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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John H. Gernon 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: | 212-296-0289 |
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Date of fiscal year end: | December 31, 2014 |
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Date of reporting period: | June 30, 2014 |
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Item 1 - Report to Shareholders
MORGAN STANLEY
VARIABLE INVESTMENT SERIES
Semi-Annual Report
JUNE 30, 2014
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 | 10 | ||||||
Expense Examples | 12 | ||||||
Investment Advisory Agreement Approval | 15 | ||||||
Portfolio of Investments: | |||||||
Money Market | 18 | ||||||
Limited Duration | 23 | ||||||
Income Plus | 32 | ||||||
European Equity | 43 | ||||||
Multi Cap Growth | 46 | ||||||
Financial Statements: | |||||||
Statements of Assets and Liabilities | 50 | ||||||
Statements of Operations | 52 | ||||||
Statements of Changes in Net Assets | 54 | ||||||
Notes to Financial Statements | 58 | ||||||
Financial Highlights | 90 | ||||||
Results of Special Shareholder Meetings | 96 |
Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited)
Dear Shareholder:
Financial markets faced some significant headwinds during the six-month period, including a volatile start to the year, disappointing economic growth across many of the world's major economies, and an increase in geopolitical tensions. Yet, aided by a backdrop of favorable global monetary policy and low inflation, risky assets, such as stocks and non-government sectors of the bond market, sustained their leads in the first six months of 2014.
Domestic and International Equity Overview
U.S. stocks advanced in the six-month period, up 7.14% as measured by the S&P 500® Index, but not without turbulence, especially early in 2014. Although the harsh winter weather was blamed for distortions in the economic data during the first quarter, there were some lingering uncertainties as to whether the U.S. economy was actually heading for a longer-term slump, which contributed to market turbulence in the first few months of the year.
However, improving economic data in the spring pointed to a likely reacceleration of the U.S. economy in the second quarter. Investor confidence was also bolstered by assurances from the Federal Reserve (Fed) that it could keep rates low "for a considerable time" after its bond buying stimulus program winds down. These influences helped the markets look past the escalating conflict between Russia and Ukraine, as well as increasing sectarian violence in Iraq, where Sunni militants began taking control of cities in the north.
European equities contended with slowing economic growth and deflation worries during the quarter but interventions from major central banks helped shares appreciate 5.5%, as measured by the MSCI Europe Index. Europe's better-performing sectors included pharmaceuticals, which benefited from increased merger and acquisition speculation; utilities, which advanced as investors fearing deflation sought relatively stable, defensive companies; and autos, which benefited from Europe's domestic recovery.
Fixed Income Overview
With low inflation persisting across major world economies and central banks remaining on the dovish side (that is, favoring low interest rates), the riskier segments of the fixed income markets performed well during the six-month period.
Corporate bonds saw gains during the period, as yield spreads narrowed relative to Treasuries. High yield and convertible bonds, with their equity-like characteristics, performed especially well because of the stock market's overall appreciation.
Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
In the securitized market, monetary policy continued to play a primary role. Although the Fed continued to gradually reduce the amount of its monthly bond purchases, demand is expected to continue to exceed net supply in many mortgage backed security (MBS) sectors, providing a positive backdrop for MBS performance. The ongoing recovery in the fundamentals of the commercial real estate market have remained on track, which has benefited commercial MBS.
The yield on the 10-year Treasury fell and prices rose (as the two are inversely related) in the first quarter, as investors looked to government bonds for their relative safety amid concerns about the first quarter's weak economic data. Although the economy appeared to be on the mend during the second quarter, investors seemed reassured that the pace of growth was unlikely to prompt the Fed to raise short-term interest rates any time soon. This helped extend Treasuries' rally in the second quarter, further weighing on the 10-year yield.
The Fed's near-zero interest rate policy continued to constrain money market yields. The actions of the Fed's policy making committee, including the testing of a new tool designed to help control short-term interest rates and the tapering of its monthly bond purchases, continued to be a major focus of the markets during the period.
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.
As of June 30, 2014, Variable Investment Series – Money Market Portfolio had net assets of approximately $68.1 million with an average portfolio maturity of 31 days. For the seven-day period ended June 30, 2014, the Portfolio's Class X shares provided an effective annualized yield of 0.01% (subsidized) and -0.50% (non-subsidized) and a current yield of 0.01% (subsidized) and -0.50% (non-subsidized), while its 30-day moving average yield for June 30, 2014 was 0.01% (subsidized) and -0.50% (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, 2014, 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, 2014, the Portfolio's Class Y shares provided an effective annualized yield of 0.01% (subsidized) and -0.75% (non-subsidized) and a current yield of 0.01% (subsidized) and -0.74% (non-subsidized), while its 30-day moving average yield for June 30, 2014 was
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
0.01% (subsidized) and -0.75% (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, 2014, 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 remain quite comfortable in our conservative approach to managing the Portfolio, focusing on securities with high liquidity and short durations. We believe our investment process and focus on credit research and risk management, combined with the high degree of liquidity and short maturity position of the Portfolio, has put us in a favorable position to respond to market uncertainty. Our investment philosophy continues to revolve around prudent credit and risk management and portfolios that are positioned defensively and with very high levels of liquidity.
