S. Treasury 2 yr. Note, Sep-12 | $ | 29,725,312 | $ | (12,553 | ) | ||||||||||||
48 | Long | U.S. Treasury Ultra Long Bond, Sep-12 | 8,008,500 | 14,815 | |||||||||||||||
37 | Long | U.S. Treasury 5 yr. Note, Sep-12 | 4,586,844 | 8,094 | |||||||||||||||
19 | Short | U.S. Treasury 30 yr. Bond, Sep-12 | (2,811,406 | ) | (94 | ) | |||||||||||||
284 | Short | U.S. Treasury 10 yr. Note, Sep-12 | (37,878,500 | ) | (93,657 | ) | |||||||||||||
Net Unrealized Depreciation | $ | (83,395 | ) |
INTEREST RATE SWAP AGREEMENTS OPEN AT JUNE 30, 2012:
SWAP COUNTERPARTY | NOTIONAL AMOUNT (000) | FLOATING RATE INDEX | PAY/RECEIVE FLOATING RATE | FIXED RATE | TERMINATION DATE | UNREALIZED DEPRECIATION | |||||||||||||||||||||
Goldman Sachs International | $ | 2,200 | 3 Month LIBOR | Receive | 2.42 | % | 03/22/22 | $ | (149,688 | ) | |||||||||||||||||
JPMorgan Chase Bank | 1,069 | 3 Month LIBOR | Receive | 2.43 | 03/22/22 | (74,176 | ) | ||||||||||||||||||||
Total Unrealized Depreciation | $(223,864) |
LIBOR London Interbank Offered Rate.
Currency Abbreviations:
EUR Euro.
See Notes to Financial Statements
44
Morgan Stanley Variable Investment Series - Income Plus
Summary of Investments n June 30, 2012 (unaudited) continued
LONG TERM CREDIT ANALYSIS++ | |||||||
AA | 6.5 | % | |||||
A | 30.9 | ||||||
BBB | 49.5 | ||||||
BB | 9.4 | ||||||
B or Below | 1.3 | ||||||
Not Rated | 2.4 | ||||||
100.0 | %+ |
+ Does not include open foreign currency exchange contracts with total unrealized depreciation of $10,642. Does not include open long/short futures contracts with an underlying face amount of $83,010,562 with net unrealized depreciation of $83,395. Also does not include open swap agreements with total unrealized depreciation of $223,864.
++ The ratings shown are based on the Portfolio's security ratings as determined by Standard & Poor's, Moody's or Fitch, each a Nationally Recognized Statistical Ratings Organization ("NRSRO").
See Notes to Financial Statements
45
Morgan Stanley Variable Investment Series - Global Infrastructure
Portfolio of Investments n June 30, 2012 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (97.5%) | |||||||||||
Australia (5.3%) | |||||||||||
Airports | |||||||||||
39,313 | Australian Infrastructure Fund (Stapled Securities) (a)(b) | $ | 97,050 | ||||||||
266,364 | Sydney Airport (Stapled Securities) (a) | 793,618 | |||||||||
890,668 | |||||||||||
Diversified | |||||||||||
271,480 | DUET Group (Stapled Securities) (a)(b) | 512,343 | |||||||||
Oil & Gas Storage & Transportation | |||||||||||
122,600 | APA Group (Stapled Securities) (a)(b) | 628,243 | |||||||||
Toll Roads | |||||||||||
75,579 | Macquarie Atlas Roads Group (Stapled Securities) (a)(c) | 116,676 | |||||||||
235,415 | Transurban Group (Stapled Securities) (a) | 1,372,614 | |||||||||
1,489,290 | |||||||||||
Transmission & Distribution | |||||||||||
224,049 | Spark Infrastructure Group | 350,276 | |||||||||
Total Australia | 3,870,820 | ||||||||||
Brazil (0.8%) | |||||||||||
Water | |||||||||||
7,800 | Cia de Saneamento Basico do Estado de Sao Paulo ADR | 591,708 | |||||||||
Canada (11.3%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
81,240 | Enbridge, Inc. | 3,244,493 | |||||||||
4,398 | Keyera Corp. | 183,074 | |||||||||
113,500 | TransCanada Corp. | 4,756,944 | |||||||||
Total Canada | 8,184,511 |
NUMBER OF SHARES | VALUE | ||||||||||
China (14.7%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
755,000 | Beijing Enterprises Holdings Ltd. (d) | $ | 4,557,072 | ||||||||
5,936,000 | China Gas Holdings Ltd. (d) | 2,966,181 | |||||||||
246,000 | ENN Energy Holdings Ltd. (d) | 865,013 | |||||||||
1,610,000 | Sichuan Expressway Co., Ltd., H Shares (d) | 546,119 | |||||||||
8,934,385 | |||||||||||
Ports | |||||||||||
223,529 | China Merchants Holdings International Co., Ltd. (d) | 683,686 | |||||||||
Toll Roads | |||||||||||
1,078,000 | Jiangsu Expressway Co., Ltd., H Shares (d) | 1,011,401 | |||||||||
Total China | 10,629,472 | ||||||||||
France (3.8%) | |||||||||||
Communications | |||||||||||
20,991 | Eutelsat Communications SA | 645,406 | |||||||||
89,415 | SES SA | 2,114,426 | |||||||||
Total France | 2,759,832 | ||||||||||
Germany (0.4%) | |||||||||||
Airports | |||||||||||
4,775 | Fraport AG Frankfurt Airport Services Worldwide | 257,093 | |||||||||
Italy (5.2%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
232,796 | Snam SpA | 1,037,805 | |||||||||
Toll Roads | |||||||||||
53,044 | Atlantia SpA | 677,487 | |||||||||
179,235 | Societa Iniziative Autostradali e Servizi SpA | 1,264,469 | |||||||||
1,941,956 |
See Notes to Financial Statements
46
Morgan Stanley Variable Investment Series - Global Infrastructure
Portfolio of Investments n June 30, 2012 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Transmission & Distribution | |||||||||||
214,100 | Terna Rete Elettrica Nazionale SpA | $ | 771,425 | ||||||||
Total Italy | 3,751,186 | ||||||||||
Japan (1.1%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
152,000 | Tokyo Gas Co., Ltd. | 776,274 | |||||||||
Netherlands (0.8%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
9,106 | Koninklijke Vopak N.V. | 583,935 | |||||||||
Spain (1.4%) | |||||||||||
Diversified | |||||||||||
31,263 | Ferrovial SA | 352,494 | |||||||||
Oil & Gas Storage & Transportation | |||||||||||
15,256 | Enagas SA | 278,393 | |||||||||
Toll Roads | |||||||||||
29,223 | Abertis Infraestructuras SA | 395,676 | |||||||||
Total Spain | 1,026,563 | ||||||||||
Switzerland (1.2%) | |||||||||||
Airports | |||||||||||
2,517 | Flughafen Zuerich AG (Registered) | 883,875 | |||||||||
United Kingdom (11.0%) | |||||||||||
Transmission & Distribution | |||||||||||
571,500 | National Grid PLC | 6,049,115 | |||||||||
Water | |||||||||||
31,700 | Severn Trent PLC | 821,037 | |||||||||
102,700 | United Utilities Group PLC | 1,086,625 | |||||||||
1,907,662 | |||||||||||
Total United Kingdom | 7,956,777 |
NUMBER OF SHARES | VALUE | ||||||||||
United States (40.5%) | |||||||||||
Communications | |||||||||||
49,490 | American Tower Corp., Class A | $ | 3,459,846 | ||||||||
35,610 | Crown Castle International Corp. (c) | 2,088,883 | |||||||||
44,600 | SBA Communications Corp., Class A (c) | 2,544,430 | |||||||||
8,093,159 | |||||||||||
Diversified | |||||||||||
48,770 | CenterPoint Energy, Inc. | 1,008,076 | |||||||||
Oil & Gas Storage & Transportation | |||||||||||
9,660 | AGL Resources, Inc. | 374,325 | |||||||||
5,070 | Atmos Energy Corp. | 177,805 | |||||||||
56,413 | Enbridge Energy Management LLC (c) | 1,803,524 | |||||||||
10,037 | Kinder Morgan Management LLC (c) | 736,917 | |||||||||
13,170 | Kinder Morgan, Inc. | 424,337 | |||||||||
13,900 | New Jersey Resources Corp. | 606,179 | |||||||||
39,390 | NiSource, Inc. | 974,902 | |||||||||
26,940 | Oneok, Inc. | 1,139,831 | |||||||||
41,120 | PG&E Corp. | 1,861,502 | |||||||||
38,790 | Sempra Energy | 2,671,855 | |||||||||
91,546 | Spectra Energy Corp. | 2,660,327 | |||||||||
8,480 | WGL Holdings, Inc. | 337,080 | |||||||||
53,140 | Williams Cos., Inc. (The) | 1,531,495 | |||||||||
15,300,079 | |||||||||||
Transmission & Distribution | |||||||||||
21,290 | ITC Holdings Corp. | 1,467,094 | |||||||||
67,178 | Northeast Utilities | 2,607,178 | |||||||||
12,860 | Pepco Holdings, Inc. | 251,670 | |||||||||
4,325,942 | |||||||||||
Water | |||||||||||
15,810 | American Water Works Co., Inc. | 541,967 | |||||||||
Total United States | 29,269,223 | ||||||||||
Total Common Stocks (Cost $57,439,296) | 70,541,269 |
See Notes to Financial Statements
47
Morgan Stanley Variable Investment Series - Global Infrastructure
Portfolio of Investments n June 30, 2012 (unaudited) continued
NUMBER OF SHARES (000) | VALUE | ||||||||||
Short-Term Investment (1.5%) | |||||||||||
Investment Company | |||||||||||
1,093 | Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class (See Note 6) (Cost $1,092,962) | $ | 1,092,962 | ||||||||
Total Investments (Cost $58,532,258) (e) | 99.0 | % | 71,634,231 | ||||||||
Other Assets in Excess of Liabilities | 1.0 | 709,555 | |||||||||
Net Assets | 100.0 | % | $ | 72,343,786 |
ADR American Depositary Receipt.
(a) Comprised of securities in separate entities that are traded as a single stapled security.
(b) Consists of one or more classes of securities traded together as a unit; stocks with attached warrants.
(c) Non-income producing security.
(d) Security trades on the Hong Kong exchange.
(e) The fair value and percentage of net assets, $32,495,827 and 44.9%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
SUMMARY OF INVESTMENTS INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Oil & Gas Storage & Transportation | $ | 35,723,625 | 49.9 | % | |||||||
Transmission & Distribution | 11,496,758 | 16.0 | |||||||||
Communications | 10,852,991 | 15.2 | |||||||||
Toll Roads | 4,838,323 | 6.8 | |||||||||
Water | 3,041,337 | 4.2 | |||||||||
Airports | 2,031,636 | 2.8 | |||||||||
Diversified | 1,872,913 | 2.6 | |||||||||
Investment Company | 1,092,962 | 1.5 | |||||||||
Ports | 683,686 | 1.0 | |||||||||
$ | 71,634,231 | 100.0 | % |
See Notes to Financial Statements
48
Morgan Stanley Variable Investment Series - European Equity
Portfolio of Investments n June 30, 2012 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (97.2%) | |||||||||||
Belgium (1.7%) | |||||||||||
Chemicals | |||||||||||
18,541 | Umicore SA | $ | 857,106 | ||||||||
Finland (1.8%) | |||||||||||
Machinery | |||||||||||
14,617 | Kone Oyj, Class B | 885,138 | |||||||||
France (8.1%) | |||||||||||
Commercial Banks | |||||||||||
24,034 | BNP Paribas SA | 927,803 | |||||||||
29,204 | Societe Generale SA (a) | 688,546 | |||||||||
1,616,349 | |||||||||||
Electrical Equipment | |||||||||||
16,608 | Schneider Electric SA | 925,376 | |||||||||
Hotels, Restaurants & Leisure | |||||||||||
21,699 | Accor SA | 683,187 | |||||||||
Media | |||||||||||
32,319 | SES SA | 764,258 | |||||||||
Total France | 3,989,170 | ||||||||||
Germany (12.9%) | |||||||||||
Automobiles | |||||||||||
23,494 | Daimler AG (Registered) | 1,056,617 | |||||||||
Health Care Providers & Services | |||||||||||
11,062 | Fresenius SE & Co., KGaA | 1,147,076 | |||||||||
Industrial Conglomerates | |||||||||||
15,742 | Siemens AG (Registered) | 1,323,236 | |||||||||
Insurance | |||||||||||
6,529 | Muenchener Rueckversicherungs AG (Registered) | 921,175 | |||||||||
Machinery | |||||||||||
6,654 | MAN SE | 680,051 | |||||||||
Pharmaceuticals | |||||||||||
17,083 | Bayer AG (Registered) | 1,231,832 | |||||||||
Total Germany | 6,359,987 |
NUMBER OF SHARES | VALUE | ||||||||||
Netherlands (3.2%) | |||||||||||
Media | |||||||||||
81,718 | Reed Elsevier N.V. | $ | 934,798 | ||||||||
Metals & Mining | |||||||||||
42,802 | ArcelorMittal | 661,208 | |||||||||
Total Netherlands | 1,596,006 | ||||||||||
Portugal (1.3%) | |||||||||||
Oil, Gas & Consumable Fuels | |||||||||||
48,284 | Galp Energia SGPS SA, Class B | 612,405 | |||||||||
Spain (4.0%) | |||||||||||
Commercial Banks | |||||||||||
133,152 | Banco Bilbao Vizcaya Argentaria SA | 959,673 | |||||||||
Information Technology Services | |||||||||||
48,175 | Amadeus IT Holding SA, Class A | 1,020,207 | |||||||||
Total Spain | 1,979,880 | ||||||||||
Sweden (1.4%) | |||||||||||
Wireless Telecommunication Services | |||||||||||
7,177 | Millicom International Cellular SA SDR | 677,134 | |||||||||
Switzerland (14.6%) | |||||||||||
Food Products | |||||||||||
44,160 | Nestle SA (Registered) | 2,634,207 | |||||||||
Insurance | |||||||||||
4,822 | Zurich Insurance Group AG (a) | 1,087,938 | |||||||||
Pharmaceuticals | |||||||||||
32,909 | Novartis AG (Registered) | 1,835,662 | |||||||||
9,732 | Roche Holding AG (Genusschein) | 1,680,010 | |||||||||
3,515,672 | |||||||||||
Total Switzerland | 7,237,817 |
See Notes to Financial Statements
49
Morgan Stanley Variable Investment Series - European Equity
Portfolio of Investments n June 30, 2012 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
United Kingdom (48.2%) | |||||||||||
Aerospace & Defense | |||||||||||
105,505 | Rolls-Royce Holdings PLC (a) | $ | 1,423,358 | ||||||||
Commercial Banks | |||||||||||
307,796 | Barclays PLC | 787,894 | |||||||||
247,419 | HSBC Holdings PLC | 2,181,604 | |||||||||
2,969,498 | |||||||||||
Food & Staples Retailing | |||||||||||
185,635 | WM Morrison Supermarkets PLC | 774,749 | |||||||||
Household Products | |||||||||||
22,307 | Reckitt Benckiser Group PLC | 1,176,510 | |||||||||
Insurance | |||||||||||
99,602 | Prudential PLC | 1,154,027 | |||||||||
Metals & Mining | |||||||||||
32,607 | Anglo American PLC | 1,069,836 | |||||||||
66,097 | Xstrata PLC | 834,278 | |||||||||
1,904,114 | |||||||||||
Oil, Gas & Consumable Fuels | |||||||||||
79,325 | BG Group PLC | 1,623,611 | |||||||||
264,535 | BP PLC | 1,772,428 | |||||||||
61,421 | Royal Dutch Shell PLC, Class A | 2,069,044 | |||||||||
40,852 | Tullow Oil PLC | 943,038 | |||||||||
6,408,121 | |||||||||||
Pharmaceuticals | |||||||||||
76,342 | GlaxoSmithKline PLC | 1,731,120 | |||||||||
Professional Services | |||||||||||
68,476 | Experian PLC | 967,304 | |||||||||
Tobacco | |||||||||||
36,516 | British American Tobacco PLC | 1,858,603 | |||||||||
36,173 | Imperial Tobacco Group PLC | 1,391,831 | |||||||||
3,250,434 |
NUMBER OF SHARES | VALUE | ||||||||||
Wireless Telecommunication Services | |||||||||||
735,393 | Vodafone Group PLC | $ | 2,066,187 | ||||||||
Total United Kingdom | 23,825,422 | ||||||||||
Total Common Stocks (Cost $42,865,159) | 48,020,065 | ||||||||||
NUMBER OF SHARES (000) | |||||||||||
Short-Term Investment (2.3%) | |||||||||||
Investment Company | |||||||||||
1,158 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $1,158,271) | 1,158,271 | |||||||||
Total Investments (Cost $44,023,430) (b)(c) | 99.5 | % | 49,178,336 | ||||||||
Other Assets in Excess of Liabilities | 0.5 | 266,921 | |||||||||
Net Assets | 100.0 | % | $ | 49,445,257 |
SDR Swedish Depositary Receipt.
(a) Non-income producing security.
(b) Securities are available for collateral in connection with open foreign currency exchange contracts.
(c) The fair value and percentage of net assets, $48,020,065 and 97.1%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
See Notes to Financial Statements
50
Morgan Stanley Variable Investment Series - European Equity
Portfolio of Investments n June 30, 2012 (unaudited) continued
FOREIGN CURRENCY EXCHANGE CONTRACTS OPEN AT JUNE 30, 2012:
COUNTERPARTY | CONTRACTS TO DELIVER | IN EXCHANGE FOR | DELIVERY DATE | UNREALIZED DEPRECIATION | |||||||||||||||
State Street Bank London | GBP | 3,055,000 | EUR | 3,773,646 | 07/13/2012 | $ | (8,551 | ) |
Currency Abbreviations:
EUR Euro.
GBP British Pound.
SUMMARY OF INVESTMENTS INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Oil, Gas & Consumable Fuels | $ | 7,020,526 | 14.3 | % | |||||||
Pharmaceuticals | 6,478,624 | 13.2 | |||||||||
Commercial Banks | 5,545,520 | 11.3 | |||||||||
Tobacco | 3,250,434 | 6.6 | |||||||||
Insurance | 3,163,140 | 6.4 | |||||||||
Wireless Telecommunication Services | 2,743,321 | 5.6 | |||||||||
Food Products | 2,634,207 | 5.4 | |||||||||
Metals & Mining | 2,565,322 | 5.2 | |||||||||
Media | 1,699,056 | 3.4 | |||||||||
Machinery | 1,565,189 | 3.2 | |||||||||
Aerospace & Defense | 1,423,358 | 2.9 | |||||||||
Industrial Conglomerates | 1,323,236 | 2.7 | |||||||||
Household Products | 1,176,510 | 2.4 | |||||||||
Investment Company | 1,158,271 | 2.3 |
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Health Care Providers & Services | $ | 1,147,076 | 2.3 | % | |||||||
Automobiles | 1,056,617 | 2.1 | |||||||||
Information Technology Services | 1,020,207 | 2.1 | |||||||||
Professional Services | 967,304 | 2.0 | |||||||||
Electrical Equipment | 925,376 | 1.9 | |||||||||
Chemicals | 857,106 | 1.7 | |||||||||
Food & Staples Retailing | 774,749 | 1.6 | |||||||||
Hotels, Restaurants & Leisure | 683,187 | 1.4 | |||||||||
$ | 49,178,336 | + | 100.0 | % |
+ Does not include open foreign currency exchange contracts with total unrealized depreciation of $8,551.
See Notes to Financial Statements
51
Morgan Stanley Variable Investment Series - Multi Cap Growth
Portfolio of Investments n June 30, 2012 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (95.8%) | |||||||||||
Air Transport (1.6%) | |||||||||||
92,758 | Expeditors International of Washington, Inc. | $ | 3,594,373 | ||||||||
Alternative Energy (3.6%) | |||||||||||
77,286 | Range Resources Corp. | 4,781,685 | |||||||||
138,458 | Ultra Petroleum Corp. (a) | 3,194,226 | |||||||||
7,975,911 | |||||||||||
Beverage: Brewers & Distillers (1.3%) | |||||||||||
260,410 | DE Master Blenders 1753 N.V. (Netherlands) (a) | 2,936,279 | |||||||||
Biotechnology (2.3%) | |||||||||||
128,513 | Illumina, Inc. (a) | 5,190,640 | |||||||||
Chemicals: Diversified (3.0%) | |||||||||||
81,976 | Monsanto Co. | 6,785,973 | |||||||||
Commercial Finance & Mortgage Companies (1.5%) | |||||||||||
630,526 | BM&F Bovespa SA (Brazil) | 3,217,770 | |||||||||
Commercial Services (4.5%) | |||||||||||
133,491 | Intertek Group PLC (United Kingdom) | 5,610,298 | |||||||||
87,537 | Weight Watchers International, Inc. (a) | 4,513,408 | |||||||||
10,123,706 | |||||||||||
Communications Technology (3.4%) | |||||||||||
156,909 | Motorola Solutions, Inc. | 7,548,892 | |||||||||
Computer Services, Software & Systems (19.8%) | |||||||||||
61,290 | Baidu, Inc. ADR (China) (a) | 7,047,124 | |||||||||
167,392 | Facebook, Inc. (a) | 5,209,239 | |||||||||
327,898 | Facebook, Inc., Class B (a)(b)(c) | 9,354,930 | |||||||||
16,821 | Google, Inc., Class A (a) | 9,757,358 | |||||||||
53,696 | LinkedIn Corp., Class A (a) | 5,706,274 | |||||||||
39,990 | Salesforce.com, Inc. (a) | 5,529,017 | |||||||||
287,079 | Zynga, Inc., Class A (a) | 1,561,710 | |||||||||
44,165,652 |
NUMBER OF SHARES | VALUE | ||||||||||
Computer Technology (10.8%) | |||||||||||
34,242 | Apple, Inc. (a) | $ | 19,997,328 | ||||||||
215,324 | Yandex N.V., Class A (Russia) (a) | 4,101,922 | |||||||||
24,099,250 | |||||||||||
Consumer Lending (3.0%) | |||||||||||
7,810 | Mastercard, Inc., Class A | 3,359,159 | |||||||||
27,387 | Visa, Inc., Class A | 3,385,855 | |||||||||
6,745,014 | |||||||||||
Diversified Retail (14.7%) | |||||||||||
87,805 | Amazon.com, Inc. (a) | 20,050,272 | |||||||||
491,036 | Groupon, Inc. (a) | 5,219,712 | |||||||||
11,336 | Priceline.com, Inc. (a) | 7,532,999 | |||||||||
32,802,983 | |||||||||||
Financial Data & Systems (5.3%) | |||||||||||
159,792 | MSCI, Inc., Class A (a) | 5,436,124 | |||||||||
128,781 | Verisk Analytics, Inc., Class A (a) | 6,343,752 | |||||||||
11,779,876 | |||||||||||
Foods (0.7%) | |||||||||||
52,082 | Hillshire Brands Co. | 1,509,857 | |||||||||
Health Care Services (4.3%) | |||||||||||
121,773 | athenahealth, Inc. (a) | 9,640,768 | |||||||||
Insurance: Property-Casualty (1.8%) | |||||||||||
197,260 | Progressive Corp. (The) | 4,108,926 | |||||||||
Medical Equipment (3.5%) | |||||||||||
13,934 | Intuitive Surgical, Inc. (a) | 7,716,510 | |||||||||
Metals & Minerals: Diversified (1.9%) | |||||||||||
2,494,075 | Lynas Corp., Ltd. (Australia) (a) | 2,205,188 | |||||||||
94,351 | Molycorp, Inc. (a) | 2,033,264 | |||||||||
4,238,452 |
See Notes to Financial Statements
52
Morgan Stanley Variable Investment Series - Multi Cap Growth
Portfolio of Investments n June 30, 2012 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Real Estate Investment Trusts (REIT) (3.6%) | |||||||||||
244,421 | Brookfield Asset Management, Inc., Class A (Canada) | $ | 8,090,335 | ||||||||
Recreational Vehicles & Boats (3.4%) | |||||||||||
262,869 | Edenred (France) | 7,459,093 | |||||||||
Wholesale & International Trade (1.8%) | |||||||||||
2,044,000 | Li & Fung Ltd. (d) | 3,966,277 | |||||||||
Total Common Stocks (Cost $164,869,334) | 213,696,537 | ||||||||||
Convertible Preferred Stocks (1.0%) | |||||||||||
Alternative Energy (0.9%) | |||||||||||
586,326 | Better Place, Inc. (a)(b)(c) | 1,940,739 | |||||||||
Computer Services, Software & Systems (0.1%) | |||||||||||
28,236 | Workday, Inc. (a)(b)(c) | 374,409 | |||||||||
Total Convertible Preferred Stocks (Cost $1,840,224) | 2,315,148 | ||||||||||
NUMBER OF SHARES (000) | |||||||||||
Short-Term Investment (3.0%) | |||||||||||
Investment Company | |||||||||||
6,674 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $6,673,526) | 6,673,526 | |||||||||
Total Investments (Cost $173,383,084) (e) | 99.8 | % | 222,685,211 | ||||||||
Other Assets in Excess of Liabilities | 0.2 | 469,019 | |||||||||
Net Assets | 100.0 | % | $ | 223,154,230 |
ADR American Depositary Receipt.
(a) Non-income producing security.
(b) Illiquid security. Resale is restricted to qualified institutional investors.
(c) At June 30, 2012, the Portfolio held fair valued securities valued at $11,670,078, representing 5.2% 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 Fund's Trustees.
(d) Security trades on the Hong Kong exchange.
(e) The fair value and percentage of net assets, $19,240,856 and 8.6%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
See Notes to Financial Statements
53
Morgan Stanley Variable Investment Series - Multi Cap Growth
Summary of Investments n June 30, 2012 (unaudited)
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Computer Services, Software & Systems | $ | 44,540,061 | 20.0 | % | |||||||
Diversified Retail | 32,802,983 | 14.7 | |||||||||
Computer Technology | 24,099,250 | 10.8 | |||||||||
Financial Data & Systems | 11,779,876 | 5.3 | |||||||||
Commercial Services | 10,123,706 | 4.6 | |||||||||
Alternative Energy | 9,916,650 | 4.5 | |||||||||
Health Care Services | 9,640,768 | 4.3 | |||||||||
Real Estate Investment Trusts (REIT) | 8,090,335 | 3.6 | |||||||||
Medical Equipment | 7,716,510 | 3.5 | |||||||||
Communications Technology | 7,548,892 | 3.4 | |||||||||
Recreational Vehicles & Boats | 7,459,093 | 3.4 | |||||||||
Chemicals: Diversified | 6,785,973 | 3.1 | |||||||||
Consumer Lending | 6,745,014 | 3.0 |
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Investment Companies | $ | 6,673,526 | 3.0 | % | |||||||
Biotechnology | 5,190,640 | 2.3 | |||||||||
Metals & Minerals: Diversified | 4,238,452 | 1.9 | |||||||||
Insurance: Property-Casualty | 4,108,926 | 1.8 | |||||||||
Wholesale & International Trade | 3,966,277 | 1.8 | |||||||||
Air Transport | 3,594,373 | 1.6 | |||||||||
Commercial Finance & Mortgage Companies | 3,217,770 | 1.4 | |||||||||
Beverage: Brewers & Distillers | 2,936,279 | 1.3 | |||||||||
Foods | 1,509,857 | 0.7 | |||||||||
$ | 222,685,211 | 100.0 | % |
See Notes to Financial Statements
54
Morgan Stanley Variable Investment Series - Aggressive Equity
Portfolio of Investments n June 30, 2012 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (95.6%) | |||||||||||
Air Transport (1.6%) | |||||||||||
11,735 | Expeditors International of Washington, Inc. | $ | 454,731 | ||||||||
Alternative Energy (3.6%) | |||||||||||
9,777 | Range Resources Corp. | 604,903 | |||||||||
17,516 | Ultra Petroleum Corp. (a) | 404,094 | |||||||||
1,008,997 | |||||||||||
Beverage: Brewers & Distillers (1.3%) | |||||||||||
32,945 | DE Master Blenders 1753 N.V. (Netherlands) (a) | 371,475 | |||||||||
Biotechnology (2.3%) | |||||||||||
16,258 | Illumina, Inc. (a) | 656,661 | |||||||||
Chemicals: Diversified (3.0%) | |||||||||||
10,371 | Monsanto Co. | 858,511 | |||||||||
Commercial Finance & Mortgage Companies (1.4%) | |||||||||||
79,769 | BM&F Bovespa SA (Brazil) | 407,086 | |||||||||
Commercial Services (4.5%) | |||||||||||
16,882 | Intertek Group PLC (United Kingdom) | 709,509 | |||||||||
11,074 | Weight Watchers International, Inc. (a) | 570,975 | |||||||||
1,280,484 | |||||||||||
Communications Technology (3.4%) | |||||||||||
19,851 | Motorola Solutions, Inc. | 955,032 | |||||||||
Computer Services, Software & Systems (19.8%) | |||||||||||
7,754 | Baidu, Inc. ADR (China) (a) | 891,555 | |||||||||
23,370 | Facebook, Inc. (a) | 727,275 | |||||||||
39,222 | Facebook, Inc., Class B (a)(b)(c) | 1,119,004 | |||||||||
2,126 | Google, Inc., Class A (a) | 1,233,229 | |||||||||
6,793 | LinkedIn Corp., Class A (a) | 721,892 | |||||||||
5,059 | Salesforce.com, Inc. (a) | 699,457 | |||||||||
36,319 | Zynga, Inc., Class A (a) | 197,575 | |||||||||
5,589,987 |
NUMBER OF SHARES | VALUE | ||||||||||
Computer Technology (10.8%) | |||||||||||
4,328 | Apple, Inc. (a) | $ | 2,527,552 | ||||||||
27,241 | Yandex N.V., Class A (Russia) (a) | 518,941 | |||||||||
3,046,493 | |||||||||||
Consumer Lending (3.0%) | |||||||||||
988 | Mastercard, Inc., Class A | 424,949 | |||||||||
3,465 | Visa, Inc., Class A | 428,378 | |||||||||
853,327 | |||||||||||
Diversified Retail (14.7%) | |||||||||||
11,108 | Amazon.com, Inc. (a) | 2,536,512 | |||||||||
62,071 | Groupon, Inc. (a) | 659,815 | |||||||||
1,434 | Priceline.com, Inc. (a) | 952,921 | |||||||||
4,149,248 | |||||||||||
Financial Data & Systems (5.3%) | |||||||||||
20,215 | MSCI, Inc., Class A (a) | 687,714 | |||||||||
16,292 | Verisk Analytics, Inc., Class A (a) | 802,544 | |||||||||
1,490,258 | |||||||||||
Foods (0.7%) | |||||||||||
6,589 | Hillshire Brands Co. | 191,015 | |||||||||
Health Care Services (4.3%) | |||||||||||
15,406 | athenahealth, Inc. (a) | 1,219,693 | |||||||||
Insurance: Property-Casualty (1.8%) | |||||||||||
24,866 | Progressive Corp. (The) | 517,959 | |||||||||
Medical Equipment (3.5%) | |||||||||||
1,763 | Intuitive Surgical, Inc. (a) | 976,332 | |||||||||
Metals & Minerals: Diversified (1.9%) | |||||||||||
315,528 | Lynas Corp., Ltd. (Australia) (a) | 278,980 | |||||||||
11,936 | Molycorp, Inc. (a) | 257,221 | |||||||||
536,201 |
See Notes to Financial Statements
55
Morgan Stanley Variable Investment Series - Aggressive Equity
Portfolio of Investments n June 30, 2012 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Real Estate Investment Trusts (REIT) (3.6%) | |||||||||||
30,922 | Brookfield Asset Management, Inc., Class A (Canada) | $ | 1,023,518 | ||||||||
Recreational Vehicles & Boats (3.3%) | |||||||||||
33,256 | Edenred (France) | 943,662 | |||||||||
Wholesale & International Trade (1.8%) | |||||||||||
258,000 | Li & Fung Ltd. (d) | 500,636 | |||||||||
Total Common Stocks (Cost $21,343,236) | 27,031,306 | ||||||||||
Convertible Preferred Stocks (1.0%) | |||||||||||
Alternative Energy (0.8%) | |||||||||||
70,908 | Better Place, Inc. (a)(b)(c) | 234,705 | |||||||||
Computer Services, Software & Systems (0.2%) | |||||||||||
3,313 | Workday, Inc. (a)(b)(c) | 43,930 | |||||||||
Total Convertible Preferred Stocks (Cost $221,200) | 278,635 | ||||||||||
NUMBER OF SHARES (000) | |||||||||||
Short-Term Investment (3.7%) | |||||||||||
Investment Company | |||||||||||
1,038 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $1,038,390) | 1,038,390 | |||||||||
Total Investments (Cost $22,602,826) (e) | 100.3 | % | 28,348,331 | ||||||||
Liabilities in Excess of Other Assets | (0.3 | ) | (82,065 | ) | |||||||
Net Assets | 100.0 | % | $ | 28,266,266 |
ADR American Depositary Receipt.
(a) Non-income producing security.
(b) At June 30, 2012, the Portfolio held fair valued securities valued at $1,397,639, representing 4.9% 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 Fund's Trustees.
(c) Illiquid security. Resale is restricted to qualified institutional investors.
(d) Security trades on the Hong Kong exchange.
(e) The fair value and percentage of net assets, $2,432,787 and 8.6%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
See Notes to Financial Statements
56
Morgan Stanley Variable Investment Series - Aggressive Equity
Summary of Investments n June 30, 2012 (unaudited)
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Computer Services, Software & Systems | $ | 5,633,917 | 19.9 | % | |||||||
Diversified Retail | 4,149,248 | 14.6 | |||||||||
Computer Technology | 3,046,493 | 10.8 | |||||||||
Financial Data & Systems | 1,490,258 | 5.3 | |||||||||
Commercial Services | 1,280,484 | 4.5 | |||||||||
Alternative Energy | 1,243,702 | 4.4 | |||||||||
Health Care Services | 1,219,693 | 4.3 | |||||||||
Investment Company | 1,038,390 | 3.7 | |||||||||
Real Estate Investment Trusts (REIT) | 1,023,518 | 3.6 | |||||||||
Medical Equipment | 976,332 | 3.4 | |||||||||
Communications Technology | 955,032 | 3.4 | |||||||||
Recreational Vehicles & Boats | 943,662 | 3.3 | |||||||||
Chemicals: Diversified | 858,511 | 3.0 |
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Consumer Lending | $ | 853,327 | 3.0 | % | |||||||
Biotechnology | 656,661 | 2.3 | |||||||||
Metals & Minerals: Diversified | 536,201 | 1.9 | |||||||||
Insurance: Property-Casualty | 517,959 | 1.8 | |||||||||
Wholesale & International Trade | 500,636 | 1.8 | |||||||||
Air Transport | 454,731 | 1.6 | |||||||||
Commercial Finance & Mortgage Companies | 407,086 | 1.4 | |||||||||
Beverage: Brewers & Distillers | 371,475 | 1.3 | |||||||||
Foods | 191,015 | 0.7 | |||||||||
$ | 28,348,331 | 100.0 | % |
See Notes to Financial Statements
57
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (61.5%) | |||||||||||
Aerospace & Defense (2.3%) | |||||||||||
52,230 | Raytheon Co. | $ | 2,955,696 | ||||||||
Auto Components (1.0%) | |||||||||||
45,180 | Johnson Controls, Inc. | 1,251,938 | |||||||||
Chemicals (1.9%) | |||||||||||
47,270 | EI du Pont de Nemours & Co. | 2,390,444 | |||||||||
Commercial Services & Supplies (0.1%) | |||||||||||
15,724 | ACCO Brands Corp. (a) | 162,586 | |||||||||
Computers & Peripherals (0.6%) | |||||||||||
40,115 | Hewlett-Packard Co. | 806,713 | |||||||||
Diversified Financial Services (2.0%) | |||||||||||
71,445 | JPMorgan Chase & Co. | 2,552,730 | |||||||||
Diversified Telecommunication Services (3.6%) | |||||||||||
38,980 | CenturyLink, Inc. | 1,539,320 | |||||||||
69,870 | Verizon Communications, Inc. | 3,105,023 | |||||||||
4,644,343 | |||||||||||
Food & Staples Retailing (1.1%) | |||||||||||
77,350 | Safeway, Inc. | 1,403,902 | |||||||||
Food Products (1.9%) | |||||||||||
94,270 | ConAgra Foods, Inc. | 2,444,421 | |||||||||
Hotels, Restaurants & Leisure (5.1%) | |||||||||||
29,050 | McDonald's Corp. | 2,571,796 | |||||||||
63,080 | Yum! Brands, Inc. | 4,063,614 | |||||||||
6,635,410 | |||||||||||
Industrial Conglomerates (4.5%) | |||||||||||
134,870 | General Electric Co. | 2,810,691 | |||||||||
57,090 | Tyco International Ltd. | 3,017,206 | |||||||||
5,827,897 | |||||||||||
Information Technology Services (2.0%) | |||||||||||
13,300 | International Business Machines Corp. | 2,601,214 | |||||||||
Insurance (2.5%) | |||||||||||
45,050 | Chubb Corp. (The) | 3,280,541 | |||||||||
Machinery (1.8%) | |||||||||||
42,525 | Illinois Tool Works, Inc. | 2,249,147 | |||||||||
Media (2.2%) | |||||||||||
74,380 | Time Warner, Inc. | 2,863,630 |
See Notes to Financial Statements
58
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Multi-Utilities (1.9%) | |||||||||||
43,680 | Integrys Energy Group, Inc. | $ | 2,484,082 | ||||||||
Oil, Gas & Consumable Fuels (6.4%) | |||||||||||
26,550 | Chevron Corp. | 2,801,025 | |||||||||
39,035 | ConocoPhillips | 2,181,276 | |||||||||
30,900 | Exxon Mobil Corp. | 2,644,113 | |||||||||
19,517 | Phillips 66 (a) | 648,745 | |||||||||
8,275,159 | |||||||||||
Paper & Forest Products (1.1%) | |||||||||||
47,670 | MeadWestvaco Corp. | 1,370,513 | |||||||||
Pharmaceuticals (5.9%) | |||||||||||
55,675 | Abbott Laboratories | 3,589,367 | |||||||||
113,640 | Bristol-Myers Squibb Co. | 4,085,358 | |||||||||
7,674,725 | |||||||||||
Road & Rail (1.8%) | |||||||||||
32,410 | Norfolk Southern Corp. | 2,326,066 | |||||||||
Semiconductors & Semiconductor Equipment (1.7%) | |||||||||||
83,805 | Intel Corp. | 2,233,403 | |||||||||
Software (2.4%) | |||||||||||
99,060 | Microsoft Corp. | 3,030,245 | |||||||||
Specialty Retail (2.9%) | |||||||||||
71,305 | Home Depot, Inc. | 3,778,452 | |||||||||
Textiles, Apparel & Luxury Goods (1.7%) | |||||||||||
16,710 | VF Corp. | 2,229,949 | |||||||||
Tobacco (3.1%) | |||||||||||
28,700 | Philip Morris International, Inc. | 2,504,362 | |||||||||
34,280 | Reynolds American, Inc. | 1,538,144 | |||||||||
4,042,506 | |||||||||||
Total Common Stocks (Cost $73,384,491) | 79,515,712 |
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | |||||||||||||||||
Corporate Bonds (7.4%) | |||||||||||||||||||
Basic Materials (0.5%) | |||||||||||||||||||
$ | 105 | Air Products & Chemicals, Inc | 2.00 | % | 08/02/16 | 108,348 | |||||||||||||
15 | ArcelorMittal (Luxembourg) | 7.00 | 10/15/39 | 14,603 | |||||||||||||||
50 | ArcelorMittal (Luxembourg) | 9.85 | 06/01/19 | 59,579 |
See Notes to Financial Statements
59
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 60 | Barrick Gold Corp. (Canada) | 3.85 | % | 04/01/22 | $ | 62,245 | ||||||||||||
55 | Barrick North America Finance LLC | 4.40 | 05/30/21 | 59,390 | |||||||||||||||
50 | Eastman Chemical Co. | 3.60 | 08/15/22 | 51,102 | |||||||||||||||
50 | Georgia-Pacific LLC | 8.875 | 05/15/31 | 70,677 | |||||||||||||||
75 | Kinross Gold Corp. (Canada) | 5.125 | 09/01/21 | 76,016 | |||||||||||||||
75 | Syngenta Finance (Switzerland) | 3.125 | 03/28/22 | 76,276 | |||||||||||||||
60 | Vale Overseas Ltd. (Brazil) | 5.625 | 09/15/19 | 66,814 | |||||||||||||||
645,050 | |||||||||||||||||||
Communications (0.7%) | |||||||||||||||||||
25 | AT&T, Inc. | 5.35 | 09/01/40 | 28,802 | |||||||||||||||
85 | AT&T, Inc. | 6.30 | 01/15/38 | 106,246 | |||||||||||||||
45 | CenturyLink, Inc. | 6.45 | 06/15/21 | 46,905 | |||||||||||||||
50 | Comcast Corp. | 5.15 | 03/01/20 | 58,138 | |||||||||||||||
45 | Comcast Corp. | 5.70 | 05/15/18 | 53,137 | |||||||||||||||
25 | Comcast Corp. | 6.40 | 05/15/38 | 30,581 | |||||||||||||||
45 | Deutsche Telekom International Finance BV (Germany) | 8.75 | 06/15/30 | 62,624 | |||||||||||||||
50 | Motorola Solutions, Inc. | 3.75 | 05/15/22 | 49,409 | |||||||||||||||
40 | NBC Universal Media LLC | 4.375 | 04/01/21 | 44,086 | |||||||||||||||
25 | NBC Universal Media LLC | 5.95 | 04/01/41 | 29,622 | |||||||||||||||
55 | Omnicom Group, Inc. | 3.625 | 05/01/22 | 56,001 | |||||||||||||||
40 | Qwest Corp. | 6.875 | 09/15/33 | 40,000 | |||||||||||||||
25 | Time Warner, Inc. | 7.70 | 05/01/32 | 32,739 | |||||||||||||||
35 | Verizon Communications, Inc. | 4.60 | 04/01/21 | 40,189 | |||||||||||||||
55 | Verizon Communications, Inc. | 8.95 | 03/01/39 | 90,893 | |||||||||||||||
45 | Vivendi SA (France) (b) | 6.625 | 04/04/18 | 49,801 | |||||||||||||||
100 | WPP Finance UK (United Kingdom) | 8.00 | 09/15/14 | 112,835 | |||||||||||||||
932,008 | |||||||||||||||||||
Consumer, Cyclical (0.4%) | |||||||||||||||||||
90 | Best Buy Co., Inc. | 3.75 | 03/15/16 | 87,943 | |||||||||||||||
65 | Gap, Inc. (The) | 5.95 | 04/12/21 | 67,488 | |||||||||||||||
20 | Ingram Micro, Inc. | 5.25 | 09/01/17 | 21,465 | |||||||||||||||
30 | Macy's Retail Holdings, Inc. | 3.875 | 01/15/22 | 31,603 | |||||||||||||||
70 | VF Corp. | 3.50 | 09/01/21 | 74,778 | |||||||||||||||
100 | Volkswagen International Finance N.V. (Germany) (b) | 2.375 | 03/22/17 | 101,696 | |||||||||||||||
40 | Wal-Mart Stores, Inc. | 5.25 | 09/01/35 | 48,584 | |||||||||||||||
45 | Wesfarmers Ltd. (Australia) (b) | 2.983 | 05/18/16 | 46,367 | |||||||||||||||
5 | Yum! Brands, Inc. | 6.875 | 11/15/37 | 6,644 | |||||||||||||||
486,568 | |||||||||||||||||||
Consumer, Non-Cyclical (1.0%) | |||||||||||||||||||
50 | Altria Group, Inc. | 4.125 | 09/11/15 | 54,310 | |||||||||||||||
60 | Altria Group, Inc. | 9.25 | 08/06/19 | 83,473 |
See Notes to Financial Statements
60
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 60 | Boston Scientific Corp. | 6.00 | % | 01/15/20 | $ | 71,669 | ||||||||||||
90 | Cigna Corp. | 2.75 | 11/15/16 | 92,820 | |||||||||||||||
65 | Coventry Health Care, Inc. | 5.45 | 06/15/21 | 73,198 | |||||||||||||||
25 | Covidien International Finance SA | 3.20 | 06/15/22 | 25,829 | |||||||||||||||
96 | Delhaize Group SA (Belgium) | 5.70 | 10/01/40 | 80,899 | |||||||||||||||
65 | Gilead Sciences, Inc. | 4.50 | 04/01/21 | 72,364 | |||||||||||||||
5 | Gilead Sciences, Inc. | 5.65 | 12/01/41 | 5,851 | |||||||||||||||
100 | Grupo Bimbo SAB de CV (Mexico) (b) | 4.875 | 06/30/20 | 111,240 | |||||||||||||||
50 | Kraft Foods, Inc. | 6.50 | 02/09/40 | 64,462 | |||||||||||||||
70 | Life Technologies Corp. | 6.00 | 03/01/20 | 82,250 | |||||||||||||||
75 | Sanofi (France) | 4.00 | 03/29/21 | 83,806 | |||||||||||||||
120 | Teva Pharmaceutical Finance IV BV (Israel) | 3.65 | 11/10/21 | 126,464 | |||||||||||||||
65 | UnitedHealth Group, Inc. | 6.625 | 11/15/37 | 87,306 | |||||||||||||||
55 | Verisk Analytics, Inc. | 5.80 | 05/01/21 | 61,493 | |||||||||||||||
65 | Woolworths Ltd. (Australia) (b) | 4.00 | 09/22/20 | 69,528 | |||||||||||||||
1,246,962 | |||||||||||||||||||
Energy (0.6%) | |||||||||||||||||||
75 | BP Capital Markets PLC (United Kingdom) | 3.245 | 05/06/22 | 77,818 | |||||||||||||||
35 | Enterprise Products Operating LLC | 5.25 | 01/31/20 | 40,156 | |||||||||||||||
90 | Enterprise Products Operating LLC, Series N | 6.50 | 01/31/19 | 108,624 | |||||||||||||||
40 | EQT Corp. | 4.875 | 11/15/21 | 40,934 | |||||||||||||||
50 | Kinder Morgan Energy Partners LP | 5.95 | 02/15/18 | 58,051 | |||||||||||||||
35 | Marathon Petroleum Corp. | 5.125 | 03/01/21 | 39,256 | |||||||||||||||
50 | Murphy Oil Corp. | 4.00 | 06/01/22 | 51,024 | |||||||||||||||
50 | Phillips 66 (b) | 4.30 | 04/01/22 | 52,703 | |||||||||||||||
60 | Plains All American Pipeline LP/PAA Finance Corp. | 6.70 | 05/15/36 | 70,370 | |||||||||||||||
60 | Plains All American Pipeline LP/PAA Finance Corp. | 8.75 | 05/01/19 | 79,243 | |||||||||||||||
50 | Spectra Energy Capital LLC | 7.50 | 09/15/38 | 66,328 | |||||||||||||||
55 | Texas Eastern Transmission LP | 7.00 | 07/15/32 | 71,452 | |||||||||||||||
755,959 | |||||||||||||||||||
Finance (3.0%) | |||||||||||||||||||
100 | ABB Treasury Center USA, Inc. (Switzerland) (b) | 2.50 | 06/15/16 | 103,521 | |||||||||||||||
100 | Abbey National Treasury Services PLC (United Kingdom) (b) | 3.875 | 11/10/14 | 98,572 | |||||||||||||||
75 | Aegon N.V. (Netherlands) | 4.625 | 12/01/15 | 80,097 | |||||||||||||||
100 | Australia & New Zealand Banking Group Ltd. (Australia) (b) | 4.875 | 01/12/21 | 109,810 | |||||||||||||||
130 | Berkshire Hathaway, Inc. | 3.75 | 08/15/21 | 138,950 | |||||||||||||||
75 | BNP Paribas SA (France) | 5.00 | 01/15/21 | 77,122 | |||||||||||||||
45 | Brookfield Asset Management, Inc. (Canada) | 5.80 | 04/25/17 | 49,028 | |||||||||||||||
35 | Citigroup, Inc. (See Note 6) | 5.875 | 05/29/37 | 38,265 |
See Notes to Financial Statements
61
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 70 | Citigroup, Inc. (See Note 6) | 6.125 | % | 05/15/18 | $ | 78,257 | ||||||||||||
95 | CNA Financial Corp. | 5.75 | 08/15/21 | 104,574 | |||||||||||||||
50 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) | 3.875 | 02/08/22 | 50,963 | |||||||||||||||
240 | Credit Suisse (Switzerland) | 5.40 | 01/14/20 | 250,002 | |||||||||||||||
25 | Credit Suisse (Switzerland) | 6.00 | 02/15/18 | 26,781 | |||||||||||||||
60 | Dexus Diversified Trust/Dexus Office Trust (Australia) (b) | 5.60 | 03/15/21 | 62,273 | |||||||||||||||
25 | ERP Operating LP | 4.625 | 12/15/21 | 27,206 | |||||||||||||||
140 | Farmers Exchange Capital (b) | 7.05 | 07/15/28 | 161,090 | |||||||||||||||
200 | Ford Motor Credit Co., LLC (b) | 4.207 | 04/15/16 | 207,857 | |||||||||||||||
60 | General Electric Capital Corp. | 5.30 | 02/11/21 | 67,461 | |||||||||||||||
145 | General Electric Capital Corp., Series G | 6.00 | 08/07/19 | 169,911 | |||||||||||||||
75 | Genworth Financial, Inc. | 7.20 | 02/15/21 | 71,549 | |||||||||||||||
45 | Harley-Davidson Funding Corp. (b) | 6.80 | 06/15/18 | 53,716 | |||||||||||||||
60 | Hartford Financial Services Group, Inc. | 5.50 | 03/30/20 | 62,742 | |||||||||||||||
70 | HSBC Holdings PLC (United Kingdom) | 4.00 | 03/30/22 | 72,834 | |||||||||||||||
60 | JPMorgan Chase & Co. | 4.25 | 10/15/20 | 63,141 | |||||||||||||||
140 | JPMorgan Chase & Co. | 4.625 | 05/10/21 | 150,071 | |||||||||||||||
70 | Lloyds TSB Bank PLC (United Kingdom) | 6.375 | 01/21/21 | 79,463 | |||||||||||||||
50 | Macquarie Bank Ltd. (Australia) (b) | 6.625 | 04/07/21 | 50,216 | |||||||||||||||
55 | Macquarie Group Ltd. (Australia) (b) | 6.00 | 01/14/20 | 54,797 | |||||||||||||||
225 | Merrill Lynch & Co., Inc., MTN | 6.875 | 04/25/18 | 252,065 | |||||||||||||||
35 | MetLife, Inc. (See Note 6) | 7.717 | 02/15/19 | 44,387 | |||||||||||||||
170 | Nationwide Building Society (United Kingdom) (b) | 6.25 | 02/25/20 | 183,664 | |||||||||||||||
50 | Nationwide Financial Services (b) | 5.375 | 03/25/21 | 51,809 | |||||||||||||||
75 | Pacific LifeCorp (b) | 6.00 | 02/10/20 | 81,991 | |||||||||||||||
60 | Platinum Underwriters Finance, Inc., Series B | 7.50 | 06/01/17 | 65,779 | |||||||||||||||
50 | Principal Financial Group, Inc. | 8.875 | 05/15/19 | 64,897 | |||||||||||||||
40 | Prudential Financial, Inc., MTN | 6.625 | 12/01/37 | 45,389 | |||||||||||||||
25 | Santander Holdings USA, Inc. (Spain) | 4.625 | 04/19/16 | 24,180 | |||||||||||||||
70 | SLM Corp., MTN | 6.25 | 01/25/16 | 73,850 | |||||||||||||||
100 | Standard Chartered Bank (United Kingdom) (b) | 6.40 | 09/26/17 | 111,596 | |||||||||||||||
60 | Wachovia Corp. | 5.625 | 10/15/16 | 67,700 | |||||||||||||||
95 | Wells Fargo & Co. | 5.625 | 12/11/17 | 111,066 | |||||||||||||||
80 | Wells Operating Partnership II LP | 5.875 | 04/01/18 | 83,278 | |||||||||||||||
3,821,920 | |||||||||||||||||||
Industrials (0.8%) | |||||||||||||||||||
50 | ABB Finance USA, Inc. (Switzerland) | 2.875 | 05/08/22 | 50,686 | |||||||||||||||
100 | BAA Funding Ltd. (United Kingdom) (b) | 4.875 | 07/15/21 | 105,720 | |||||||||||||||
65 | Bemis Co., Inc. | 4.50 | 10/15/21 | 70,281 |
See Notes to Financial Statements
62
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 75 | Boston Properties LP | 3.85 | % | 02/01/23 | $ | 75,865 | ||||||||||||
90 | Cooper US, Inc. | 5.25 | 11/15/12 | 91,493 | |||||||||||||||
75 | CRH America, Inc. | 6.00 | 09/30/16 | 82,176 | |||||||||||||||
30 | Holcim US Finance Sarl & Cie SCS (Switzerland) (b) | 6.00 | 12/30/19 | 31,501 | |||||||||||||||
75 | L-3 Communications Corp. | 4.95 | 02/15/21 | 81,252 | |||||||||||||||
75 | LVMH Moet Hennessy Louis Vuitton SA (France) (b) | 1.625 | 06/29/17 | 75,068 | |||||||||||||||
10 | Norfolk Southern Corp. | 4.837 | 10/01/41 | 11,081 | |||||||||||||||
50 | Norfolk Southern Corp. | 7.25 | 02/15/31 | 69,458 | |||||||||||||||
75 | Republic Services, Inc. | 3.55 | 06/01/22 | 75,968 | |||||||||||||||
70 | Sonoco Products Co. | 5.75 | 11/01/40 | 79,617 | |||||||||||||||
40 | Union Pacific Corp. | 6.125 | 02/15/20 | 49,476 | |||||||||||||||
45 | United Technologies Corp. | 4.50 | 06/01/42 | 49,639 | |||||||||||||||
80 | Waste Management, Inc. | 6.125 | 11/30/39 | 99,296 | |||||||||||||||
1,098,577 | |||||||||||||||||||
Technology (0.2%) | |||||||||||||||||||
50 | Fiserv, Inc. | 3.125 | 06/15/16 | 51,592 | |||||||||||||||
125 | Hewlett-Packard Co. | 4.65 | 12/09/21 | 131,276 | |||||||||||||||
100 | International Business Machines Corp. | 7.625 | 10/15/18 | 133,403 | |||||||||||||||
316,271 | |||||||||||||||||||
Utilities (0.2%) | |||||||||||||||||||
75 | Ohio Power Co., Series M | 5.375 | 10/01/21 | 88,712 | |||||||||||||||
80 | Oncor Electric Delivery Co., LLC | 6.80 | 09/01/18 | 95,744 | |||||||||||||||
75 | PPL WEM Holdings PLC (b) | 3.90 | 05/01/16 | 78,674 | |||||||||||||||
263,130 | |||||||||||||||||||
Total Corporate Bonds (Cost $8,643,655) | 9,566,445 | ||||||||||||||||||
Sovereign (0.4%) | |||||||||||||||||||
100 | Banco Nacional de Desenvolvimento, Economico e Social (Brazil) (b) | 5.50 | 07/12/20 | 114,125 | |||||||||||||||
150 | Brazilian Government International Bond (Brazil) | 4.875 | 01/22/21 | 174,225 | |||||||||||||||
80 | Mexico Government International Bond (Mexico) | 3.625 | 03/15/22 | 85,120 | |||||||||||||||
150 | Petroleos Mexicanos (Mexico) (b) | 4.875 | 01/24/22 | 162,375 | |||||||||||||||
Total Sovereign (Cost $528,980) | 535,845 | ||||||||||||||||||
Municipal Bonds (0.5%) | |||||||||||||||||||
75 | Chicago, IL, Transit Authority | 6.20 | 12/01/40 | 82,846 | |||||||||||||||
30 | City of Chicago, IL, O'Hare International Airport Revenue | 6.395 | 01/01/40 | 38,579 | |||||||||||||||
70 | City of New York, NY, Series G-1 | 5.968 | 03/01/36 | 87,314 |
See Notes to Financial Statements
63
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 85 | Illinois State Toll Highway Authority, Highway Revenue, Build America Bonds | 6.184 | % | 01/01/34 | $ | 105,538 | ||||||||||||
95 | Municipal Electric Authority of Georgia | 6.655 | 04/01/57 | 109,966 | |||||||||||||||
65 | New York City, NY, Transitional Finance Authority Future Tax Secured Revenue | 5.267 | 05/01/27 | 75,095 | |||||||||||||||
State of California, General Obligation Bonds | |||||||||||||||||||
45 | 5.95 | 04/01/16 | 51,381 | ||||||||||||||||
30 | 6.65 | 03/01/22 | 36,947 | ||||||||||||||||
Total Municipal Bonds (Cost $496,205) | 587,666 | ||||||||||||||||||
Agency Fixed Rate Mortgages (0.0%) | |||||||||||||||||||
2 | Federal Home Loan Mortgage Corporation, Gold Pools | 6.50 | 05/01/29 - 12/01/31 | 2,772 | |||||||||||||||
1 | Federal National Mortgage Association, Conventional Pool | 6.50 | 11/01/29 | 641 | |||||||||||||||
Total Agency Fixed Rate Mortgages (Cost $3,102) | 3,413 | ||||||||||||||||||
Asset-Backed Securities (0.8%) | |||||||||||||||||||
100 | Ally Master Owner Trust | 1.112 | (c) | 01/15/16 | 100,692 | ||||||||||||||
29 | Brazos Student Finance Corp. | 1.368 | (c) | 06/25/35 | 29,402 | ||||||||||||||
141 | CVS Pass-Through Trust | 6.036 | 12/10/28 | 159,876 | |||||||||||||||
100 | GE Dealer Floorplan Master Note Trust (b) | 1.792 | (c) | 10/20/14 | 100,464 | ||||||||||||||
175 | Louisiana Public Facilities Authority | 1.366 | (c) | 04/26/27 | 175,616 | ||||||||||||||
150 | Nissan Auto Receivables Owner Trust | 1.18 | 02/16/15 | 151,017 | |||||||||||||||
180 | PFS Financing Corp. (b) | 1.742 | (c) | 10/17/16 | 181,530 | ||||||||||||||
125 | World Omni Automobile Lease Securitization Trust | 1.49 | 10/15/14 | 125,776 | |||||||||||||||
Total Asset-Backed Securities (Cost $998,649) | 1,024,373 | ||||||||||||||||||
U.S. Treasury Securities (13.8%) | |||||||||||||||||||
U.S. Treasury Bonds | |||||||||||||||||||
1,620 | 3.50 | 02/15/39 | 1,874,897 | ||||||||||||||||
610 | 3.875 | 08/15/40 | 751,063 | ||||||||||||||||
200 | 5.25 | 11/15/28 | 281,500 | ||||||||||||||||
255 | 5.375 | 02/15/31 | 371,623 | ||||||||||||||||
U.S. Treasury Notes | |||||||||||||||||||
210 | 0.50 | 10/15/13 | 210,607 | ||||||||||||||||
1,710 | 1.00 | 09/30/16 | 1,736,852 | ||||||||||||||||
452 | 1.25 | 10/31/15 | 463,335 |
See Notes to Financial Statements
64
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 3,180 | 1.75 | % | 01/31/14 - 07/31/15 | $ | 3,275,588 | |||||||||||||
1,000 | 1.875 | 09/30/17 | 1,055,078 | ||||||||||||||||
2,145 | 2.25 | 01/31/15 - 03/31/16 | 2,260,393 | ||||||||||||||||
5,300 | 2.375 | 08/31/14 - 06/30/18 | 5,592,462 | ||||||||||||||||
Total U.S. Treasury Securities (Cost $17,372,100) | 17,873,398 | ||||||||||||||||||
U.S. Agency Securities (1.6%) | |||||||||||||||||||
Federal Home Loan Mortgage Corporation | |||||||||||||||||||
150 | 3.75 | 03/27/19 | 173,516 | ||||||||||||||||
45 | 6.75 | 03/15/31 | 69,264 | ||||||||||||||||
Federal National Mortgage Association | |||||||||||||||||||
500 | 1.25 | 09/28/16 | 509,256 | ||||||||||||||||
700 | 4.375 | 10/15/15 | 786,307 | ||||||||||||||||
450 | 5.375 | 06/12/17 | 545,820 | ||||||||||||||||
Total U.S. Agency Securities (Cost $1,993,375) | 2,084,163 | ||||||||||||||||||
Short-Term Investments (13.8%) | |||||||||||||||||||
U.S. Treasury Security (0.1%) | |||||||||||||||||||
100 | U.S. Treasury Bill (Cost $99,978) (d) | 0.136 | 08/30/12 | 99,992 | |||||||||||||||
NUMBER OF SHARES (000) | |||||||||||||||||||
Investment Company (13.7%) | |||||||||||||||||||
17,767Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $17,766,564) | 17,766,564 | ||||||||||||||||||
Total Short-Term Investments (Cost $17,866,542) | 17,866,556 | ||||||||||||||||||
Total Investments (Cost $121,287,099) (e) | 99.8 | % | 129,057,571 | ||||||||||||||||
Other Assets in Excess of Liabilities | 0.2 | 245,328 | |||||||||||||||||
Net Assets | 100.0 | % | $ | 129,302,899 |
See Notes to Financial Statements
65
Morgan Stanley Variable Investment Series - Strategist
Portfolio of Investments n June 30, 2012 (unaudited) continued
MTN Medium Term Note.
(a) Non-income producing security.
(b) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(c) Variable/Floating Rate Security — Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 2012.
(d) Rate shown is the yield to maturity at June 30, 2012.
(e) Securities are available for collateral in connection with open futures contracts and swap agreements.
FUTURES CONTRACTS OPEN AT JUNE 30, 2012:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED DEPRECIATION | |||||||||||||||
1 | Long | U.S. Treasury 5 yr. Note, Sep-12 | $ | 123,969 | $ | (8 | ) | ||||||||||||
10 | Short | U.S. Treasury 10 yr. Note, Sep-12 | (1,333,750 | ) | (2,522 | ) | |||||||||||||
Total Unrealized Depreciation | $ | (2,530 | ) |
INTEREST RATE SWAP AGREEMENTS OPEN AT JUNE 30, 2012:
SWAP COUNTERPARTY | NOTIONAL AMOUNT (000) | FLOATING RATE INDEX | PAY/RECEIVE FLOATING RATE | FIXED RATE | TERMINATION DATE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||||||||
Bank of America | EUR | 1,720 | 6 Month EURIBOR | Pay | 4.26 | % | 08/18/26 | $ | 111,313 | ||||||||||||||||||
Bank of America | $ | 2,305 | 3 Month LIBOR | Receive | 4.35 | 08/18/26 | (104,732 | ) | |||||||||||||||||||
Bank of America | 2,860 | 3 Month LIBOR | Pay | 4.15 | 08/18/31 | 102,319 | |||||||||||||||||||||
Bank of America | EUR | 2,175 | 6 Month EURIBOR | Receive | 3.61 | 08/18/31 | (116,564 | ) | |||||||||||||||||||
Net Unrealized Depreciation | $ | (7,664 | ) |
EURIBOR Euro Interbank Offered Rate.
LIBOR London Interbank Offered Rate.
Currency Abbreviation:
EUR Euro.
See Notes to Financial Statements
66
Morgan Stanley Variable Investment Series - Strategist
Summary of Investments n June 30, 2012 (unaudited)
PORTFOLIO COMPOSITION | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Common Stocks | $ | 79,515,712 | 61.6 | % | |||||||
U.S. Treasury Securities | 17,973,390 | 13.9 | |||||||||
Investment Company | 17,766,564 | 13.8 | |||||||||
Corporate Bonds | 9,566,445 | 7.4 | |||||||||
U.S. Agency Securities | 2,084,163 | 1.6 | |||||||||
Asset-Backed Securities | 1,024,373 | 0.8 | |||||||||
Municipal Bonds | 587,666 | 0.5 | |||||||||
Sovereign | 535,845 | 0.4 | |||||||||
Agency Fixed Rate Mortgages | 3,413 | 0.0 | + | ||||||||
$ | 129,057,571 | ++ | 100.0 | % |
+ Amount is less than 0.05%.
++ Does not include open long/short futures contracts with an underlying face amount of $1,457,719 with total unrealized depreciation of $2,530 and open swap agreements with net unrealized depreciation of $7,664.
See Notes to Financial Statements
67
Morgan Stanley Variable Investment Series
Financial Statements
Statements of Assets and Liabilities
June 30, 2012 (unaudited)
Money Market | Limited Duration | Income Plus | Global Infrastructure | ||||||||||||||||
Assets: | |||||||||||||||||||
Investments in securities, at value* | $ | 98,300,683 | (1) | $ | 52,161,204 | $ | 183,253,497 | $ | 70,541,269 | ||||||||||
Investment in affiliates, at value** | — | 1,790,136 | 6,471,174 | 1,092,962 | |||||||||||||||
Total investments in securities, at value | 98,300,683 | 53,951,340 | 189,724,671 | 71,634,231 | |||||||||||||||
Unrealized appreciation on open swap agreements | — | — | — | — | |||||||||||||||
Cash | 9,269 | — | 5,063 | (2) | 147,960 | (2) | |||||||||||||
Receivable for: | |||||||||||||||||||
Interest | 18,051 | 354,748 | 2,240,158 | — | |||||||||||||||
Dividends | — | — | 11,604 | 652,243 | |||||||||||||||
Investments sold | — | 324,229 | 192,533 | 254,559 | |||||||||||||||
Foreign withholding taxes reclaimed | — | 148 | 6,107 | 32,201 | |||||||||||||||
Variation margin | — | — | 43,916 | — | |||||||||||||||
Shares of beneficial interest sold | 54,929 | — | — | — | |||||||||||||||
Interest and dividends from affiliates | — | 11,973 | 22,075 | 47 | |||||||||||||||
Prepaid expenses and other assets | 4,830 | 2,302 | 6,561 | 4,083 | |||||||||||||||
Total Assets | 98,387,762 | 54,644,740 | 192,252,688 | 72,725,324 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Unrealized depreciation on open swap agreements | — | — | 223,864 | — | |||||||||||||||
Unrealized depreciation on open foreign currency exchange contracts | — | — | 10,642 | — | |||||||||||||||
Payable for: | |||||||||||||||||||
Investments purchased | 1,000,000 | 209,057 | 941,858 | 197,506 | |||||||||||||||
Shares of beneficial interest redeemed | 25,642 | 93,456 | 193,303 | 97,013 | |||||||||||||||
Advisory fee | 9,540 | 13,389 | 65,571 | 32,647 | |||||||||||||||
Distribution fee (Class Y) | — | 8,799 | 20,996 | 2,900 | |||||||||||||||
Administration fee | 3,897 | 3,593 | 12,532 | 4,590 | |||||||||||||||
Variation margin | — | 8,352 | — | — | |||||||||||||||
Transfer agent fee | 251 | 217 | 257 | 258 | |||||||||||||||
Accrued expenses and other payables | 52,606 | 43,953 | 62,330 | 46,624 | |||||||||||||||
Total Liabilities | 1,091,936 | 380,816 | 1,531,353 | 381,538 | |||||||||||||||
Net Assets | $ | 97,295,826 | $ | 54,263,924 | $ | 190,721,335 | $ | 72,343,786 | |||||||||||
Composition of Net Assets: | |||||||||||||||||||
Paid-in-capital | $ | 97,297,773 | $ | 88,256,023 | $ | 190,595,982 | $ | 55,826,367 | |||||||||||
Net unrealized appreciation (depreciation) | — | 886,199 | 12,240,951 | 13,106,001 | |||||||||||||||
Accumulated undistributed net investment income (net investment loss) | 61 | 406,163 | 4,193,887 | 1,039,819 | |||||||||||||||
Accumulated net realized gain (loss) | (2,008 | ) | (35,284,461 | ) | (16,309,485 | ) | 2,371,599 | ||||||||||||
Net Assets | $ | 97,295,826 | $ | 54,263,924 | $ | 190,721,335 | $ | 72,343,786 | |||||||||||
* Cost | $ | 98,300,683 | $ | 51,286,079 | $ | 171,209,949 | $ | 57,439,296 | |||||||||||
** Affiliated Cost | $ | — | $ | 1,784,767 | $ | 5,955,988 | $ | 1,092,962 | |||||||||||
Class X Shares: | |||||||||||||||||||
Net Assets | $ | 46,494,505 | $ | 11,593,169 | $ | 88,523,257 | $ | 57,680,075 | |||||||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 46,495,365 | 1,525,556 | 7,920,029 | 6,956,170 | |||||||||||||||
Net Asset Value Per Share | $ | 1.00 | $ | 7.60 | $ | 11.18 | $ | 8.29 | |||||||||||
Class Y Shares: | |||||||||||||||||||
Net Assets | $ | 50,801,321 | $ | 42,670,755 | $ | 102,198,078 | $ | 14,663,711 | |||||||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 50,802,414 | 5,624,114 | 9,164,757 | 1,772,720 | |||||||||||||||
Net Asset Value Per Share | $ | 1.00 | $ | 7.59 | $ | 11.15 | $ | 8.27 |
(1) Including repurchase agreements of $53,208,000.
(2) Including foreign currency valued at $5,063, $147,960, and $111,874, respectively with a cost of $4,955, $147,505, and $111,183, respectively.
See Notes to Financial Statements
68
European Equity | Multi Cap Growth | Aggressive Equity | Strategist | ||||||||||||||||
Assets: | |||||||||||||||||||
Investments in securities, at value* | $ | 48,020,065 | $ | 216,011,685 | $ | 27,309,941 | $ | 111,130,098 | |||||||||||
Investment in affiliates, at value** | 1,158,271 | 6,673,526 | 1,038,390 | 17,927,473 | |||||||||||||||
Total investments in securities, at value | 49,178,336 | 222,685,211 | 28,348,331 | 129,057,571 | |||||||||||||||
Unrealized appreciation on open swap agreements | — | — | — | 213,632 | |||||||||||||||
Cash | 111,874 | (2) | 781,230 | — | — | ||||||||||||||
Receivable for: | |||||||||||||||||||
Interest | — | — | — | 281,990 | |||||||||||||||
Dividends | 132,802 | 90,429 | 11,237 | 125,995 | |||||||||||||||
Investments sold | 17,783 | — | — | — | |||||||||||||||
Foreign withholding taxes reclaimed | 116,521 | — | — | 140 | |||||||||||||||
Variation margin | — | — | — | 23,075 | |||||||||||||||
Shares of beneficial interest sold | — | — | — | — | |||||||||||||||
Interest and dividends from affiliates | 126 | 1,533 | 206 | 4,497 | |||||||||||||||
Prepaid expenses and other assets | 5,423 | 10,146 | 3,982 | 5,889 | |||||||||||||||
Total Assets | 49,562,865 | 223,568,549 | 28,363,756 | 129,712,789 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Unrealized depreciation on open swap agreements | — | — | — | 221,296 | |||||||||||||||
Unrealized depreciation on open foreign currency exchange contracts | 8,551 | — | — | — | |||||||||||||||
Payable for: | |||||||||||||||||||
Investments purchased | — | 209,392 | 26,621 | — | |||||||||||||||
Shares of beneficial interest redeemed | 22,642 | 40,558 | 18,841 | 72,502 | |||||||||||||||
Advisory fee | 26,091 | 74,070 | 15,026 | 41,945 | |||||||||||||||
Distribution fee (Class Y) | 2,210 | 9,704 | 3,205 | 7,473 | |||||||||||||||
Administration fee | 3,132 | 14,318 | 1,812 | 8,377 | |||||||||||||||
Variation margin | — | — | — | — | |||||||||||||||
Transfer agent fee | 260 | 297 | 216 | 260 | |||||||||||||||
Accrued expenses and other payables | 54,722 | 65,980 | 31,769 | 58,037 | |||||||||||||||
Total Liabilities | 117,608 | 414,319 | 97,490 | 409,890 | |||||||||||||||
Net Assets | $ | 49,445,257 | $ | 223,154,230 | $ | 28,266,266 | $ | 129,302,899 | |||||||||||
Composition of Net Assets: | |||||||||||||||||||
Paid-in-capital | $ | 58,452,257 | $ | 164,611,612 | $ | 21,186,003 | $ | 125,565,408 | |||||||||||
Net unrealized appreciation (depreciation) | 5,139,400 | 49,301,897 | 5,745,475 | 7,760,278 | |||||||||||||||
Accumulated undistributed net investment income (net investment loss) | 1,738,381 | 599,171 | (15,096 | ) | 1,240,192 | ||||||||||||||
Accumulated net realized gain (loss) | (15,884,781 | ) | 8,641,550 | 1,349,884 | (5,262,979 | ) | |||||||||||||
Net Assets | $ | 49,445,257 | $ | 223,154,230 | $ | 28,266,266 | $ | 129,302,899 | |||||||||||
* Cost | $ | 42,865,159 | $ | 166,709,558 | $ | 21,564,436 | $ | 103,377,763 | |||||||||||
** Affiliated Cost | $ | 1,158,271 | $ | 6,673,526 | $ | 1,038,390 | $ | 17,909,336 | |||||||||||
Class X Shares: | |||||||||||||||||||
Net Assets | $ | 38,275,654 | $ | 174,814,313 | $ | 12,254,377 | $ | 92,405,250 | |||||||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 2,697,665 | 4,360,608 | 673,229 | 8,818,445 | |||||||||||||||
Net Asset Value Per Share | $ | 14.19 | $ | 40.09 | $ | 18.20 | $ | 10.48 | |||||||||||
Class Y Shares: | |||||||||||||||||||
Net Assets | $ | 11,169,603 | $ | 48,339,917 | $ | 16,011,889 | $ | 36,897,649 | |||||||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 788,971 | 1,217,711 | 904,280 | 3,528,209 | |||||||||||||||
Net Asset Value Per Share | $ | 14.16 | $ | 39.70 | $ | 17.71 | $ | 10.46 |
69
Morgan Stanley Variable Investment Series
Financial Statements continued
Statements of Operations
For the six months ended June 30, 2012 (unaudited)
Money Market | Limited Duration | Income Plus | Global Infrastructure | ||||||||||||||||
Net Investment Income: | |||||||||||||||||||
Income | |||||||||||||||||||
Dividends† | — | — | $ | 34,749 | $ | 1,419,426 | |||||||||||||
Interest† | $ | 135,514 | $ | 605,879 | 4,723,447 | 28 | |||||||||||||
Interest and dividends from affiliates (Note 6) | — | 20,296 | 135,213 | 636 | |||||||||||||||
Income from securities loaned - net | — | — | — | — | |||||||||||||||
Total Income | 135,514 | 626,175 | 4,893,409 | 1,420,090 | |||||||||||||||
†Net of foreign withholding taxes | — | 295 | — | 78,878 | |||||||||||||||
Expenses | |||||||||||||||||||
Advisory fee (Note 4) | 229,892 | 83,425 | 406,022 | 206,207 | |||||||||||||||
Distribution fee (Class Y shares) (Note 5) | 67,140 | 54,369 | 128,994 | 18,053 | |||||||||||||||
Professional fees | 26,189 | 25,500 | 29,379 | 28,614 | |||||||||||||||
Administration fee (Note 4) | 25,544 | 22,247 | 77,338 | 28,941 | |||||||||||||||
Shareholder reports and notices | 15,951 | 9,451 | 18,986 | 8,459 | |||||||||||||||
Custodian fees | 11,076 | 6,284 | 10,558 | 17,443 | |||||||||||||||
Trustees' fees and expenses | 3,188 | 1,441 | 3,614 | 1,697 | |||||||||||||||
Transfer agent fees and expenses | 1,508 | 1,259 | 1,507 | 1,508 | |||||||||||||||
Other | 4,557 | 12,930 | 21,415 | 8,396 | |||||||||||||||
Total Expenses | 385,045 | 216,906 | 697,813 | 319,318 | |||||||||||||||
Less: amounts waived (Note 5) | (254,657 | ) | — | — | — | ||||||||||||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 6) | — | (783 | ) | (3,823 | ) | (639 | ) | ||||||||||||
Net Expenses | 130,388 | 216,123 | 693,990 | 318,679 | |||||||||||||||
Net Investment Income | 5,126 | 410,052 | 4,199,419 | 1,101,411 | |||||||||||||||
Realized and Unrealized Gain (Loss): | |||||||||||||||||||
Realized Gain (Loss) on: | |||||||||||||||||||
Investments | 3 | 116,834 | 3,855,068 | 2,630,126 | |||||||||||||||
Investments in affiliates (Note 6) | — | 13,129 | 333,108 | — | |||||||||||||||
Futures contracts | — | 66,926 | (490,301 | ) | — | ||||||||||||||
Swap agreements | — | (279,311 | ) | (90,725 | ) | — | |||||||||||||
Foreign currency exchange contracts | — | — | 41,819 | — | |||||||||||||||
Foreign currency translation | — | — | 610 | 8,065 | |||||||||||||||
Net Realized Gain (Loss) | 3 | (82,422 | ) | 3,649,579 | 2,638,191 | ||||||||||||||
Change in Unrealized Appreciation/Depreciation on: | |||||||||||||||||||
Investments | — | 359,706 | 4,423,208 | 1,203,538 | |||||||||||||||
Investments in affiliates (Note 6) | — | 8,570 | (47,785 | ) | — | ||||||||||||||
Futures contracts | — | (21,893 | ) | 125,403 | — | ||||||||||||||
Swap agreements | — | 270,993 | (212,964 | ) | — | ||||||||||||||
Foreign currency exchange contracts | — | — | (10,642 | ) | — | ||||||||||||||
Foreign currency translation | — | — | 118 | 5,120 | |||||||||||||||
Net Change in Unrealized Appreciation/Depreciation | — | 617,376 | 4,277,338 | 1,208,658 | |||||||||||||||
Net Gain | 3 | 534,954 | 7,926,917 | 3,846,849 | |||||||||||||||
Net Increase | $ | 5,129 | $ | 945,006 | $ | 12,126,336 | $ | 4,948,260 |
See Notes to Financial Statements
70
European Equity | Multi Cap Growth | Aggressive Equity | Strategist | ||||||||||||||||
Net Investment Income: | |||||||||||||||||||
Income | |||||||||||||||||||
Dividends† | $ | 1,827,134 | $ | 1,570,002 | $ | 197,829 | $ | 1,205,449 | |||||||||||
Interest† | — | — | — | 465,442 | |||||||||||||||
Interest and dividends from affiliates (Note 6) | 424 | 5,044 | 716 | 27,943 | |||||||||||||||
Income from securities loaned - net | 45,411 | — | — | — | |||||||||||||||
Total Income | 1,872,969 | 1,575,046 | 198,545 | 1,698,834 | |||||||||||||||
†Net of foreign withholding taxes | 135,341 | 45,414 | 5,769 | — | |||||||||||||||
Expenses | |||||||||||||||||||
Advisory fee (Note 4) | 229,449 | 495,788 | 99,047 | 279,816 | |||||||||||||||
Distribution fee (Class Y shares) (Note 5) | 14,783 | 65,218 | 20,888 | 48,159 | |||||||||||||||
Professional fees | 33,462 | 31,696 | 27,614 | 32,717 | |||||||||||||||
Administration fee (Note 4) | 21,099 | 94,436 | 11,827 | 53,298 | |||||||||||||||
Shareholder reports and notices | 11,811 | 28,819 | 7,023 | 19,420 | |||||||||||||||
Custodian fees | 9,389 | 9,226 | 4,309 | 11,951 | |||||||||||||||
Trustees' fees and expenses | 1,447 | 4,255 | 1,244 | 2,717 | |||||||||||||||
Transfer agent fees and expenses | 1,510 | 1,755 | 1,257 | 1,510 | |||||||||||||||
Other | 8,529 | 9,364 | 8,202 | 20,985 | |||||||||||||||
Total Expenses | 331,479 | 740,557 | 181,411 | 470,573 | |||||||||||||||
Less: amounts waived (Note 5) | (52,961 | ) | — | — | — | ||||||||||||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 6) | (405 | ) | (5,174 | ) | (798 | ) | (18,042 | ) | |||||||||||
Net Expenses | 278,113 | 735,383 | 180,613 | 452,531 | |||||||||||||||
Net Investment Income | 1,594,856 | 839,663 | 17,932 | 1,246,303 | |||||||||||||||
Realized and Unrealized Gain (Loss): | |||||||||||||||||||
Realized Gain (Loss) on: | |||||||||||||||||||
Investments | (979,612 | ) | 9,305,031 | 1,350,122 | (3,702,220 | ) | |||||||||||||
Investments in affiliates (Note 6) | — | — | — | (907,033 | ) | ||||||||||||||
Futures contracts | — | — | — | 33,536 | |||||||||||||||
Swap agreements | — | — | — | (100,127 | ) | ||||||||||||||
Foreign currency exchange contracts | (63,191 | ) | — | — | 4,044 | ||||||||||||||
Foreign currency translation | (261,530 | ) | (1,145 | ) | (104 | ) | (594 | ) | |||||||||||
Net Realized Gain (Loss) | (1,304,333 | ) | 9,303,886 | 1,350,018 | (4,672,394 | ) | |||||||||||||
Change in Unrealized Appreciation/Depreciation on: | |||||||||||||||||||
Investments | 1,336,740 | 12,333,203 | 1,381,489 | 8,143,446 | |||||||||||||||
Investments in affiliates (Note 6) | — | — | — | 998,890 | |||||||||||||||
Futures contracts | — | — | — | 493 | |||||||||||||||
Swap agreements | — | — | — | 41,792 | |||||||||||||||
Foreign currency exchange contracts | 138,593 | — | — | 4,074 | |||||||||||||||
Foreign currency translation | (647 | ) | 3,220 | 244 | 3,175 | ||||||||||||||
Net Change in Unrealized Appreciation/Depreciation | 1,474,686 | 12,336,423 | 1,381,733 | 9,191,870 | |||||||||||||||
Net Gain | 170,353 | 21,640,309 | 2,731,751 | 4,519,476 | |||||||||||||||
Net Increase | $ | 1,765,209 | $ | 22,479,972 | $ | 2,749,683 | $ | 5,765,779 |
71
Morgan Stanley Variable Investment Series
Financial Statements continued
Statements of Changes in Net Assets
Money Market | Limited Duration | Income Plus | |||||||||||||||||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||||||||||
Operations: | |||||||||||||||||||||||||||
Net investment income | $ | 5,126 | $ | 12,040 | $ | 410,052 | $ | 1,217,838 | $ | 4,199,419 | $ | 10,385,354 | |||||||||||||||
Net realized gain (loss) | 3 | (2,034 | ) | (82,422 | ) | 340,336 | 3,649,579 | 5,672,980 | |||||||||||||||||||
Net change in unrealized appreciation/depreciation | — | — | 617,376 | 74,923 | 4,277,338 | (5,677,427 | ) | ||||||||||||||||||||
Net Increase (Decrease) | 5,129 | 10,006 | 945,006 | 1,633,097 | 12,126,336 | 10,380,907 | |||||||||||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||||||||||
Net investment income | |||||||||||||||||||||||||||
Class X Shares | (2,430 | ) | (5,521 | ) | (347,237 | ) | (456,806 | ) | (5,085,206 | ) | (5,809,741 | ) | |||||||||||||||
Class Y Shares | (2,693 | ) | (6,188 | ) | (1,155,973 | ) | (1,462,462 | ) | (5,615,046 | ) | (6,427,424 | ) | |||||||||||||||
Net realized gain | |||||||||||||||||||||||||||
Class X Shares | — | — | — | — | — | — | |||||||||||||||||||||
Class Y Shares | — | — | — | — | — | — | |||||||||||||||||||||
Total Dividends and Distributions | (5,123 | ) | (11,709 | ) | (1,503,210 | ) | (1,919,268 | ) | (10,700,252 | ) | (12,237,165 | ) | |||||||||||||||
Net increase (decrease) from transactions in shares of beneficial interest | (9,984,288 | ) | (19,788,308 | ) | (1,955,320 | ) | (11,618,059 | ) | (4,528,699 | ) | (35,004,480 | ) | |||||||||||||||
Net Decrease | (9,984,282 | ) | (19,790,011 | ) | (2,513,524 | ) | (11,904,230 | ) | (3,102,615 | ) | (36,860,738 | ) | |||||||||||||||
Net Assets: | |||||||||||||||||||||||||||
Beginning of period | 107,280,108 | 127,070,119 | 56,777,448 | 68,681,678 | 193,823,950 | 230,684,688 | |||||||||||||||||||||
End of Period | $ | 97,295,826 | $ | 107,280,108 | $ | 54,263,924 | $ | 56,777,448 | $ | 190,721,335 | $ | 193,823,950 | |||||||||||||||
Accumulated Undistributed Net Investment Income | $ | 61 | $ | 58 | $ | 406,163 | $ | 1,499,321 | $ | 4,193,887 | $ | 10,694,720 |
See Notes to Financial Statements
72
Global Infrastructure | European Equity | ||||||||||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||
Operations: | |||||||||||||||||||
Net investment income | $ | 1,101,411 | $ | 1,821,472 | $ | 1,594,856 | $ | 1,640,380 | |||||||||||
Net realized gain (loss) | 2,638,191 | 6,272,022 | (1,304,333 | ) | 1,393,180 | ||||||||||||||
Net change in unrealized appreciation/depreciation | 1,208,658 | 3,163,169 | 1,474,686 | (8,877,969 | ) | ||||||||||||||
Net Increase (Decrease) | 4,948,260 | 11,256,663 | 1,765,209 | (5,844,409 | ) | ||||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||
Net investment income | |||||||||||||||||||
Class X Shares | (1,393,488 | ) | (1,548,002 | ) | (1,129,845 | ) | (1,159,573 | ) | |||||||||||
Class Y Shares | (317,994 | ) | (341,922 | ) | (291,780 | ) | (329,209 | ) | |||||||||||
Net realized gain | |||||||||||||||||||
Class X Shares | (5,078,266 | ) | (3,167,474 | ) | — | — | |||||||||||||
Class Y Shares | (1,294,994 | ) | (781,261 | ) | — | — | |||||||||||||
Total Dividends and Distributions | (8,084,742 | ) | (5,838,659 | ) | (1,421,625 | ) | (1,488,782 | ) | |||||||||||
Net increase (decrease) from transactions in shares of beneficial interest | 2,009,444 | (9,143,834 | ) | (3,747,985 | ) | (12,462,693 | ) | ||||||||||||
Net Decrease | (1,127,038 | ) | (3,725,830 | ) | (3,404,401 | ) | (19,795,884 | ) | |||||||||||
Net Assets: | |||||||||||||||||||
Beginning of period | 73,470,824 | 77,196,654 | 52,849,658 | 72,645,542 | |||||||||||||||
End of Period | $ | 72,343,786 | $ | 73,470,824 | $ | 49,445,257 | $ | 52,849,658 | |||||||||||
Accumulated Undistributed Net Investment Income | $ | 1,039,819 | $ | 1,649,890 | $ | 1,738,381 | $ | 1,565,150 |
73
Morgan Stanley Variable Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Multi Cap Growth | Aggressive Equity | ||||||||||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||
Operations: | |||||||||||||||||||
Net investment income (loss) | $ | 839,663 | $ | (64,872 | ) | $ | 17,932 | $ | (188,722 | ) | |||||||||
Net realized gain (loss) | 9,303,886 | 32,645,551 | 1,350,018 | 4,222,056 | |||||||||||||||
Net change in unrealized appreciation/depreciation | 12,336,423 | (48,028,545 | ) | 1,381,733 | (6,086,619 | ) | |||||||||||||
Net Increase (Decrease) | 22,479,972 | (15,447,866 | ) | 2,749,683 | (2,053,285 | ) | |||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||
Net investment income | |||||||||||||||||||
Class X Shares | — | (327,521 | ) | — | — | ||||||||||||||
Class Y Shares | — | — | — | — | |||||||||||||||
Net realized gain | |||||||||||||||||||
Class X Shares | (3,819,990 | ) | — | (939,227 | ) | — | |||||||||||||
Class Y Shares | (1,066,481 | ) | — | (1,257,234 | ) | — | |||||||||||||
Total Dividends and Distributions | (4,886,471 | ) | (327,521 | ) | (2,196,461 | ) | — | ||||||||||||
Net decrease from transactions in shares of beneficial interest | (17,401,532 | ) | (49,118,412 | ) | (185,334 | ) | (4,238,872 | ) | |||||||||||
Net Increase (Decrease) | 191,969 | (64,893,799 | ) | 367,888 | (6,292,157 | ) | |||||||||||||
Net Assets: | |||||||||||||||||||
Beginning of period | 222,962,261 | 287,856,060 | 27,898,378 | 34,190,535 | |||||||||||||||
End of Period | $ | 223,154,230 | $ | 222,962,261 | $ | 28,266,266 | $ | 27,898,378 | |||||||||||
Accumulated Undistributed Net Investment Income (Loss) | $ | 599,171 | $ | (240,492 | ) | $ | (15,096 | ) | $ | (33,028 | ) |
See Notes to Financial Statements
74
Strategist | |||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||
(unaudited) | |||||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 1,246,303 | $ | 2,351,102 | |||||||
Net realized gain (loss) | (4,672,394 | ) | 1,769,803 | ||||||||
Net change in unrealized appreciation/depreciation | 9,191,870 | (16,475,705 | ) | ||||||||
Net Increase (Decrease) | 5,765,779 | (12,354,800 | ) | ||||||||
Dividends and Distributions to Shareholders from: | |||||||||||
Net investment income | |||||||||||
Class X Shares | (1,835,044 | ) | (2,406,851 | ) | |||||||
Class Y Shares | (615,244 | ) | (860,346 | ) | |||||||
Net realized gain | |||||||||||
Class X Shares | (1,393,988 | ) | (12,604,023 | ) | |||||||
Class Y Shares | (559,117 | ) | (5,258,076 | ) | |||||||
Total Dividends and Distributions | (4,403,393 | ) | (21,129,296 | ) | |||||||
Net decrease from transactions in shares of beneficial interest | (9,071,816 | ) | (14,118,840 | ) | |||||||
Net Increase (Decrease) | (7,709,430 | ) | (47,602,936 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 137,012,329 | 184,615,265 | |||||||||
End of Period | $ | 129,302,899 | $ | 137,012,329 | |||||||
Accumulated Undistributed Net Investment Income (Loss) | $ | 1,240,192 | $ | 2,444,177 |
75
Morgan Stanley Variable Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Summary of Transactions in Shares of Beneficial Interest
Money Market | Limited Duration | Income Plus | |||||||||||||||||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Class X Shares | |||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||
Sold | 4,456,358 | 9,528,528 | 22,478 | 37,891 | 64,655 | 120,523 | |||||||||||||||||||||
Reinvestment of dividends and distributions | 2,430 | 5,521 | 45,689 | 59,870 | 454,849 | 529,120 | |||||||||||||||||||||
Redeemed | (9,395,451 | ) | (18,033,730 | ) | (192,120 | ) | (375,310 | ) | (761,033 | ) | (1,931,499 | ) | |||||||||||||||
Net Increase (Decrease) - Class X | (4,936,663 | ) | (8,499,681 | ) | (123,953 | ) | (277,549 | ) | (241,529 | ) | (1,281,856 | ) | |||||||||||||||
Amount | |||||||||||||||||||||||||||
Sold | $ | 4,456,358 | $ | 9,528,528 | $ | 175,465 | $ | 292,242 | $ | 741,686 | $ | 1,351,724 | |||||||||||||||
Reinvestment of dividends and distributions | 2,430 | 5,521 | 347,237 | 456,806 | 5,085,206 | 5,809,741 | |||||||||||||||||||||
Redeemed | (9,395,451 | ) | (18,033,730 | ) | (1,495,343 | ) | (2,907,547 | ) | (8,823,934 | ) | (21,828,131 | ) | |||||||||||||||
Net Increase (Decrease) - Class X | $ | (4,936,663 | ) | $ | (8,499,681 | ) | $ | (972,641 | ) | $ | (2,158,499 | ) | $ | (2,997,042 | ) | $ | (14,666,666 | ) | |||||||||
Class Y Shares | |||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||
Sold | 3,821,547 | 14,834,425 | 123,068 | 159,097 | 157,677 | 238,653 | |||||||||||||||||||||
Reinvestment of dividends and distributions | 2,693 | 6,188 | 152,302 | 191,924 | 503,592 | 586,444 | |||||||||||||||||||||
Redeemed | (8,871,865 | ) | (26,129,240 | ) | (398,590 | ) | (1,571,630 | ) | (776,545 | ) | (2,627,052 | ) | |||||||||||||||
Net Increase (Decrease) - Class Y | (5,047,625 | ) | (11,288,627 | ) | (123,220 | ) | (1,220,609 | ) | (115,276 | ) | (1,801,955 | ) | |||||||||||||||
Amount | |||||||||||||||||||||||||||
Sold | $ | 3,821,547 | $ | 14,834,425 | $ | 955,368 | $ | 1,222,848 | $ | 1,823,289 | $ | 2,668,015 | |||||||||||||||
Reinvestment of dividends and distributions | 2,693 | 6,188 | 1,155,973 | 1,462,462 | 5,615,046 | 6,427,424 | |||||||||||||||||||||
Redeemed | (8,871,865 | ) | (26,129,240 | ) | (3,094,020 | ) | (12,144,870 | ) | (8,969,992 | ) | (29,433,253 | ) | |||||||||||||||
Net Increase (Decrease) - Class Y | $ | (5,047,625 | ) | $ | (11,288,627 | ) | $ | (982,679 | ) | $ | (9,459,560 | ) | $ | (1,531,657 | ) | $ | (20,337,814 | ) |
See Notes to Financial Statements
76
Global Infrastructure | European Equity | ||||||||||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Class X Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 11,124 | 41,008 | 4,912 | 10,124 | |||||||||||||||
Reinvestment of dividends and distributions | 780,670 | 560,033 | 79,623 | 68,170 | |||||||||||||||
Redeemed | (598,153 | ) | (1,394,386 | ) | (289,814 | ) | (590,445 | ) | |||||||||||
Net Increase (Decrease) - Class X | 193,641 | (793,345 | ) | (205,279 | ) | (512,151 | ) | ||||||||||||
Amount | |||||||||||||||||||
Sold | $ | 100,023 | $ | 350,997 | $ | 72,607 | $ | 152,977 | |||||||||||
Reinvestment of dividends and distributions | 6,471,754 | 4,715,476 | 1,129,845 | 1,159,573 | |||||||||||||||
Redeemed | (5,395,256 | ) | (11,775,763 | ) | (4,371,015 | ) | (9,410,517 | ) | |||||||||||
Net Increase (Decrease) - Class X | $ | 1,176,521 | $ | (6,709,290 | ) | $ | (3,168,563 | ) | $ | (8,097,967 | ) | ||||||||
Class Y Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 31,775 | 37,827 | 1,179 | 4,450 | |||||||||||||||
Reinvestment of dividends and distributions | 195,041 | 133,712 | 20,606 | 19,411 | |||||||||||||||
Redeemed | (118,680 | ) | (456,268 | ) | (59,000 | ) | (312,722 | ) | |||||||||||
Net Increase (Decrease) - Class Y | 108,136 | (284,729 | ) | (37,215 | ) | (288,861 | ) | ||||||||||||
Amount | |||||||||||||||||||
Sold | $ | 283,079 | $ | 315,142 | $ | 17,254 | $ | 67,572 | |||||||||||
Reinvestment of dividends and distributions | 1,612,988 | 1,123,183 | 291,780 | 329,209 | |||||||||||||||
Redeemed | (1,063,144 | ) | (3,872,869 | ) | (888,456 | ) | (4,761,507 | ) | |||||||||||
Net Increase (Decrease) - Class Y | $ | 832,923 | $ | (2,434,544 | ) | $ | (579,422 | ) | $ | (4,364,726 | ) |
77
Morgan Stanley Variable Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Summary of Transactions in Shares of Beneficial Interest
Multi Cap Growth | Aggressive Equity | ||||||||||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Class X Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 10,168 | 23,630 | 4,494 | 22,589 | |||||||||||||||
Reinvestment of dividends and distributions | 95,285 | 7,793 | 51,606 | — | |||||||||||||||
Redeemed | (389,233 | ) | (891,278 | ) | (55,568 | ) | (145,437 | ) | |||||||||||
Net Increase (Decrease) - Class X | (283,780 | ) | (859,855 | ) | 532 | (122,848 | ) | ||||||||||||
Amount | |||||||||||||||||||
Sold | $ | 420,331 | $ | 952,101 | $ | 87,778 | $ | 434,357 | |||||||||||
Reinvestment of dividends and distributions | 3,819,990 | 327,521 | 939,227 | — | |||||||||||||||
Redeemed | (16,364,688 | ) | (36,256,926 | ) | (1,108,749 | ) | (2,852,868 | ) | |||||||||||
Net Decrease - Class X | $ | (12,124,367 | ) | $ | (34,977,304 | ) | $ | (81,744 | ) | $ | (2,418,511 | ) | |||||||
Class Y Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 7,496 | 44,490 | 3,750 | 154,196 | |||||||||||||||
Reinvestment of dividends and distributions | 26,864 | — | 70,990 | — | |||||||||||||||
Redeemed | (159,331 | ) | (394,005 | ) | (73,256 | ) | (241,830 | ) | |||||||||||
Net Increase (Decrease) - Class Y | (124,971 | ) | (349,515 | ) | 1,484 | (87,634 | ) | ||||||||||||
Amount | |||||||||||||||||||
Sold | $ | 291,021 | $ | 1,698,262 | $ | 73,607 | $ | 2,809,245 | |||||||||||
Reinvestment of dividends and distributions | 1,066,481 | — | 1,257,234 | — | |||||||||||||||
Redeemed | (6,634,667 | ) | (15,839,370 | ) | (1,434,431 | ) | (4,629,606 | ) | |||||||||||
Net Decrease - Class Y | $ | (5,277,165 | ) | $ | (14,141,108 | ) | $ | (103,590 | ) | $ | (1,820,361 | ) |
See Notes to Financial Statements
78
Strategist | |||||||||||
For The Six Months Ended June 30, 2012 | For The Year Ended December 31, 2011 | ||||||||||
(unaudited) | |||||||||||
Class X Shares | |||||||||||
Shares | |||||||||||
Sold | 38,329 | 33,714 | |||||||||
Reinvestment of dividends and distributions | 308,114 | 1,314,437 | |||||||||
Redeemed | (869,160 | ) | (1,905,781 | ) | |||||||
Net Increase (Decrease) - Class X | (522,717 | ) | (557,630 | ) | |||||||
Amount | |||||||||||
Sold | $ | 409,253 | $ | 381,164 | |||||||
Reinvestment of dividends and distributions | 3,229,032 | 15,010,874 | |||||||||
Redeemed | (9,297,974 | ) | (22,742,640 | ) | |||||||
Net Decrease - Class X | $ | (5,659,689 | ) | $ | (7,350,602 | ) | |||||
Class Y Shares | |||||||||||
Shares | |||||||||||
Sold | 22,295 | 11,243 | |||||||||
Reinvestment of dividends and distributions | 112,272 | 537,175 | |||||||||
Redeemed | (451,758 | ) | (1,070,631 | ) | |||||||
Net Increase (Decrease) - Class Y | (317,191 | ) | (522,213 | ) | |||||||
Amount | |||||||||||
Sold | $ | 237,038 | $ | 130,345 | |||||||
Reinvestment of dividends and distributions | 1,174,361 | 6,118,422 | |||||||||
Redeemed | (4,823,526 | ) | (13,017,005 | ) | |||||||
Net Decrease - Class Y | $ | (3,412,127 | ) | $ | (6,768,238 | ) |
79
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Variable Investment Series (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund is offered exclusively to life insurance companies in connection with particular life insurance and/or annuity contracts they offer.
The Fund, organized on February 25, 1983 as a Massachusetts business trust, consists of eight Portfolios
("Portfolios") which commenced operations as follows:
PORTFOLIO | COMMENCEMENT OF OPERATIONS | PORTFOLIO | COMMENCEMENT OF OPERATIONS | ||||||||||||
Money Market | March 9, 1984 | European Equity | March 1, 1991 | ||||||||||||
Limited Duration | May 4, 1999 | Multi Cap Growth | March 9, 1984 | ||||||||||||
Income Plus | March 1, 1987 | Aggressive Equity | May 4, 1999 | ||||||||||||
Global Infrastructure | March 1, 1990 | Strategist | March 1, 1987 | ||||||||||||
On June 5, 2000, the Fund commenced offering one additional class of shares (Class Y shares). The two classes are identical except that Class Y shares incur distribution expenses. Class X shares are generally available to holders of contracts offered before May 1, 2000. Class Y shares are available to holders of contracts offered on or after June 5, 2000.
The investment objectives of each Portfolio are as follows:
Money Market | Seeks high current income, preservation of capital and liquidity. | ||||||
Limited Duration | Seeks to provide a high level of current income, consistent with the preservation of capital. | ||||||
Income Plus | Seeks, as its primary objective, to provide a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective. | ||||||
Global Infrastructure | Seeks both capital appreciation and current income. | ||||||
European Equity | Seeks to maximize the capital appreciation of its investments. | ||||||
Multi Cap Growth | Seeks, as its primary objective, growth of capital and, as a secondary objective, income, but only when consistent with its primary objective. | ||||||
Aggressive Equity | Seeks long-term capital growth. | ||||||
Strategist | Seeks high total investment return. | ||||||
80
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
The following is a summary of significant policies:
A. Valuation of Investments — Money Market: Portfolio securities are valued at amortized cost, which approximates fair value, in accordance with Rule 2a-7 under the Act. All remaining Portfolios: (1) an equity portfolio security listed or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or other domestic exchange is valued at its latest sales 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 were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other domestic securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked prices. In cases where a security is traded on more than one domestic exchange, the security is valued on the exchange designated as the primary market; (4) swaps are marked-to-market daily based upon quotations from market makers; (5) for equity securities traded on foreign exchanges, the latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price) or the mean between the last reported bid and asked prices may be used if there were no sales on a particular day or the latest bid price may be used if only bid prices are available; (6) futures are valued at the latest price published by the commodities exchange on which they trade; (7) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Limited or Morgan Stanley Investment Management Company (each, a "Sub-Adviser"), each a wholly owned subsidiary of Morgan Stanley, determines that the latest sale price, the bid price or the mean between the last reported bid and ask price do not reflect a security's fair value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Board of Trustees (the "Trustees"). Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Trustees or by the Adviser using a pricing service and/or procedures approved by the Trustees; (8) certain portfolio securities may be valued by an outside pricing service approved by the Trustees. The prices provided by a pricing service take into account broker-dealer market price quotations for trading in similar groups of securities, security quality, maturity, coupon and
81
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
other security characteristics as well as any developments related to the specific securities; (9) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (10) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost, which approximates fair value.
Under procedures approved by the Trustees, the Fund's Adviser has formed a Valuation Committee. The Valuation Committee provides administration and oversight of the Fund's valuation policies and procedures, which are reviewed at least annually by the Trustees. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and adhoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income is accrued daily as earned except where collection is not expected.
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Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income.
C. Repurchase Agreements — The Fund invests directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest 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.
D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.
E. Foreign Currency Translation — The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and foreign currency exchange contracts are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gains/losses on foreign currency exchange contracts and foreign currency translations. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gains/losses are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities held.
F. Dividends and Distributions to Shareholders — The Fund records dividends and distributions to its shareholders on the ex-dividend date.
G. Expenses — Direct expenses are charged to the respective Portfolio and general Fund expenses are allocated on the basis of relative net assets or equally among the Portfolios.
H. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.
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I. Indemnifications — The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
2. Fair Valuation Measurements
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures ("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.
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
The following is a summary of the inputs used to value each Portfolio's investments as of June 30, 2012.
Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Money Market | |||||||||||||||||||
Assets: | |||||||||||||||||||
Repurchase Agreements | $ | — | $ | 53,208,000 | $ | — | $ | 53,208,000 | |||||||||||
Commercial Paper | — | 16,491,974 | — | 16,491,974 | |||||||||||||||
Certificates of Deposit | — | 12,999,990 | — | 12,999,990 | |||||||||||||||
Floating Rate Notes | — | 12,600,719 | — | 12,600,719 | |||||||||||||||
Tax-Exempt Instruments | — | 3,000,000 | — | 3,000,000 | |||||||||||||||
Total Assets | $ | — | $ | 98,300,683 | $ | — | $ | 98,300,683 | |||||||||||
Limited Duration | |||||||||||||||||||
Assets: | |||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Corporate Bonds | $ | — | $ | 29,769,272 | $ | — | $ | 29,769,272 | |||||||||||
U.S. Treasury Securities | — | 9,218,445 | — | 9,218,445 | |||||||||||||||
Asset-Backed Securities | — | 8,729,883 | — | 8,729,883 | |||||||||||||||
Non-U.S. Government — Guaranteed | — | 2,472,129 | — | 2,472,129 | |||||||||||||||
Agency Adjustable Rate Mortgages | — | 1,945,048 | — | 1,945,048 | |||||||||||||||
Agency Fixed Rate Mortgages | — | 356,204 | — | 356,204 | |||||||||||||||
Collateralized Mortgage Obligation — Agency Collateral Series | — | 332,012 | — | 332,012 | |||||||||||||||
Municipal Bond | — | 301,158 | — | 301,158 | |||||||||||||||
Sovereign | — | 211,200 | — | 211,200 | |||||||||||||||
Total Fixed Income Securities | — | 53,335,351 | — | 53,335,351 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
U.S. Treasury Security | — | 384,970 | — | 384,970 | |||||||||||||||
Investment Company | 231,019 | — | — | 231,019 | |||||||||||||||
Total Short-Term Investments | 231,019 | 384,970 | — | 615,989 | |||||||||||||||
Futures Contracts | 7,844 | — | — | 7,844 | |||||||||||||||
Total Assets | $ | 238,863 | $ | 53,720,321 | $ | — | $ | 53,959,184 |
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Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Liabilities: | |||||||||||||||||||
Futures Contracts | $ | (2,139 | ) | $ | — | $ | — | $ | (2,139 | ) | |||||||||
Total | $ | 236,724 | $ | 53,720,321 | $ | — | $ | 53,957,045 | |||||||||||
Income Plus | |||||||||||||||||||
Assets: | |||||||||||||||||||
Corporate Bonds | $ | — | $ | 183,685,294 | $ | — | $ | 183,685,294 | |||||||||||
Asset-Backed Securities | — | 1,772,058 | — | 1,772,058 | |||||||||||||||
Municipal Bond | — | 685,080 | — | 685,080 | |||||||||||||||
Sovereign | — | 420,935 | — | 420,935 | |||||||||||||||
Agency Fixed Rate Mortgage | — | 1,561 | — | 1,561 | |||||||||||||||
Total Fixed Income Securities | — | 186,564,928 | — | 186,564,928 | |||||||||||||||
Convertible Preferred Stocks | 575,597 | — | — | 575,597 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
U.S. Treasury Securities | — | 199,984 | — | 199,984 | |||||||||||||||
Investment Company | 2,384,162 | — | — | 2,384,162 | |||||||||||||||
Total Short-Term Investments | 2,384,162 | 199,984 | — | 2,584,146 | |||||||||||||||
Futures | 22,909 | — | — | 22,909 | |||||||||||||||
Total Assets | 2,982,668 | 186,764,912 | — | 189,747,580 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Foreign Currency Exchange Contracts | — | (10,642 | ) | — | (10,642 | ) | |||||||||||||
Futures | (106,304 | ) | — | — | (106,304 | ) | |||||||||||||
Interest Rate Swap Agreements | — | (223,864 | ) | — | (223,864 | ) | |||||||||||||
Total Liabilities | (106,304 | ) | (234,506 | ) | — | (340,810 | ) | ||||||||||||
Total | $ | 2,876,364 | $ | 186,530,406 | $ | — | $ | 189,406,770 | |||||||||||
Global Infrastructure | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Airports | $ | — | $ | 2,031,636 | $ | — | $ | 2,031,636 | |||||||||||
Communications | 8,093,159 | 2,759,832 | — | 10,852,991 | |||||||||||||||
Diversified | 1,008,076 | 864,837 | — | 1,872,913 | |||||||||||||||
Oil & Gas Storage & Transportation | 23,484,590 | 12,239,035 | — | 35,723,625 | |||||||||||||||
Ports | — | 683,686 | — | 683,686 | |||||||||||||||
Toll Roads | — | 4,838,323 | — | 4,838,323 | |||||||||||||||
Transmission & Distribution | 4,325,942 | 7,170,816 | — | 11,496,758 |
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Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Water | $ | 1,133,675 | $ | 1,907,662 | $ | — | $ | 3,041,337 | |||||||||||
Total Common Stocks | 38,045,442 | 32,495,827 | — | 70,541,269 | |||||||||||||||
Short-Term Investment — Investment Company | 1,092,962 | — | — | 1,092,962 | |||||||||||||||
Total Assets | $ | 39,138,404 | $ | 32,495,827 | $ | — | $ | 71,634,231 | |||||||||||
European Equity | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Aerospace & Defense | $ | — | $ | 1,423,358 | $ | — | $ | 1,423,358 | |||||||||||
Automobiles | — | 1,056,617 | — | 1,056,617 | |||||||||||||||
Chemicals | — | 857,106 | — | 857,106 | |||||||||||||||
Commercial Banks | — | 5,545,520 | — | 5,545,520 | |||||||||||||||
Electrical Equipment | — | 925,376 | — | 925,376 | |||||||||||||||
Food & Staples Retailing | — | 774,749 | — | 774,749 | |||||||||||||||
Food Products | — | 2,634,207 | — | 2,634,207 | |||||||||||||||
Health Care Providers & Services | — | 1,147,076 | — | 1,147,076 | |||||||||||||||
Hotels, Restaurants & Leisure | — | 683,187 | — | 683,187 | |||||||||||||||
Household Products | — | 1,176,510 | — | 1,176,510 | |||||||||||||||
Industrial Conglomerates | — | 1,323,236 | — | 1,323,236 | |||||||||||||||
Information Technology Services | — | 1,020,207 | — | 1,020,207 | |||||||||||||||
Insurance | — | 3,163,140 | — | 3,163,140 | |||||||||||||||
Machinery | — | 1,565,189 | — | 1,565,189 | |||||||||||||||
Media | — | 1,699,056 | — | 1,699,056 | |||||||||||||||
Metals & Mining | — | 2,565,322 | — | 2,565,322 | |||||||||||||||
Oil, Gas & Consumable Fuels | — | 7,020,526 | — | 7,020,526 | |||||||||||||||
Pharmaceuticals | — | 6,478,624 | — | 6,478,624 | |||||||||||||||
Professional Services | — | 967,304 | — | 967,304 | |||||||||||||||
Tobacco | — | 3,250,434 | — | 3,250,434 | |||||||||||||||
Wireless Telecommunication Services | — | 2,743,321 | — | 2,743,321 | |||||||||||||||
Total Common Stocks | — | 48,020,065 | — | 48,020,065 | |||||||||||||||
Short-Term Investment — Investment Company | 1,158,271 | — | — | 1,158,271 | |||||||||||||||
Total Assets | 1,158,271 | 48,020,065 | — | 49,178,336 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Foreign Currency Exchange Contracts | — | (8,551 | ) | — | (8,551 | ) | |||||||||||||
Total | $ | 1,158,271 | $ | 48,011,514 | $ | — | $ | 49,169,785 |
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Multi Cap Growth | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Air Transport | $ | 3,594,373 | $ | — | $ | — | $ | 3,594,373 | |||||||||||
Alternative Energy | 7,975,911 | — | — | 7,975,911 | |||||||||||||||
Beverage: Brewers & Distillers | 2,936,279 | — | — | 2,936,279 | |||||||||||||||
Biotechnology | 5,190,640 | — | — | 5,190,640 | |||||||||||||||
Chemicals: Diversified | 6,785,973 | — | — | 6,785,973 | |||||||||||||||
Commercial Finance & Mortgage Companies | 3,217,770 | — | — | 3,217,770 | |||||||||||||||
Commercial Services | 4,513,408 | 5,610,298 | — | 10,123,706 | |||||||||||||||
Communications Technology | 7,548,892 | — | — | 7,548,892 | |||||||||||||||
Computer Services, Software & Systems | 34,810,722 | — | 9,354,930 | 44,165,652 | |||||||||||||||
Computer Technology | 24,099,250 | — | — | 24,099,250 | |||||||||||||||
Consumer Lending | 6,745,014 | — | — | 6,745,014 | |||||||||||||||
Diversified Retail | 32,802,983 | — | — | 32,802,983 | |||||||||||||||
Financial Data & Systems | 11,779,876 | — | — | 11,779,876 | |||||||||||||||
Foods | 1,509,857 | — | — | 1,509,857 | |||||||||||||||
Health Care Services | 9,640,768 | — | — | 9,640,768 | |||||||||||||||
Insurance: Property-Casualty | 4,108,926 | — | — | 4,108,926 | |||||||||||||||
Medical Equipment | 7,716,510 | — | — | 7,716,510 | |||||||||||||||
Metals & Minerals: Diversified | 2,033,264 | 2,205,188 | — | 4,238,452 | |||||||||||||||
Real Estate Investment Trusts (REIT) | 8,090,335 | — | — | 8,090,335 | |||||||||||||||
Recreational Vehicles & Boats | — | 7,459,093 | — | 7,459,093 | |||||||||||||||
Wholesale & International Trade | — | 3,966,277 | — | 3,966,277 | |||||||||||||||
Total Common Stocks | 185,100,751 | 19,240,856 | 9,354,930 | 213,696,537 | |||||||||||||||
Convertible Preferred Stocks | — | — | 2,315,148 | 2,315,148 | |||||||||||||||
Short-Term Investment — Investment Company | 6,673,526 | — | — | 6,673,526 | |||||||||||||||
Total Assets | $ | 191,774,277 | $ | 19,240,856 | $ | 11,670,078 | $ | 222,685,211 |
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
Multi Cap Growth
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 June 30, 2012.
Fair Value at June 30, 2012 | Valuation Technique(s) | Unobservable Input | Range | Weighted Average | Impact to Valuation from an Increase in Input | ||||||||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||||||||
Computer Services, Software & Systems | $ | 9,354,930 | Adjusted Stock Price | Discount for Illiquidity | 8.3 | % | 8.3 | % | 8.3 | % | Decrease | ||||||||||||||||||||
Convertible Preferred Stocks | |||||||||||||||||||||||||||||||
Alternative Energy | $ | 1,940,739 | Market Transaction | Purchase Price of | |||||||||||||||||||||||||||
Preferred | — | — | — | — | |||||||||||||||||||||||||||
Discounted cash flow | Weighted average cost of capital | 22.5 | % | 27.5 | % | 24.2 | % | Decrease | |||||||||||||||||||||||
Perpetual growth rate | 2.5 | % | 3.5 | % | 3.0 | % | Increase | ||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value / Revenue | 2.6 | x | 3.4 | x | 3.1 | x | Increase | |||||||||||||||||||||||
Discount for lack of marketability | 15 | % | 15 | % | 15 | % | Decrease | ||||||||||||||||||||||||
Computer Services, | |||||||||||||||||||||||||||||||
Software & Systems | $ | 374,409 | Market Transaction | Purchase Price of | |||||||||||||||||||||||||||
Preferred | — | — | — | — | |||||||||||||||||||||||||||
Discounted cash flow | Weighted average cost of capital | 13 | % | 18 | % | 15 | % | Decrease | |||||||||||||||||||||||
Perpetual growth rate | 2.0 | % | 3.0 | % | 2.5 | % | Increase | ||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value / Revenue | 6.7 | x | 15.7 | x | 9.6 | x | Increase | |||||||||||||||||||||||
Discount for lack of marketability | N/A | N/A | N/A | Decrease | |||||||||||||||||||||||||||
Merger & Acquisition Transactions | Enterprise Value / Revenue | 8.7 | x | 10.8 | x | 9.4 | x | Increase | |||||||||||||||||||||||
Discount for lack of control | 25 | % | 25 | % | 25 | % | Decrease |
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Aggressive Equity | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Air Transport | $ | 454,731 | $ | — | $ | — | $ | 454,731 | |||||||||||
Alternative Energy | 1,008,997 | — | — | 1,008,997 | |||||||||||||||
Beverage: Brewers & Distillers | 371,475 | — | — | 371,475 | |||||||||||||||
Biotechnology | 656,661 | — | — | 656,661 | |||||||||||||||
Chemicals: Diversified | 858,511 | — | — | 858,511 | |||||||||||||||
Commercial Finance & Mortgage Companies | 407,086 | — | — | 407,086 | |||||||||||||||
Commercial Services | 570,975 | 709,509 | — | 1,280,484 | |||||||||||||||
Communications Technology | 955,032 | — | — | 955,032 | |||||||||||||||
Computer Services, Software & Systems | 4,470,983 | — | 1,119,004 | 5,589,987 | |||||||||||||||
Computer Technology | 3,046,493 | — | — | 3,046,493 | |||||||||||||||
Consumer Lending | 853,327 | — | — | 853,327 | |||||||||||||||
Diversified Retail | 4,149,248 | — | — | 4,149,248 | |||||||||||||||
Financial Data & Systems | 1,490,258 | — | — | 1,490,258 | |||||||||||||||
Foods | 191,015 | — | — | 191,015 | |||||||||||||||
Health Care Services | 1,219,693 | — | — | 1,219,693 | |||||||||||||||
Insurance: Property-Casualty | 517,959 | — | — | 517,959 | |||||||||||||||
Medical Equipment | 976,332 | — | — | 976,332 | |||||||||||||||
Metals & Minerals: Diversified | 257,221 | 278,980 | — | 536,201 | |||||||||||||||
Real Estate Investment Trusts (REIT) | 1,023,518 | — | — | 1,023,518 | |||||||||||||||
Recreational Vehicles & Boats | — | 943,662 | — | 943,662 | |||||||||||||||
Wholesale & International Trade | — | 500,636 | — | 500,636 | |||||||||||||||
Total Common Stocks | 23,479,515 | 2,432,787 | 1,119,004 | 27,031,306 | |||||||||||||||
Convertible Preferred Stocks | — | — | 278,635 | 278,635 | |||||||||||||||
Short-Term Investment — Investment Company | 1,038,390 | — | — | 1,038,390 | |||||||||||||||
Total Assets | $ | 24,517,905 | $ | 2,432,787 | $ | 1,397,639 | $ | 28,348,331 |
90
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
Aggressive Equity
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 June 30, 2012.
Fair Value at June 30, 2012 | Valuation Technique(s) | Unobservable Input | Range | Weighted Average | Impact to Valuation from an Increase in Input | ||||||||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||||||||
Computer Services, Software & Systems | $ | 1,119,004 | Adjusted Stock Price | Discount for Illiquidity | 8.3 | % | 8.3 | % | 8.3 | % | Decrease | ||||||||||||||||||||
Convertible Preferred Stocks | |||||||||||||||||||||||||||||||
Alternative Energy | $ | 234,705 | Market Transaction | Purchase Price of | |||||||||||||||||||||||||||
Preferred | — | — | — | — | |||||||||||||||||||||||||||
Discounted cash flow | Weighted average cost of capital | 22.5 | % | 27.5 | % | 24.2 | % | Decrease | |||||||||||||||||||||||
Perpetual growth rate | 2.5 | % | 3.5 | % | 3.0 | % | Increase | ||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value / Revenue | 2.6 | x | 3.4 | x | 3.1 | x | Increase | |||||||||||||||||||||||
Discount for lack of marketability | 15 | % | 15 | % | 15 | % | Decrease | ||||||||||||||||||||||||
Computer Services, | |||||||||||||||||||||||||||||||
Software & Systems | $ | 43,930 | Market Transaction | Purchase Price of | |||||||||||||||||||||||||||
Preferred | — | — | — | — | |||||||||||||||||||||||||||
Discounted cash flow | Weighted average cost of capital | 13 | % | 18 | % | 15 | % | Decrease | |||||||||||||||||||||||
Perpetual growth rate | 2.0 | % | 3.0 | % | 2.5 | % | Increase | ||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value/ Revenue | 6.7 | x | 15.7 | x | 9.6 | x | Increase | |||||||||||||||||||||||
Discount for lack of marketability | N/A | N/A | N/A | Decrease | |||||||||||||||||||||||||||
Merger & Acquisition Transactions | Enterprise Value/ Revenue | 8.7 | x | 10.8 | x | 9.4 | x | Increase | |||||||||||||||||||||||
Discount for lack of control | 25 | % | 25 | % | 25 | % | Decrease |
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Strategist | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Aerospace & Defense | $ | 2,955,696 | $ | — | $ | — | $ | 2,955,696 | |||||||||||
Auto Components | 1,251,938 | — | — | 1,251,938 | |||||||||||||||
Chemicals | 2,390,444 | — | — | 2,390,444 | |||||||||||||||
Commercial Services & Supplies | 162,586 | — | — | 162,586 | |||||||||||||||
Computers & Peripherals | 806,713 | — | — | 806,713 | |||||||||||||||
Diversified Financial Services | 2,552,730 | — | — | 2,552,730 | |||||||||||||||
Diversified Telecommunication Services | 4,644,343 | — | — | 4,644,343 | |||||||||||||||
Food & Staples Retailing | 1,403,902 | — | — | 1,403,902 | |||||||||||||||
Food Products | 2,444,421 | — | — | 2,444,421 | |||||||||||||||
Hotels, Restaurants & Leisure | 6,635,410 | — | — | 6,635,410 | |||||||||||||||
Industrial Conglomerates | 5,827,897 | — | — | 5,827,897 | |||||||||||||||
Information Technology Services | 2,601,214 | — | — | 2,601,214 | |||||||||||||||
Insurance | 3,280,541 | — | — | 3,280,541 | |||||||||||||||
Machinery | 2,249,147 | — | — | 2,249,147 | |||||||||||||||
Media | 2,863,630 | — | — | 2,863,630 | |||||||||||||||
Multi-Utilities | 2,484,082 | — | — | 2,484,082 | |||||||||||||||
Oil, Gas & Consumable Fuels | 8,275,159 | — | — | 8,275,159 | |||||||||||||||
Paper & Forest Products | 1,370,513 | — | — | 1,370,513 | |||||||||||||||
Pharmaceuticals | 7,674,725 | — | — | 7,674,725 | |||||||||||||||
Road & Rail | 2,326,066 | — | — | 2,326,066 | |||||||||||||||
Semiconductors & Semiconductor Equipment | 2,233,403 | — | — | 2,233,403 | |||||||||||||||
Software | 3,030,245 | — | — | 3,030,245 | |||||||||||||||
Specialty Retail | 3,778,452 | — | — | 3,778,452 | |||||||||||||||
Textiles, Apparel & Luxury Goods | 2,229,949 | — | — | 2,229,949 | |||||||||||||||
Tobacco | 4,042,506 | — | — | 4,042,506 | |||||||||||||||
Total Common Stocks | 79,515,712 | — | — | 79,515,712 | |||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Corporate Bonds | — | 9,566,445 | — | 9,566,445 | |||||||||||||||
Sovereign | — | 535,845 | — | 535,845 | |||||||||||||||
Municipal Bonds | — | 587,666 | — | 587,666 | |||||||||||||||
Agency Fixed Rate Mortgages | — | 3,413 | — | 3,413 | |||||||||||||||
Asset-Backed Securities | — | 1,024,373 | — | 1,024,373 | |||||||||||||||
U.S. Treasury Securities | — | 17,873,398 | — | 17,873,398 | |||||||||||||||
U.S. Agency Securities | — | 2,084,163 | — | 2,084,163 | |||||||||||||||
Total Fixed Income Securities | $ | — | $ | 31,675,303 | $ | — | $ | 31,675,303 |
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Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
U.S. Treasury Security | $ | — | $ | 99,992 | $ | — | $ | 99,992 | |||||||||||
Investment Company | 17,766,564 | — | — | 17,766,564 | |||||||||||||||
Total Short-Term Investments | 17,766,564 | 99,992 | — | 17,866,556 | |||||||||||||||
Interest Rate Swap Agreements | — | 213,632 | — | 213,632 | |||||||||||||||
Total Assets | 97,282,276 | 31,988,927 | — | 129,271,203 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Futures | (2,530 | ) | — | — | (2,530 | ) | |||||||||||||
Interest Rate Swap Agreements | — | (221,296 | ) | — | (221,296 | ) | |||||||||||||
Total Liabilities | (2,530 | ) | (221,296 | ) | — | (223,826 | ) | ||||||||||||
Total | $ | 97,279,746 | $ | 31,767,631 | $ | — | $ | 129,047,377 |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Fund recognizes transfers between the levels as of the end of the period. As of June 30, 2012, the fair market value of certain securities were adjusted due to developments which occurred between the time of the close of the foreign markets on which they trade and the close of business on the NYSE which resulted in their Level 2 classification. The values of the transfers were as follows:
GLOBAL INFRASTRUCTURE | EUROPEAN EQUITY | MULTI CAP GROWTH | AGGRESSIVE EQUITY | ||||||||||||
$ | 32,495,827 | $ | 47,342,931 | $ | 13,630,558 | $ | 1,723,278 |
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Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Multi Cap Growth | Aggressive Equity | ||||||||||||||||||
Common Stock | Convertible Preferred Stocks | Common Stock | Convertible Preferred Stocks | ||||||||||||||||
Beginning Balance | $ | 8,853,246 | $ | 3,036,329 | $ | 1,058,994 | $ | 365,853 | |||||||||||
Purchases | — | — | — | — | |||||||||||||||
Sales | — | — | — | — | |||||||||||||||
Amortization of discount | — | — | �� | — | |||||||||||||||
Transfers in | — | — | — | — | |||||||||||||||
Transfers out | — | — | — | — | |||||||||||||||
Change in unrealized appreciation (depreciation) | 501,684 | (721,181 | ) | 60,010 | (87,218 | ) | |||||||||||||
Realized gains (losses) | — | — | — | — | |||||||||||||||
Ending Balance | $ | 9,354,930 | $ | 2,315,148 | $ | 1,119,004 | $ | 278,635 | |||||||||||
Net change in unrealized appreciation/ depreciation from investments still held as of June 30, 2012. | $ | 501,684 | $ | (721,181 | ) | $ | 60,010 | $ | (87,218 | ) |
3. Derivatives
Certain Portfolios may, but are 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 on the value of an underlying asset, interest rate, index or financial instrument. 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 they relate, and risks that the transactions may not be liquid. 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 a Portfolio'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 risk of loss. Leverage associated with derivative transactions may cause the Portfolios to liquidate
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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 rules and regulations, or may cause the Portfolios to be more volatile than if the Portfolios had not been leveraged. Although the Adviser and/or Sub-Advisers seek to use derivatives to further the Portfolio'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 Portfolios used during the period and their associated risks:
Foreign Currency Exchange Contracts In connection with its investments in foreign securities, certain Portfolios entered into contracts with banks, brokers or dealers to purchase or sell foreign currencies at a future date. A foreign currency exchange contract ("currency contracts") is a negotiated agreement between two parties to exchange specified amounts of two or more currencies at a specified future time at a specified rate. The rate specified by the currency contract can be higher or lower than the spot rate between the currencies that are the subject of the currency 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, certain Portfolios may use cross currency hedging or proxy hedging with respect to currencies in which a Portfolio 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. Hedging a Portfolio's currency risks involves the risk of mismatching a Portfolio's objectives under a currency contract with the value of securities denominated in a particular currency. Furthermore, such transactions 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 an additional risk to the effect that currency contracts create exposure to currencies in which a Portfolio's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for a Portfolio than if it had not entered into such currency 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 term of the contract. A currency contract is marked-to-market daily and the change in market value is recorded by a Portfolio as unrealized gain or (loss). A Portfolio 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 agreement between two parties to buy or sell a specific quantity of an underlying instrument 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
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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 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 can be highly volatile, using futures can lower total return, and the potential loss from futures can exceed a Portfolio's initial investment in such contracts.
Swaps An over-the-counter ("OTC") swap agreement 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, indexes, reference rates, currencies or other instruments. A small percentage of swap agreements are cleared through a central clearing house. Most 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). A Portfolio's obligations or rights under a swap agreement 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 counterparty. Most swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Swaps could result in losses if interest rate or foreign currency exchange rates or credit quality changes are not correctly anticipated by a Portfolio or if the reference index, security or investments do not perform as expected.
A Portfolio's use of swaps during the period included those based on the credit of an underlying security and commonly referred to as credit default swaps. Where a Portfolio is the buyer of a credit default swap agreement, it would be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the agreement only in the event of a default by a third party on the debt obligation. If no default occurs, a Portfolio would have paid to the counterparty a periodic stream of payments over the term of the agreement and received no benefit from the agreement. When a Portfolio is the seller of a credit default swap agreement, it 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 default of the referenced debt obligation. 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.
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When a Portfolio has an unrealized loss on a swap agreement, the Portfolio 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 Statements of Assets and Liabilities.
FASB ASC 815, Derivatives and Hedging: Overall ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why a Portfolio uses derivative instruments, how these derivative instruments are accounted for and their effects on a Portfolio's financial position and results of operations.
The following table sets forth the fair value of each Portfolio's derivative contracts by primary risk exposure as of June 30, 2012.
PORTFOLIO | PRIMARY RISK EXPOSURE | ASSET DERIVATIVES STATEMENTS OF ASSETS AND LIABILITIES LOCATION | FAIR VALUE | LIABILITIES DERIVATIVES STATEMENTS OF ASSETS AND LIABILITIES LOCATION | FAIR VALUE | ||||||||||||||||||
Limited Duration | Interest Rate Risk | Variation margin | $ | 7,844 | † | Variation margin | $ | (2,139 | )† | ||||||||||||||
Income Plus | Interest Rate Risk | Variation margin | $ | 22,909 | † | Variation margin | $ | (106,304 | )† | ||||||||||||||
Unrealized appreciation on open swap agreements | — | Unrealized depreciation on open swap agreements | (223,864 | ) | |||||||||||||||||||
Currency Risk | Unrealized appreciation on open foreign currency exchange contracts | — | Unrealized depreciation on open foreign currency exchange contracts | (10,642 | ) | ||||||||||||||||||
Total | $ | 22,909 | Total | $ | (340,810 | ) | |||||||||||||||||
European Equity | Currency Risk | Unrealized appreciation on open foreign currency exchange contracts | $ | — | Unrealized depreciation on open foreign currency exchange contracts | $ | (8,551 | ) | |||||||||||||||
Strategist | Interest Rate Risk | Variation margin | $ | — | † | Variation margin | $ | (2,530 | )† | ||||||||||||||
Unrealized appreciation on open swap agreements | 213,632 | Unrealized depreciation on open swap agreements | (221,296 | ) | |||||||||||||||||||
Total | $ | 213,632 | Total | $ | (223,826 | ) |
† Includes cumulative appreciation/depreciation of futures contracts as reported in the Portfolio of Investments. Only current day's net variation margin is reported within the Statements of Assets and Liabilities.
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The following tables set forth by primary risk exposure each Portfolio's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the six months ended June 30, 2012 in accordance with ASC 815.
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS
PORTFOLIO | PRIMARY RISK EXPOSURE | FUTURES | SWAPS | FOREIGN CURRENCY EXCHANGE | |||||||||||||||
Limited Duration | Interest Rate Risk | $ | 66,926 | $ | (279,311 | ) | $ | — | |||||||||||
Income Plus | Interest Rate Risk | $ | (490,301 | ) | $ | (90,725 | ) | $ | — | ||||||||||
Currency Risk | — | — | 41,819 | ||||||||||||||||
Total | $ | (490,301 | ) | $ | (90,725 | ) | $ | 41,819 | |||||||||||
European Equity | Currency Risk | $ | — | $ | — | $ | (63,191 | ) | |||||||||||
Strategist | Interest Rate Risk | $ | 33,536 | $ | (100,127 | ) | $ | — | |||||||||||
Currency Risk | — | — | 4,044 | ||||||||||||||||
Total | $ | 33,536 | $ | (100,127 | ) | $ | 4,044 |
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVE CONTRACTS
PORTFOLIO | PRIMARY RISK EXPOSURE | FUTURES | SWAPS | FOREIGN CURRENCY EXCHANGE | |||||||||||||||
Limited Duration | Interest Rate Risk | $ | (21,893 | ) | $ | 270,993 | $ | — | |||||||||||
Income Plus | Interest Rate Risk | $ | 125,403 | $ | (212,964 | ) | $ | — | |||||||||||
Currency Risk | — | — | (10,642 | ) | |||||||||||||||
Total | $ | 125,403 | $ | (212,964 | ) | $ | (10,642 | ) | |||||||||||
European Equity | Currency Risk | $ | — | $ | — | $ | 138,593 | ||||||||||||
Strategist | Interest Rate Risk | $ | 493 | $ | 41,792 | $ | — | ||||||||||||
Currency Risk | — | — | 4,074 | ||||||||||||||||
Total | $ | 493 | $ | 41,792 | $ | 4,074 |
For the six months ended June 30, 2012, Limited Duration Portfolios' average monthly original value of futures contracts was $12,818,513 and average monthly notional amount of swap agreements was $4,289,002. Income Plus and Strategist Portfolio's average monthly principal amount of foreign currency exchange contracts was $717,451 and $202,941, the average monthly original value of futures contracts was $68,444,542 and $1,910,121 and the average monthly notional amount of swap agreements was $2,886,167 and $20,916,446, respectively. European Equity Portfolio's average monthly principal amount of foreign currency exchange contracts was $5,377,388.
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4. Advisory/Administration and Sub-Advisory Agreements
Pursuant to an Investment Advisory Agreement with the Adviser and Sub-Advisers, the Fund pays an advisory fee, accrued daily and payable monthly, by applying the annual rates listed below to each Portfolio's net assets determined at the close of each business day.
Money Market — 0.45% to the portion of the daily net assets not exceeding $250 million; 0.375% to the portion of the daily net assets exceeding $250 million but not exceeding $750 million; 0.325% to the portion of the daily net assets exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion; and 0.275% to the portion of the daily net assets in excess of $1.5 billion.
Limited Duration — 0.30%.
Income Plus — 0.42% to the portion of the daily net assets not exceeding $500 million; 0.35% to the portion of the daily net assets exceeding $500 million but not exceeding $1.25 billion; and 0.22% to the portion of the daily net assets in excess of $1.25 billion.
Global Infrastructure — 0.57% to the portion of the daily net assets not exceeding $500 million; 0.47% to the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; 0.445% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.42% to the portion of the daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.395% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of the daily net assets exceeding $3.5 billion but not exceeding $5 billion; and 0.345% to the portion of the daily net assets in excess of $5 billion.
European Equity — 0.87% to the portion of the daily net assets not exceeding $500 million; 0.82% to the portion of the daily net assets exceeding $500 million but not exceeding $2 billion; 0.77% to the portion of the daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.745% to the portion of the daily net assets in excess of $3 billion.
Multi Cap Growth — 0.42% to the portion of the daily net assets not exceeding $1 billion; 0.395% to the portion of the daily net assets exceeding $1 billion but not exceeding $2 billion; and 0.37% to the portion of the daily net assets in excess of $2 billion.
Aggressive Equity — 0.67% to the portion of the daily net assets not exceeding $500 million; 0.645% to the portion of the daily net assets exceeding $500 million but not exceeding $2 billion; 0.62% to the portion of
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the daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.595% to the portion of the daily net assets in excess of $3 billion.
Strategist — 0.42% to the portion of the daily net assets not exceeding $1.5 billion; and 0.395% to the portion of the daily net assets in excess of $1.5 billion.
Under the Sub-Advisory Agreement between the Adviser and the Sub-Advisers, the Sub-Advisers provide Global Infrastructure Portfolio, European Equity Portfolio and Money Market Portfolio (effective June 25th, 2012) with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Trustees. The Adviser pays the Sub-Advisers on a monthly basis a portion of the net advisory fees the Adviser receives from each Portfolio.
The Adviser has agreed to cap European Equity's operating expenses (except for brokerage and 12b-1 fees) by assuming the Portfolio's "other expenses" and/or waiving the Portfolio's advisory fees, and Morgan Stanley Services Company Inc. (the "Administrator") has agreed to waive the Portfolio's administrative fees, to the extent such operating expenses exceed 1.00% of the average daily net assets of the Portfolio on an annualized basis. These fee waivers and/or expense reimbursements will continue for at least one year or until such time as the Fund's Board of Trustees acts to discontinue such waivers and/or reimbursements when it deems that such action is appropriate.
Pursuant to an Administration Agreement with the Administrator, an affiliate of the Adviser and Sub-Advisers, each Portfolio pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% (Money Market 0.05%) to the Portfolio's 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 Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
5. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distribution, Inc. (the "Distributor"), an affiliate of the Adviser, Administrator and Sub-Advisers. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. Under the Plan, Class Y shares of each Portfolio bear a distribution fee which is accrued daily and paid monthly at the annual rate of 0.25% of the average daily net assets of the class.
The Distributor, Adviser and Administrator have agreed to waive and/or reimburse all or a portion of the Money Market Portfolio's distribution fee, advisory fee and administration fee, respectively, to the extent
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that total expenses exceed total income of the Money Market Portfolio on a daily basis. For the six months ended June 30, 2012, the Distributor waived $67,140 and the Adviser waived $187,517. These fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Trustees acts to discontinue such waivers and/or expense reimbursements when it deems such action is appropriate.
6. Security Transactions and Transactions with Affiliates
For the six months ended June 30, 2012, purchases and sales of investment securities, excluding short-term investments, were as follows:
U.S. GOVERNMENT SECURITIES | OTHER | ||||||||||||||||||
PORTFOLIO | PURCHASES | SALES | PURCHASES | SALES | |||||||||||||||
Limited Duration | $ | 11,190,589 | $ | 5,326,888 | $ | 6,421,572 | $ | 10,983,498 | |||||||||||
Income Plus | — | 22 | 64,557,336 | 74,824,392 | |||||||||||||||
Global Infrastructure | — | — | 11,332,125 | 15,855,755 | |||||||||||||||
European Equity | — | — | 1,600,934 | 6,055,304 | |||||||||||||||
Multi Cap Growth | — | — | 66,549,684 | 82,913,687 | |||||||||||||||
Aggressive Equity | — | — | 8,460,034 | 10,039,934 | |||||||||||||||
Strategist | 9,522,315 | 5,271,460 | 27,812,277 | 35,232,770 |
Each Portfolio (except Money Market) 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 Portfolios are reduced by an amount equal to its pro-rata share of advisory and administrative fees paid by the Portfolios due to its investment in the Liquidity Funds.
A summary of the Portfolio's transactions in shares of the Liquidity Funds during the six months ended June 30, 2012 is as follows:
PORTFOLIO | VALUE DECEMBER 31, 2011 | PURCHASES AT COST | SALES | DIVIDEND INCOME | VALUE JUNE 30, 2012 | ||||||||||||||||||
Limited Duration | $ | 110,511 | $ | 15,544,261 | $ | 15,423,753 | $ | 1,005 | $ | 231,019 | |||||||||||||
Income Plus | 208,270 | 40,760,825 | 38,584,933 | 5,153 | 2,384,162 | ||||||||||||||||||
Global Infrastructure | 1,993,348 | 8,088,166 | 8,988,552 | 636 | 1,092,962 | ||||||||||||||||||
European Equity | 718,547 | 5,438,706 | 4,998,982 | 424 | 1,158,271 | ||||||||||||||||||
Multi Cap Growth | 12,216,664 | 39,716,828 | 45,259,966 | 5,044 | 6,673,526 | ||||||||||||||||||
Aggressive Equity | 1,790,916 | 4,843,174 | 5,595,700 | 716 | 1,038,390 | ||||||||||||||||||
Strategist | 26,626,452 | 17,676,355 | 26,536,243 | 19,524 | 17,766,564 |
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In addition, the table also identifies the income distributions earned, if any, by each Portfolio for that Portfolio's investment in the Liquidity Funds.
Income distributions are included in "interest and dividends from affiliates" in the Statements of Operations.
PORTFOLIO | ADVISORY FEE REDUCTION | ||||||
Limited Duration | $ | 783 | |||||
Income Plus | 3,823 | ||||||
Global Infrastructure | 639 | ||||||
European Equity | 405 | ||||||
Multi Cap Growth | 5,174 | ||||||
Aggressive Equity | 798 | ||||||
Strategist | 18,042 |
The following Portfolios had transactions with the following affiliates of the Fund:
PORTFOLIO | ISSUER | VALUE DECEMBER 31, 2011 | PURCHASES AT COST | SALES | NET REALIZED GAIN | INTEREST INCOME | VALUE JUNE 30, 2012 | ||||||||||||||||||||||||
Limited Duration | MetLife Global | $ | 327,079 | $ | 199,842 | $ | — | $ | — | $ | 3,241 | $ | 528,739 | ||||||||||||||||||
Income Plus | MetLife Capital Trust IV | — | 633,000 | — | — | 21,262 | 669,000 | ||||||||||||||||||||||||
MetLife, Inc. | 1,276,994 | — | 1,297,925 | 333,108 | 4,899 | — | |||||||||||||||||||||||||
Strategist | MetLife, Inc. | 43,951 | — | — | — | 1,343 | 44,387 |
The following Portfolios had transactions with Citigroup, Inc., and its affiliated broker-dealers, which may be deemed to be affiliates of the Adviser, Sub-Advisers, Administrator and Distributor under Section 17 of the Act, for the six months ended June 30, 2012:
PORTFOLIO | VALUE DECEMBER 31, 2011 | PURCHASES AT COST | SALES | NET REALIZED GAIN (LOSS) | INTEREST INCOME | VALUE JUNE 30, 2012 | |||||||||||||||||||||
Limited Duration | $ | 1,087,480 | $ | 427,870 | $ | 504,854 | $ | 13,129 | $ | 16,050 | $ | 1,030,378 | |||||||||||||||
Income Plus | 3,188,387 | — | — | — | 103,899 | 3,418,012 | |||||||||||||||||||||
Strategist | 2,483,400 | — | 2,458,471 | (907,033 | ) | 7,076 | 116,522 |
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Notes to Financial Statements n June 30, 2012 (unaudited) continued
For the six months ended June 30, 2012, the following Portfolios incurred brokerage commissions with Morgan Stanley & Co., LLC, an affiliate of the Adviser, Sub-Advisers, Administrator and Distributor, for portfolio transactions executed on behalf of each Portfolio:
STRATEGIST | EUROPEAN EQUITY | ||||||
$ | 20,142 | $ | 153 |
For the six months ended June 30, 2012, the following Portfolios incurred brokerage commissions with Citigroup, Inc., and its affiliated broker-dealers, which may be deemed affiliates of the Adviser, Sub-Advisers, Administrator and Distributor under Section 17 of the Act, for portfolio transactions executed on behalf of each Portfolio:
GLOBAL INFRASTRUCTURE | EUROPEAN EQUITY | MULTI CAP GROWTH | AGGRESSIVE EQUITY | ||||||||||||
$ | 1,109 | $ | 941 | $ | 300 | $ | 38 |
Morgan Stanley Services Company Inc., an affiliate of the Adviser, Sub-Advisers and Distributor, is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003.
Aggregate pension costs for the six months ended June 30, 2012, included in "trustees' fees and expenses" in the Statements of Operations and the accrued pension liability included in "accrued expenses and other payables" in the Statements of Assets and Liabilities are as follows:
AGGREGATE PENSION COSTS
MONEY MARKET | LIMITED DURATION | INCOME PLUS | GLOBAL INFRASTRUCTURE | EUROPEAN EQUITY | MULTI CAP GROWTH | AGGRESSIVE EQUITY | STRATEGIST | ||||||||||||||||||||||||
$ | 162 | $ | 89 | $ | 304 | $ | 122 | $ | 100 | $ | 382 | $ | 46 | $ | 251 |
AGGREGATE PENSION LIABILITY
MONEY MARKET | LIMITED DURATION | INCOME PLUS | GLOBAL INFRASTRUCTURE | EUROPEAN EQUITY | MULTI CAP GROWTH | AGGRESSIVE EQUITY | STRATEGIST | ||||||||||||||||||||||||
$ | 5,288 | $ | 2,752 | $ | 9,128 | $ | 2,801 | $ | 2,523 | $ | 9,589 | $ | 1,137 | $ | 7,262 |
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Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.
7. Federal Income Tax Status
It is the Portfolios' 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.
Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recognized on an accrual basis. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
A Portfolio 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 Portfolios recognize interest accrued related to unrecognized tax benefits in "interest expense" and penalties in "other expenses" in the Statements of Operations. The Portfolios file tax returns with the U.S. Internal Revenue Service, New York and various states. Each of the tax years in the four-year period ended December 31, 2011, remains subject to examination by taxing authorities.
104
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal 2011 and 2010 was as follows:
2011 DISTRIBUTIONS PAID FROM: | 2010 DISTRIBUTIONS PAID FROM: | ||||||||||||||||||
PORTFOLIO | ORDINARY INCOME | LONG-TERM CAPTIAL GAIN | ORDINARY INCOME | LONG-TERM CAPTIAL GAIN | |||||||||||||||
Money Market | $ | 11,709 | $ | — | $ | 14,474 | $ | 202 | |||||||||||
Limited Duration | 1,919,268 | — | 2,459,575 | — | |||||||||||||||
Income Plus | 12,237,165 | — | 14,616,596 | — | |||||||||||||||
Global Infrastructure | 1,889,924 | 3,948,735 | 5,523,941 | 3,205,294 | |||||||||||||||
European Equity | 1,488,782 | — | 1,837,269 | — | |||||||||||||||
Multi Cap Growth | 327,516 | 5 | 333,905 | — | |||||||||||||||
Strategist | 5,463,608 | 15,665,688 | 2,865,187 | 1,010,412 |
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 primarily due to differing book and tax treatments in the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
Permanent differences, primarily due to differing treatments of gains (losses) related to foreign currency transactions, swap transactions, paydown adjustments, expiring capital losses, net operating losses, REIT adjustments, partnership basis adjustments, distribution redesignations, nondeductible expenses and certain equity securities designated as issued by passive foreign investment companies, resulted in the following reclassifications among the Portfolio's components of net assets at December 31, 2011:
PORTFOLIO | ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME | ACCUMULATED NET REALIZED GAIN (LOSS) | PAID-IN-CAPITAL | ||||||||||||
Money Market | $ | (107 | ) | $ | 107 | $ | — | ||||||||
Limited Duration | 700,245 | 603,087 | (1,303,332 | ) | |||||||||||
Income Plus | 761,229 | (761,229 | ) | — | |||||||||||
Global Infrastructure | (118,528 | ) | 118,543 | (15 | ) | ||||||||||
European Equity | 34,870 | (34,877 | ) | 7 | |||||||||||
Multi Cap Growth | 118,008 | (40,804 | ) | (77,204 | ) | ||||||||||
Aggressive Equity | 189,189 | (2,163 | ) | (187,026 | ) | ||||||||||
Strategist | 214,896 | (214,894 | ) | (2 | ) |
105
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
At December 31, 2011, the components of distributable earnings on a tax basis were as follows:
PORTFOLIO | UNDISTRIBUTED ORDINARY INCOME | UNDISTRIBUTED LONG-TERM CAPITAL GAIN | |||||||||
Money Market | $ | 7,605 | $ | — | |||||||
Limited Duration | 1,503,207 | — | |||||||||
Income Plus | 10,700,252 | — | |||||||||
Global Infrastructure | 2,854,240 | 5,230,378 | |||||||||
European Equity | 1,421,623 | — | |||||||||
Multi Cap Growth | — | 4,886,438 | |||||||||
Aggressive Equity | — | 2,196,459 | |||||||||
Strategist | 2,450,279 | 1,953,002 |
At June 30, 2012, the aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation/(depreciation) and net unrealized appreciation/(depreciation) of the investments of each of the Portfolios were as follows:
PORTFOLIO | APPRECIATION | DEPRECIATION | NET APPRECIATION (DEPRECIATION) | ||||||||||||
Money Market | $ | — | $ | — | $ | — | |||||||||
Limited Duration | 1,194,652 | (314,158 | ) | 880,494 | |||||||||||
Income Plus | 13,794,169 | (1,235,435 | ) | 12,558,734 | |||||||||||
Global Infrastructure | 14,237,935 | (1,135,962 | ) | 13,101,973 | |||||||||||
European Equity | 9,327,396 | (4,172,490 | ) | 5,154,906 | |||||||||||
Multi Cap Growth | 70,232,396 | (20,930,269 | ) | 49,302,127 | |||||||||||
Aggressive Equity | 8,452,517 | (2,707,012 | ) | 5,745,505 | |||||||||||
Strategist | 9,792,691 | (2,022,219 | ) | 7,770,472 |
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Modernization Act") was signed into law. The Modernization Act modernizes several tax provisions related to Regulated Investment Companies ("RICs") and their shareholders. One key change made by the Modernization Act is that capital losses will generally retain their character as short-term or long-term and may be carried forward indefinitely to offset future gains. These losses are utilized before other capital loss carryforwards that expire. Generally, the Modernization Act is effective for taxable years beginning after December 22, 2010.
At December 31, 2011, the following Portfolio had available for Federal income tax purposes unused short-term capital losses that will not expire:
PORTFOLIO | SHORT-TERM LOSSES (NO EXPIRATION) | ||||||
Money Market | $ | 2,011 |
106
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
In addition, at December 31, 2011, the following Portfolios had available capital loss carryforwards to offset future net capital gains, to the extent provided by regulations, on the indicated dates:
AMOUNTS IN THOUSANDS AVAILABLE THROUGH DECEMBER 31, | |||||||||||||||||||||||||||||||||||
PORTFOLIO | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | TOTAL | |||||||||||||||||||||||||||
Limited Duration | $ | 4,026 | $ | 1,267 | $ | 2,233 | $ | 1,063 | $ | 17,119 | $ | 8,980 | $ | — | $ | 34,688 | |||||||||||||||||||
Income Plus | — | — | — | 344 | 19,232 | — | — | 19,576 | |||||||||||||||||||||||||||
European Equity | — | — | — | — | — | 10,552 | 3,315 | 13,867 |
During the year ended December 31, 2011, the following Portfolio expired capital loss carryforwards for U.S. Federal income tax purposes of:
PORTFOLIO | EXPIRED CAPITAL LOSS CARRYFORWARDS | ||||||
Limited Duration | $ | 1,303,332 |
To the extent that capital loss carryforwards are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by a Portfolio 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, 2011, the following Portfolios utilized capital loss carryforwards for U.S. Federal income tax purposes of:
PORTFOLIO | UTILIZED CAPITAL LOSS CARRYFORWARDS | ||||||
Limited Duration | $ | 88,554 | |||||
Income Plus | 4,828,845 | ||||||
European Equity | 1,331,481 | ||||||
Multi Cap Growth | 27,708,593 | ||||||
Aggressive Equity | 1,987,158 |
8. Purposes of and Risks Relating to Certain Financial Instruments
Certain Portfolios may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. 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.
Certain Portfolios may invest in mortgage securities, including securities issued by Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"). These are fixed income securities that derive their value from or represent interests in a pool of mortgages or mortgage
107
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
securities. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage backed security and could result in losses to the Portfolio. The risk of such defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. Sub-prime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their mortgages. The securities issued by FNMA and FHLMC that are held by the Portfolios are not backed by sub-prime mortgages.
Additionally, securities issued by FNMA and FHLMC are not backed by or entitled to the full faith and credit of the United States; rather, they are supported by the right of the issuer to borrow from the U.S. Department of the Treasury.
The Federal Housing Finance Agency ("FHFA") serves as conservator of FNMA and FHLMC and the U.S. Department of the Treasury has agreed to provide capital as needed to ensure FNMA and FHLMC continue to provide liquidity to the housing and mortgage markets.
Certain Portfolios may enter into repurchase agreements under which a Portfolio lends excess cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In the event of default on the obligation to repurchase, the Portfolio 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 certain costs and delays.
At June 30, 2012, European Equity Portfolio's investments in securities of issuers in the United Kingdom, Switzerland, Germany, and France represented 48.2%, 14.6%, 12.9% and 8.1%, respectively of the Portfolio's net assets. These investments, as well as other non-U.S. investments, which involve risks and considerations not present with respect to U.S. securities, may be affected by economic or political developments in these countries.
9. Expense Offset
The Fund has entered into an arrangement with State Street (the "Custodian"), whereby credits realized on uninvested cash balances were used to offset a portion of the Fund's expenses. If applicable, these custodian credits are shown as "expense offset" in the Statements of Operations.
108
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2012 (unaudited) continued
10. Accounting Pronouncement
In December 2011, FASB issued Accounting Standards Update ("ASU") 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities. The pronouncement improves disclosures for recognized financial and derivative instruments that are either offset on the balance sheet in accordance with the offsetting guidance in ASC 210-20-45 or ASC 815-10-45 or are subject to an enforceable master netting agreements or similar. The Fund will be required to disclose information about rights to offset and related arrangements (such as collateral agreements) in order to enable financial statement users to understand the effect of those rights and arrangements on its financial position as well as disclose the following (1) gross amounts; (2) amounts offset in the statement of financial position; (3) any other amounts that can be offset in the event of bankruptcy, insolvency or default of any of the parties (including cash and noncash financial collateral); and (4) the Fund's net exposure. The requirements are effective for annual reporting periods beginning on or after January 1, 2013, and must be applied retrospectively. At this time, the Fund's management is evaluating the implications of ASU 2011-11 and its impact, if any, on the financial statements.
109
Morgan Stanley Variable Investment Series
Financial Highlights
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE BEGINNING OF PERIOD | NET INVESTMENT INCOME(a) | NET REALIZED AND UNREALIZED GAIN (LOSS) | TOTAL FROM INVESTMENT OPERATIONS | DIVIDENDS TO SHAREHOLDERS | DISTRIBUTIONS TO SHAREHOLDERS | TOTAL DIVIDENDS AND DISTRIBUTIONS | ||||||||||||||||||||||||
MONEY MARKET CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 1.00 | $ | 0.050 | — | $ | 0.050 | $ | (0.050 | ) | — | $ | (0.050 | ) | |||||||||||||||||
2008^ | 1.00 | 0.020 | — | 0.020 | (0.020 | ) | — | (0.020 | ) | ||||||||||||||||||||||
2009^ | 1.00 | 0.000 | (e) | — | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | ||||||||||||||||||||
2010^ | 1.00 | 0.000 | (e) | — | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | ||||||||||||||||||||
2011 | 1.00 | 0.000 | (e) | (0.000 | )(e) | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | |||||||||||||||||||
2012^^ | 1.00 | 0.000 | (e) | 0.000 | (e) | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 1.00 | 0.050 | — | 0.050 | (0.050 | ) | — | (0.050 | ) | ||||||||||||||||||||||
2008^ | 1.00 | 0.020 | — | 0.020 | (0.020 | ) | — | (0.020 | ) | ||||||||||||||||||||||
2009^ | 1.00 | 0.000 | (e) | — | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | ||||||||||||||||||||
2010^ | 1.00 | 0.000 | (e) | — | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | ||||||||||||||||||||
2011 | 1.00 | 0.000 | (e) | (0.000 | )(e) | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | |||||||||||||||||||
2012^^ | 1.00 | 0.000 | (e) | 0.000 | (e) | 0.000 | (e) | (0.000 | )(e) | — | (0.000 | )(e) | |||||||||||||||||||
LIMITED DURATION CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 9.49 | 0.47 | $ | (0.19 | ) | 0.28 | (0.50 | ) | — | (0.50 | ) | ||||||||||||||||||||
2008^ | 9.27 | 0.36 | (1.72 | ) | (1.36 | ) | (0.15 | ) | — | (0.15 | ) | ||||||||||||||||||||
2009^ | 7.76 | 0.20 | 0.24 | 0.44 | (0.36 | ) | — | (0.36 | ) | ||||||||||||||||||||||
2010^ | 7.84 | 0.18 | 0.00 | 0.18 | (0.28 | ) | — | (0.28 | ) | ||||||||||||||||||||||
2011 | 7.74 | 0.17 | 0.04 | 0.21 | (0.26 | ) | — | (0.26 | ) | ||||||||||||||||||||||
2012^^ | 7.69 | 0.06 | 0.08 | 0.14 | (0.23 | ) | — | (0.23 | ) | ||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 9.48 | 0.44 | (0.19 | ) | 0.25 | (0.47 | ) | — | (0.47 | ) | |||||||||||||||||||||
2008^ | 9.26 | 0.34 | (1.73 | ) | (1.39 | ) | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||
2009^ | 7.73 | 0.18 | 0.24 | 0.42 | (0.34 | ) | — | (0.34 | ) | ||||||||||||||||||||||
2010^ | 7.81 | 0.16 | 0.01 | 0.17 | (0.26 | ) | — | (0.26 | ) | ||||||||||||||||||||||
2011 | 7.72 | 0.15 | 0.04 | 0.19 | (0.24 | ) | — | (0.24 | ) | ||||||||||||||||||||||
2012^^ | 7.67 | 0.05 | 0.08 | 0.13 | (0.21 | ) | — | (0.21 | ) |
See Notes to Financial Statements
110
RATIO TO AVERAGE NET ASSETS(c) | |||||||||||||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE END OF PERIOD | TOTAL RETURN(b) | NET ASSETS END OF PERIOD (000'S) | EXPENSES | NET INVESTMENT INCOME | REBATE FROM MORGAN STANLEY AFFILIATE | PORTFOLIO TURNOVER RATE | ||||||||||||||||||||||||
MONEY MARKET CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 1.00 | 4.93 | %(d) | $ | 111,478 | 0.55 | % | 4.79 | % | — | N/A | |||||||||||||||||||
2008^ | 1.00 | 2.45 | 115,415 | 0.57 | 2.40 | — | N/A | ||||||||||||||||||||||||
2009^ | 1.00 | 0.03 | 84,486 | 0.40 | (f)(g) | 0.03 | (f)(g) | — | N/A | ||||||||||||||||||||||
2010^ | 1.00 | 0.01 | 59,932 | 0.29 | (g) | 0.00 | (g)(h) | — | N/A | ||||||||||||||||||||||
2011 | 1.00 | 0.01 | 51,431 | 0.22 | (g) | 0.01 | (g) | — | N/A | ||||||||||||||||||||||
2012^^ | 1.00 | 0.00 | (h)(l) | 46,495 | 0.26 | (g)(m) | 0.01 | (g)(m) | — | N/A | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 1.00 | 4.67 | (d) | 101,524 | 0.80 | 4.54 | — | N/A | |||||||||||||||||||||||
2008^ | 1.00 | 2.19 | 112,113 | 0.82 | 2.15 | — | N/A | ||||||||||||||||||||||||
2009^ | 1.00 | 0.01 | 81,145 | 0.41 | (f)(g) | 0.01 | (f)(g) | — | N/A | ||||||||||||||||||||||
2010^ | 1.00 | 0.01 | 67,139 | 0.29 | (g) | 0.00 | (g)(h) | — | N/A | ||||||||||||||||||||||
2011 | 1.00 | 0.01 | 55,849 | 0.22 | (g) | 0.01 | (g) | — | N/A | ||||||||||||||||||||||
2012^^ | 1.00 | 0.00 | (h)(l) | 50,801 | 0.26 | (g)(m) | 0.01 | (g)(m) | — | N/A | |||||||||||||||||||||
LIMITED DURATION CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 9.27 | 2.95 | 26,214 | 0.47 | 4.95 | — | 49 | % | |||||||||||||||||||||||
2008^ | 7.76 | (14.91 | ) | 16,405 | 0.48 | (i) | 4.27 | (i) | 0.01 | % | 54 | ||||||||||||||||||||
2009^ | 7.84 | 5.76 | 16,889 | 0.49 | (i) | 2.61 | (i) | 0.00 | (h) | 105 | |||||||||||||||||||||
2010^ | 7.74 | 2.35 | 14,921 | 0.55 | (i) | 2.25 | (i) | 0.00 | (h) | 88 | |||||||||||||||||||||
2011 | 7.69 | 2.75 | 12,693 | 0.60 | (i) | 2.15 | (i) | 0.00 | (h) | 45 | |||||||||||||||||||||
2012^^ | 7.60 | 1.86 | (l) | 11,593 | 0.58 | (i)(m) | 1.67 | (i)(m) | 0.00 | (h)(m) | 30 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 9.26 | 2.80 | 101,066 | 0.72 | 4.70 | — | 49 | ||||||||||||||||||||||||
2008^ | 7.73 | (15.22 | ) | 63,223 | 0.73 | (i) | 4.02 | (i) | 0.01 | 54 | |||||||||||||||||||||
2009^ | 7.81 | 5.56 | 60,753 | 0.74 | (i) | 2.36 | (i) | 0.00 | (h) | 105 | |||||||||||||||||||||
2010^ | 7.72 | 2.22 | 53,760 | 0.80 | (i) | 2.00 | (i) | 0.00 | (h) | 88 | |||||||||||||||||||||
2011 | 7.67 | 2.45 | 44,085 | 0.85 | (i) | 1.90 | (i) | 0.00 | (h) | 45 | |||||||||||||||||||||
2012^^ | 7.59 | 1.71 | (l) | 42,671 | 0.83 | (i)(m) | 1.42 | (i)(m) | 0.00 | (h)(m) | 30 | (l) |
111
Morgan Stanley Variable Investment Series
Financial Highlights continued
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE BEGINNING OF PERIOD | NET INVESTMENT INCOME(a) | NET REALIZED AND UNREALIZED GAIN (LOSS) | TOTAL FROM INVESTMENT OPERATIONS | DIVIDENDS TO SHAREHOLDERS | DISTRIBUTIONS TO SHAREHOLDERS | TOTAL DIVIDENDS AND DISTRIBUTIONS | ||||||||||||||||||||||||
INCOME PLUS CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 10.51 | $ | 0.53 | $ | 0.08 | $ | 0.61 | $ | (0.56 | ) | — | $ | (0.56 | ) | ||||||||||||||||
2008^ | 10.56 | 0.53 | (1.46 | ) | (0.93 | ) | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||||
2009^ | 9.45 | 0.57 | 1.50 | 2.07 | (0.53 | ) | — | (0.53 | ) | ||||||||||||||||||||||
2010^ | 10.99 | 0.58 | 0.39 | 0.97 | (0.70 | ) | — | (0.70 | ) | ||||||||||||||||||||||
2011 | 11.26 | 0.57 | (0.02 | ) | 0.55 | (0.68 | ) | — | (0.68 | ) | |||||||||||||||||||||
2012^^ | 11.13 | 0.26 | 0.47 | 0.73 | (0.68 | ) | — | (0.68 | ) | ||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 10.49 | 0.50 | 0.08 | 0.58 | (0.53 | ) | — | (0.53 | ) | ||||||||||||||||||||||
2008^ | 10.54 | 0.51 | (1.45 | ) | (0.94 | ) | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||||
2009^ | 9.42 | 0.55 | 1.49 | 2.04 | (0.51 | ) | — | (0.51 | ) | ||||||||||||||||||||||
2010^ | 10.95 | 0.55 | 0.39 | 0.94 | (0.67 | ) | — | (0.67 | ) | ||||||||||||||||||||||
2011 | 11.22 | 0.54 | (0.02 | ) | 0.52 | (0.65 | ) | — | (0.65 | ) | |||||||||||||||||||||
2012^^ | 11.09 | 0.24 | 0.47 | 0.71 | (0.65 | ) | — | (0.65 | ) | ||||||||||||||||||||||
GLOBAL INFRASTRUCTURE CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 19.44 | 0.39 | 3.38 | 3.77 | (0.39 | ) | $ | (2.16 | ) | (2.55 | ) | ||||||||||||||||||||
2008^ | 20.66 | 0.40 | (6.21 | ) | (5.81 | ) | (0.11 | ) | (3.44 | ) | (3.55 | ) | |||||||||||||||||||
2009^ | 11.30 | 0.31 | 1.16 | 1.47 | (0.38 | ) | (3.71 | ) | (4.09 | ) | |||||||||||||||||||||
2010^ | 8.68 | 0.21 | 0.18 | 0.39 | (0.25 | ) | (0.69 | ) | (0.94 | ) | |||||||||||||||||||||
2011 | 8.13 | 0.21 | 1.07 | 1.28 | (0.23 | ) | (0.46 | ) | (0.69 | ) | |||||||||||||||||||||
2012^^ | 8.72 | 0.14 | 0.48 | 0.62 | (0.23 | ) | (0.82 | ) | (1.05 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 19.43 | 0.34 | 3.38 | 3.72 | (0.34 | ) | (2.16 | ) | (2.50 | ) | |||||||||||||||||||||
2008^ | 20.65 | 0.35 | (6.20 | ) | (5.85 | ) | (0.09 | ) | (3.44 | ) | (3.53 | ) | |||||||||||||||||||
2009^ | 11.27 | 0.28 | 1.15 | 1.43 | (0.35 | ) | (3.71 | ) | (4.06 | ) | |||||||||||||||||||||
2010^ | 8.64 | 0.19 | 0.19 | 0.38 | (0.23 | ) | (0.69 | ) | (0.92 | ) | |||||||||||||||||||||
2011 | 8.10 | 0.19 | 1.06 | 1.25 | (0.20 | ) | (0.46 | ) | (0.66 | ) | |||||||||||||||||||||
2012^^ | 8.69 | 0.13 | 0.47 | 0.60 | (0.20 | ) | (0.82 | ) | (1.02 | ) |
See Notes to Financial Statements
112
RATIO TO AVERAGE NET ASSETS(c) | |||||||||||||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE END OF PERIOD | TOTAL RETURN(b) | NET ASSETS END OF PERIOD (000'S) | EXPENSES | NET INVESTMENT INCOME | REBATE FROM MORGAN STANLEY AFFILIATE | PORTFOLIO TURNOVER RATE | ||||||||||||||||||||||||
INCOME PLUS CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 10.56 | 5.99 | % | $ | 155,879 | 0.55 | % | 5.02 | % | — | 125 | % | ||||||||||||||||||
2008^ | 9.45 | (8.92 | ) | 109,833 | 0.55 | (i) | 5.34 | (i) | 0.00 | %(h) | 55 | ||||||||||||||||||||
2009^ | 10.99 | 22.57 | 114,488 | 0.56 | (i) | 5.64 | (i) | 0.00 | (h) | 75 | |||||||||||||||||||||
2010^ | 11.26 | 9.28 | 106,363 | 0.59 | (i) | 5.23 | (i) | 0.00 | (h) | 53 | |||||||||||||||||||||
2011 | 11.13 | 5.01 | 90,876 | 0.59 | (i) | 5.01 | (i) | 0.00 | (h) | 43 | |||||||||||||||||||||
2012^^ | 11.18 | 6.56 | (l) | 88,523 | 0.58 | (i)(m) | 4.48 | (i)(m) | 0.00 | (h)(m) | 35 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 10.54 | 5.73 | 196,774 | 0.80 | 4.77 | — | 125 | ||||||||||||||||||||||||
2008^ | 9.42 | (9.11 | ) | 135,850 | 0.80 | (i) | 5.09 | (i) | 0.00 | (h) | 55 | ||||||||||||||||||||
2009^ | 10.95 | 22.29 | 148,108 | 0.81 | (i) | 5.39 | (i) | 0.00 | (h) | 75 | |||||||||||||||||||||
2010^ | 11.22 | 9.01 | 124,322 | 0.84 | (i) | 4.98 | (i) | 0.00 | (h) | 53 | |||||||||||||||||||||
2011 | 11.09 | 4.71 | 102,948 | 0.84 | (i) | 4.76 | (i) | 0.00 | (h) | 43 | |||||||||||||||||||||
2012^^ | 11.15 | 6.38 | (l) | 102,198 | 0.83 | (i)(m) | 4.23 | (i)(m) | 0.00 | (h)(m) | 35 | (l) | |||||||||||||||||||
GLOBAL INFRASTRUCTURE CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 20.66 | 20.34 | 133,507 | 0.70 | 1.90 | — | 8 | ||||||||||||||||||||||||
2008^ | 11.30 | (33.27 | ) | 70,951 | 0.74 | (i) | 2.46 | (i) | 0.00 | (h) | 76 | ||||||||||||||||||||
2009^ | 8.68 | 19.26 | 68,748 | 0.96 | (i) | 3.37 | (i) | 0.00 | (h) | 280 | |||||||||||||||||||||
2010^ | 8.13 | 6.93 | 61,408 | 0.87 | (i) | 2.71 | (i) | 0.00 | (h) | 148 | |||||||||||||||||||||
2011 | 8.72 | 16.07 | 58,998 | 0.86 | (i) | 2.48 | (i) | 0.00 | (h) | 36 | |||||||||||||||||||||
2012^^ | 8.29 | 7.06 | (l) | 57,680 | 0.83 | (i)(m) | 3.09 | (i)(m) | 0.00 | (h)(m) | 16 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 20.65 | 20.04 | 31,780 | 0.95 | 1.65 | — | 8 | ||||||||||||||||||||||||
2008^ | 11.27 | (33.45 | ) | 16,545 | 0.99 | (i) | 2.21 | (i) | 0.00 | (h) | 76 | ||||||||||||||||||||
2009^ | 8.64 | 18.83 | 17,818 | 1.21 | (i) | 3.12 | (i) | 0.00 | (h) | 280 | |||||||||||||||||||||
2010^ | 8.10 | 6.74 | 15,789 | 1.12 | (i) | 2.46 | (i) | 0.00 | (h) | 148 | |||||||||||||||||||||
2011 | 8.69 | 15.82 | 14,472 | 1.11 | (i) | 2.23 | (i) | 0.00 | (h) | 36 | |||||||||||||||||||||
2012^^ | 8.27 | 6.93 | (l) | 14,664 | 1.08 | (i)(m) | 2.84 | (i)(m) | 0.00 | (h)(m) | 16 | (l) |
113
Morgan Stanley Variable Investment Series
Financial Highlights continued
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE BEGINNING OF PERIOD | NET INVESTMENT INCOME (LOSS)(a) | NET REALIZED AND UNREALIZED GAIN (LOSS) | TOTAL FROM INVESTMENT OPERATIONS | DIVIDENDS TO SHAREHOLDERS | DISTRIBUTIONS TO SHAREHOLDERS | TOTAL DIVIDENDS AND DISTRIBUTIONS | ||||||||||||||||||||||||
EUROPEAN EQUITY CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 25.34 | $ | 0.47 | $ | 3.48 | $ | 3.95 | $ | (0.46 | ) | — | $ | (0.46 | ) | ||||||||||||||||
2008^ | 28.83 | 0.63 | (11.31 | ) | (10.68 | ) | (0.61 | ) | $ | (4.22 | ) | (4.83 | ) | ||||||||||||||||||
2009^ | 13.32 | 0.36 | 3.01 | 3.37 | (0.56 | ) | (0.71 | ) | (1.27 | ) | |||||||||||||||||||||
2010^ | 15.42 | 0.26 | 0.76 | 1.02 | (0.39 | ) | — | (0.39 | ) | ||||||||||||||||||||||
2011 | 16.05 | 0.41 | (1.90 | ) | (1.49 | ) | (0.37 | ) | — | (0.37 | ) | ||||||||||||||||||||
2012^^ | 14.19 | 0.45 | (0.02 | ) | 0.43 | (0.43 | ) | — | (0.43 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 25.19 | 0.40 | 3.46 | 3.86 | (0.40 | ) | — | (0.40 | ) | ||||||||||||||||||||||
2008^ | 28.65 | 0.58 | (11.25 | ) | (10.67 | ) | (0.52 | ) | (4.22 | ) | (4.74 | ) | |||||||||||||||||||
2009^ | 13.24 | 0.32 | 3.00 | 3.32 | (0.50 | ) | (0.71 | ) | (1.21 | ) | |||||||||||||||||||||
2010^ | 15.35 | 0.22 | 0.76 | 0.98 | (0.35 | ) | — | (0.35 | ) | ||||||||||||||||||||||
2011 | 15.98 | 0.37 | (1.90 | ) | (1.53 | ) | (0.33 | ) | — | (0.33 | ) | ||||||||||||||||||||
2012^^ | 14.12 | 0.43 | (0.01 | ) | 0.42 | (0.38 | ) | — | (0.38 | ) | |||||||||||||||||||||
MULTI CAP GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 29.63 | 0.21 | 5.57 | 5.78 | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||||||
2008^ | 35.23 | 0.03 | (16.78 | ) | (16.75 | ) | (0.07 | ) | — | (0.07 | ) | ||||||||||||||||||||
2009^ | 18.41 | 0.11 | 12.99 | 13.10 | (0.09 | ) | — | (0.09 | ) | ||||||||||||||||||||||
2010^ | 31.42 | 0.06 | 8.65 | 8.71 | (0.06 | ) | — | (0.06 | ) | ||||||||||||||||||||||
2011 | 40.07 | 0.01 | (2.70 | ) | (2.69 | ) | (0.07 | ) | — | (0.07 | ) | ||||||||||||||||||||
2012^^ | 37.31 | 0.16 | 3.52 | 3.68 | — | (0.90 | ) | (0.90 | ) | ||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 29.43 | 0.13 | 5.54 | 5.67 | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||||||||
2008^ | 35.06 | (0.05 | ) | (16.67 | ) | (16.72 | ) | (0.05 | ) | — | (0.05 | ) | |||||||||||||||||||
2009^ | 18.29 | 0.05 | 12.90 | 12.95 | (0.03 | ) | — | (0.03 | ) | ||||||||||||||||||||||
2010^ | 31.21 | (0.02 | ) | 8.58 | 8.56 | — | — | — | |||||||||||||||||||||||
2011 | 39.77 | (0.09 | ) | (2.68 | ) | (2.77 | ) | — | — | — | |||||||||||||||||||||
2012^^ | 37.00 | 0.11 | 3.49 | 3.60 | — | (0.90 | ) | (0.90 | ) |
See Notes to Financial Statements
114
RATIO TO AVERAGE NET ASSETS(c) | |||||||||||||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE END OF PERIOD | TOTAL RETURN(b) | NET ASSETS END OF PERIOD (000'S) | EXPENSES | NET INVESTMENT INCOME (LOSS) | REBATE FROM MORGAN STANLEY AFFILIATE | PORTFOLIO TURNOVER RATE | ||||||||||||||||||||||||
EUROPEAN EQUITY CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 28.83 | 15.59 | % | $ | 127,071 | 1.00 | %(j) | 1.73 | %(j) | — | 41 | % | ||||||||||||||||||
2008^ | 13.32 | (42.70 | ) | 57,734 | 1.00 | (i)(j) | 3.01 | (i)(j) | 0.00 | %(h) | 15 | ||||||||||||||||||||
2009^ | 15.42 | 27.73 | 61,197 | 1.00 | (i)(j) | 2.67 | (i)(j) | 0.00 | (h) | 26 | |||||||||||||||||||||
2010^ | 16.05 | 7.23 | (k) | 54,824 | 1.00 | (i)(j) | 1.81 | (i)(j) | 0.00 | (h) | 22 | ||||||||||||||||||||
2011 | 14.19 | (9.64 | ) | 41,181 | 1.00 | (i)(j) | 2.56 | (i)(j) | 0.00 | (h) | 11 | ||||||||||||||||||||
2012^^ | 14.19 | 3.04 | (l) | 38,276 | 1.00 | (i)(j)(m) | 6.10 | (i)(j)(m) | 0.00 | (h)(m) | 3 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 28.65 | 15.34 | 40,721 | 1.25 | (j) | 1.48 | (j) | — | 41 | ||||||||||||||||||||||
2008^ | 13.24 | (42.84 | ) | 17,845 | 1.25 | (i)(j) | 2.76 | (i)(j) | 0.00 | (h) | 15 | ||||||||||||||||||||
2009^ | 15.35 | 27.41 | 19,323 | 1.25 | (i)(j) | 2.42 | (i)(j) | 0.00 | (h) | 26 | |||||||||||||||||||||
2010^ | 15.98 | 6.96 | (k) | 17,821 | 1.25 | (i)(j) | 1.56 | (i)(j) | 0.00 | (h) | 22 | ||||||||||||||||||||
2011 | 14.12 | (9.85 | ) | 11,668 | 1.25 | (i)(j) | 2.31 | (i)(j) | 0.00 | (h) | 11 | ||||||||||||||||||||
2012^^ | 14.16 | 2.90 | (l) | 11,170 | 1.25 | (i)(j)(m) | 5.85 | (i)(j)(m) | 0.00 | (h)(m) | 3 | (l) | |||||||||||||||||||
MULTI CAP GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 35.23 | 19.54 | 331,243 | 0.54 | 0.66 | — | 55 | ||||||||||||||||||||||||
2008^ | 18.41 | (47.62 | ) | 140,041 | 0.55 | (i) | 0.08 | (i) | 0.01 | 33 | |||||||||||||||||||||
2009^ | 31.42 | 71.32 | 202,279 | 0.55 | (i) | 0.44 | (i) | 0.00 | (h) | 23 | |||||||||||||||||||||
2010^ | 40.07 | 27.76 | 220,553 | 0.58 | (i) | 0.19 | (i) | 0.00 | (h) | 29 | |||||||||||||||||||||
2011 | 37.31 | (6.74 | ) | 173,284 | 0.56 | (i) | 0.03 | (i) | 0.00 | (h) | 24 | ||||||||||||||||||||
2012^^ | 40.09 | 9.85 | (l) | 174,814 | 0.57 | (i)(m) | 0.76 | (i)(m) | 0.00 | (h)(m) | 29 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 35.06 | 19.24 | 107,710 | 0.79 | 0.41 | — | 55 | ||||||||||||||||||||||||
2008^ | 18.29 | (47.75 | ) | 45,671 | 0.80 | (i) | (0.17 | )(i) | 0.01 | 33 | |||||||||||||||||||||
2009^ | 31.21 | 70.85 | 64,122 | 0.80 | (i) | 0.19 | (i) | 0.00 | (h) | 23 | |||||||||||||||||||||
2010^ | 39.77 | 27.43 | 67,303 | 0.83 | (i) | (0.06 | )(i) | 0.00 | (h) | 29 | |||||||||||||||||||||
2011 | 37.00 | (6.97 | ) | 49,678 | 0.81 | (i) | (0.22 | )(i) | 0.00 | (h) | 24 | ||||||||||||||||||||
2012^^ | 39.70 | 9.72 | (l) | 48,340 | 0.82 | (i)(m) | 0.51 | (i)(m) | 0.00 | (h)(m) | 29 | (l) |
115
Morgan Stanley Variable Investment Series
Financial Highlights continued
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE BEGINNING OF PERIOD | NET INVESTMENT INCOME (LOSS)(a) | NET REALIZED AND UNREALIZED GAIN (LOSS) | TOTAL FROM INVESTMENT OPERATIONS | DIVIDENDS TO SHAREHOLDERS | DISTRIBUTIONS TO SHAREHOLDERS | TOTAL DIVIDENDS AND DISTRIBUTIONS | ||||||||||||||||||||||||
AGGRESSIVE EQUITY CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 14.85 | $ | 0.06 | $ | 2.86 | $ | 2.92 | — | — | — | ||||||||||||||||||||
2008^ | 17.77 | (0.04 | ) | (8.63 | ) | (8.67 | ) | $ | (0.03 | ) | — | $ | (0.03 | ) | |||||||||||||||||
2009^ | 9.07 | 0.00 | 6.30 | 6.30 | — | — | — | ||||||||||||||||||||||||
2010^ | 15.37 | (0.05 | ) | 4.05 | 4.00 | — | — | — | �� | ||||||||||||||||||||||
2011 | 19.37 | (0.09 | ) | (1.33 | ) | (1.42 | ) | — | — | — | |||||||||||||||||||||
2012^^ | 17.95 | 0.03 | 1.73 | 1.76 | — | $ | (1.51 | ) | (1.51 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 14.65 | 0.02 | 2.82 | 2.84 | — | — | — | ||||||||||||||||||||||||
2008^ | 17.49 | (0.08 | ) | (8.49 | ) | (8.57 | ) | — | — | — | |||||||||||||||||||||
2009^ | 8.92 | (0.03 | ) | 6.19 | 6.16 | — | — | — | |||||||||||||||||||||||
2010^ | 15.08 | (0.09 | ) | 3.97 | 3.88 | — | — | — | |||||||||||||||||||||||
2011 | 18.96 | (0.14 | ) | (1.30 | ) | (1.44 | ) | — | — | — | |||||||||||||||||||||
2012^^ | 17.52 | 0.00 | (e) | 1.70 | 1.70 | — | (1.51 | ) | (1.51 | ) | |||||||||||||||||||||
STRATEGIST CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 16.53 | 0.46 | 0.92 | 1.38 | (0.46 | ) | (1.90 | ) | (2.36 | ) | |||||||||||||||||||||
2008^ | 15.55 | 0.30 | (3.76 | ) | (3.46 | ) | (0.10 | ) | (1.39 | ) | (1.49 | ) | |||||||||||||||||||
2009^ | 10.60 | 0.16 | 1.90 | 2.06 | (0.26 | ) | — | (0.26 | ) | ||||||||||||||||||||||
2010^ | 12.40 | 0.24 | 0.59 | 0.83 | (0.20 | ) | (0.07 | ) | (0.27 | ) | |||||||||||||||||||||
2011 | 12.96 | 0.18 | (1.06 | ) | (0.88 | ) | (0.27 | ) | (1.41 | ) | (1.68 | ) | |||||||||||||||||||
2012^^ | 10.40 | 0.10 | 0.36 | 0.46 | (0.22 | ) | (0.16 | ) | (0.38 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 16.51 | 0.42 | 0.92 | 1.34 | (0.42 | ) | (1.90 | ) | (2.32 | ) | |||||||||||||||||||||
2008^ | 15.53 | 0.27 | (3.76 | ) | (3.49 | ) | (0.09 | ) | (1.39 | ) | (1.48 | ) | |||||||||||||||||||
2009^ | 10.56 | 0.13 | 1.89 | 2.02 | (0.23 | ) | — | (0.23 | ) | ||||||||||||||||||||||
2010^ | 12.35 | 0.21 | 0.58 | 0.79 | (0.17 | ) | (0.07 | ) | (0.24 | ) | |||||||||||||||||||||
2011 | 12.90 | 0.15 | (1.05 | ) | (0.90 | ) | (0.23 | ) | (1.41 | ) | (1.64 | ) | |||||||||||||||||||
2012^^ | 10.36 | 0.09 | 0.35 | 0.44 | (0.18 | ) | (0.16 | ) | (0.34 | ) |
See Notes to Financial Statements
116
RATIO TO AVERAGE NET ASSETS(c) | |||||||||||||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE END OF PERIOD | TOTAL RETURN(b) | NET ASSETS END OF PERIOD (000'S) | EXPENSES | NET INVESTMENT INCOME (LOSS) | REBATE FROM MORGAN STANLEY AFFILIATE | PORTFOLIO TURNOVER RATE | ||||||||||||||||||||||||
AGGRESSIVE EQUITY CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | $ | 17.77 | 19.66 | % | $ | 26,035 | 0.87 | % | 0.34 | % | — | 56 | % | ||||||||||||||||||
2008^ | 9.07 | (48.86 | ) | 10,289 | 0.90 | (i) | (0.29 | )(i) | 0.00 | %(h) | 33 | ||||||||||||||||||||
2009^ | 15.37 | 69.46 | 14,898 | 1.01 | (i) | (0.02 | )(i) | 0.01 | 23 | ||||||||||||||||||||||
2010^ | 19.37 | 26.02 | 15,413 | 1.09 | (i) | (0.32 | )(i) | 0.00 | (h) | 27 | |||||||||||||||||||||
2011 | 17.95 | (7.33 | ) | 12,078 | 1.06 | (i) | (0.47 | )(i) | 0.00 | (h) | 28 | ||||||||||||||||||||
2012^^ | 18.20 | 9.80 | (l) | 12,254 | 1.08 | (i)(m) | 0.26 | (i)(m) | 0.01 | (m) | 30 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 17.49 | 19.39 | 29,837 | 1.12 | 0.09 | — | 56 | ||||||||||||||||||||||||
2008^ | 8.92 | (49.00 | ) | 12,272 | 1.15 | (i) | (0.54 | )(i) | 0.00 | (h) | 33 | ||||||||||||||||||||
2009^ | 15.08 | 69.06 | 17,541 | 1.26 | (i) | (0.27 | )(i) | 0.01 | 23 | ||||||||||||||||||||||
2010^ | 18.96 | 25.73 | 18,777 | 1.34 | (i) | (0.57 | )(i) | 0.00 | (h) | 27 | |||||||||||||||||||||
2011 | 17.52 | (7.59 | ) | 15,821 | 1.31 | (i) | (0.72 | )(i) | 0.00 | (h) | 28 | ||||||||||||||||||||
2012^^ | 17.71 | 9.70 | (l) | 16,012 | 1.33 | (i)(m) | 0.01 | (i)(m) | 0.01 | (m) | 30 | (l) | |||||||||||||||||||
STRATEGIST CLASS X SHARES | |||||||||||||||||||||||||||||||
2007^ | 15.55 | 8.63 | 217,265 | 0.54 | 2.84 | — | 34 | ||||||||||||||||||||||||
2008^ | 10.60 | (23.98 | ) | 134,668 | 0.54 | (i) | 2.28 | (i) | 0.02 | 52 | |||||||||||||||||||||
2009^ | 12.40 | 19.74 | 137,731 | 0.55 | (i) | 1.41 | (i) | 0.03 | 96 | ||||||||||||||||||||||
2010^ | 12.96 | 6.81 | 128,254 | 0.59 | (i) | 1.89 | (i) | 0.02 | 119 | ||||||||||||||||||||||
2011 | 10.40 | (7.96 | ) | 97,169 | 0.59 | (i) | 1.52 | (i) | 0.02 | 121 | |||||||||||||||||||||
2012^^ | 10.48 | 4.41 | (l) | 92,405 | 0.60 | (i)(m) | 1.95 | (i)(m) | 0.03 | (m) | 33 | (l) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2007^ | 15.53 | 8.37 | 88,651 | 0.79 | 2.59 | — | 34 | ||||||||||||||||||||||||
2008^ | 10.56 | (24.20 | ) | 53,046 | 0.79 | (i) | 2.03 | (i) | 0.02 | 52 | |||||||||||||||||||||
2009^ | 12.35 | 19.44 | 59,737 | 0.80 | (i) | 1.16 | (i) | 0.03 | 96 | ||||||||||||||||||||||
2010^ | 12.90 | 6.50 | 56,361 | 0.84 | (i) | 1.64 | (i) | 0.02 | 119 | ||||||||||||||||||||||
2011 | 10.36 | (8.13 | ) | 39,844 | 0.84 | (i) | 1.27 | (i) | 0.02 | 121 | |||||||||||||||||||||
2012^^ | 10.46 | 4.28 | (l) | 36,898 | 0.85 | (i)(m) | 1.70 | (i)(m) | 0.03 | (m) | 33 | (l) |
117
Morgan Stanley Variable Investment Series
Financial Highlights continued
^^ For the six months ended June 30, 2012 (unaudited).
^ Beginning with the year ended December 31, 2011, the Fund was audited by Ernst & Young LLP. The previous years were audited by another independent registered public accounting firm.
(a) The per share amounts were computed using an average number of shares outstanding during the period.
(b) Calculated based on the net asset value as of the last business day of the period. Performance shown does not reflect fees and expenses imposed by your insurance company. If performance information included the effect of these additional charges, the total returns would be lower.
(c) Reflects overall Portfolio ratios for investment income and non-class specific expenses.
(d) The Adviser fully reimbursed the Portfolio for losses incurred resulting from the disposal of an investment. Without this reimbursement, the total return was 4.79% and 4.52% for Class X and Y, respectively.
(e) Amount is less than $0.001.
(f) Reflects fees paid in connection with the U.S. Treasury Guarantee Program for Money Market Funds. This fee had an effect of 0.04% for the year ended 2009.
(g) If the Portfolio had borne all of its expenses that were reimbursed or waived by the Distributor, Adviser, and Administrator, the annualized expense and net investment loss ratios, would have been as follows:
PERIOD ENDED | EXPENSE RATIO | NET INVESTMENT LOSS RATIO | |||||||||
June 30, 2012 | |||||||||||
Class X | 0.63 | % | (0.36 | )% | |||||||
Class Y | 0.88 | (0.61 | ) | ||||||||
December 31, 2011 | |||||||||||
Class X | 0.60 | (0.37 | ) | ||||||||
Class Y | 0.85 | (0.62 | ) | ||||||||
December 31, 2010 | |||||||||||
Class X | 0.62 | (0.33 | ) | ||||||||
Class Y | 0.87 | (0.58 | ) | ||||||||
December 31, 2009 | |||||||||||
Class X | 0.59 | (0.16 | ) | ||||||||
Class Y | 0.84 | (0.42 | ) |
(h) Amount is less than 0.005%.
(i) The ratios reflect the rebate of certain Portfolio expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as "Rebate from Morgan Stanley affiliate."
See Notes to Financial Statements
118
(j) If the Portfolio had borne all of its expenses that were reimbursed or waived by the Adviser and Administrator, the annualized expense and net investment income ratios, would have been as follows:
PERIOD ENDED | EXPENSE RATIO | NET INVESTMENT INCOME RATIO | |||||||||
June 30, 2012 | |||||||||||
Class X | 1.20 | % | 5.90 | % | |||||||
Class Y | 1.45 | 5.65 | |||||||||
December 31, 2011 | |||||||||||
Class X | 1.17 | 2.39 | |||||||||
Class Y | 1.42 | 2.14 | |||||||||
December 31, 2010 | |||||||||||
Class X | 1.16 | 1.65 | |||||||||
Class Y | 1.41 | 1.40 | |||||||||
December 31, 2009 | |||||||||||
Class X | 1.12 | 2.55 | |||||||||
Class Y | 1.37 | 2.30 | |||||||||
December 31, 2008 | |||||||||||
Class X | 1.08 | 2.93 | |||||||||
Class Y | 1.33 | 2.68 | |||||||||
December 31, 2007 | |||||||||||
Class X | 1.04 | 1.69 | |||||||||
Class Y | 1.29 | 1.44 |
(k) During the year ended December 31, 2010, the Portfolio received a regulatory settlement from an unaffiliated third party which had an impact of approximately 0.14% and 0.14% for Class X and Y, respectively, on the total return. 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 X and Y shares would have been approximately 7.09% and 6.82%, respectively.
(l) Not annualized.
(m) Annualized.
119
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Trustees | |||||||
Frank L. Bowman | Joseph J. Kearns | ||||||
Michael Bozic | Michael F. Klein | ||||||
Kathleen A. Dennis | Michael E. Nugent | ||||||
James F. Higgins | W. Allen Reed | ||||||
Dr. Manuel H. Johnson | Fergus Reid | ||||||
Officers | |||||||
Michael E. Nugent Chairperson of the Board | |||||||
Arthur Lev President and Principal Executive Officer | |||||||
Mary Ann Picciotto Chief Compliance Officer | |||||||
Stefanie V. Chang Yu Vice President | |||||||
Francis J. Smith Treasurer and Principal Financial Officer | |||||||
Mary E. Mullin Secretary | |||||||
Transfer Agent | Custodian | ||||||
Morgan Stanley Services Company Inc. P.O. Box 219886 Kansas City, Missouri 64121 | State Street Bank and Trust Company One Lincoln Street Boston, Massachusetts 02111 | ||||||
Independent Registered Public Accounting Firm | Legal Counsel | ||||||
Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 | Dechert LLP 1095 Avenue of the Americas New York, New York 10036 | ||||||
Counsel to the Independent Trustees | Adviser | ||||||
Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 | 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 049481 Singapore | |||||||
This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing.
Morgan Stanley Distribution, Inc., member FINRA.
#40113A
VARINSAN
IU12-01691P-Y06/12
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
(a) Refer to Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to annual reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.
(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the 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. Exhibits
(a) Code of Ethics — Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Variable Investment Series
/s/ Arthur Lev |
|
Arthur Lev |
|
Principal Executive Officer |
|
August 15, 2012 |
|
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/ Arthur Lev |
|
Arthur Lev |
|
Principal Executive Officer |
|
August 15, 2012 |
|
|
|
/s/ Francis Smith |
|
Francis Smith |
|
Principal Financial Officer |
|
August 15, 2012 |
|