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, 2014, Variable Investment Series – Limited Duration Portfolio Class X shares produced a total return of 1.13%, outperforming the Barclays Capital U.S. Government/Credit Index (1-5 Year) (the "Index"),1 which returned 1.06%. For the same period, the Portfolio's Class Y shares returned 1.11%. 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 main driver of performance for the period was the Portfolio's overweight position in the investment-grade credit sector, which benefited from its focus on the banking sector. Overweight positions in selected industrial sectors also contributed to 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.
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
The Portfolio's positioning in the securitized sector was also additive to relative returns. Allocations to agency mortgages, commercial mortgage-backed securities, and high quality asset-backed securities all contributed to relative gains, mainly due to the attractive yield offered by these securities.
Conversely, the Portfolio was underweight in the agency sector, which detracted from relative performance. The Portfolio's slightly shorter duration than the Index, managed using U.S. Treasury futures, also dampened relative returns.
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, 2014, Variable Investment Series – Income Plus Portfolio Class X shares produced a total return of 6.42%, outperforming the Barclays Capital U.S. Corporate Index (the "Index"),2 which returned 5.68%. For the same period, the Portfolio's Class Y shares returned 6.22%. 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.
During the first six months of 2014, investment grade corporate spreads narrowed relative to Treasuries. BBB-rated non-financial corporates, as well as subordinated financials, tightened more than other segments of the corporate index. The overall corporate market, and these segments in particular, benefited from continued easy monetary policies and expectations for renewed economic growth. The Portfolio entered 2014 overweight both BBB non-financial corporates and subordinated financials, and these exposures contributed to the Portfolio's outperformance relative to the Index. Holdings of both high yield corporate bonds and convertible bonds also aided performance during the period. With equity markets performing well during the period, those fixed income sectors with the most equity-like characteristics (such as high yield and convertibles) performed very strongly.
The primary detractor from performance were holdings of credit default swaps (both single-name and index swaps), which were held as partial hedges against the Portfolio's long credit exposures. The average
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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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
spread of these swaps tightened during the period, generating some modest underperformance for the Portfolio. The Portfolio maintained a shorter duration (a measure of interest-rate sensitivity) than the Index during the period, managed using interest rate swaps and U.S. Treasury futures. This position detracted from performance during the period as Treasury yields fell over the first half of the year.
Looking ahead, while corporate bond yield spreads have largely reached long-term median levels, we continue to see value within several segments of the corporate market. Within investment grade, we remain positive on the financial sector where we believe fundamentals are strong and valuations remain attractive relative to non-financial credits. We continue to position the Portfolio defensively within non-financials sectors, as many of those companies have become increasingly shareholder-friendly by sacrificing their balance sheet to fund acquisitions, increase stock buybacks or raise dividends. We continue to maintain opportunistic exposures to high yield and convertible bonds — two sectors that we believe are attractively positioned for the current environment.
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, 2014, Variable Investment Series – European Equity Portfolio Class X shares produced a total return of 2.04%, underperforming the MSCI Europe Index (the "Index"),3 which returned 5.48%. For the same period, the Portfolio's Class Y shares returned 1.92%. 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.
Key country-level contributors to performance during the period included our stock selection in Switzerland, the Netherlands and Germany. The main detractors were stock selection in the United Kingdom, Spain, France and Sweden, and underweight allocations to Italy and Denmark. In addition, an overweight allocation to Ireland dampened relative results.
3 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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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
At the industry level, stock selection in media and in food, beverage & tobacco were positive contributors to performance, along with no exposure to diversified financials. The primary detractors from performance included our stock selection in banks, telecommunications, capital goods, materials and pharmaceuticals, along with an underweight allocation to utilities. The energy sector also hurt performance, due to both stock selection in the sector and an underweight allocation.
Individual holdings that were the most beneficial to performance included a French industrial company, a Swiss pharmaceutical developer, a U.K. tobacco company, a French bank and no exposure to a German bank. Holdings that lagged included a U.K. bank, a U.K. telephone company, a French insurance provider, a U.K. industrial company and a Swedish consumer staples company.
Investors around the world have continued to seek high and reliable yields, and European defensive sectors have offered an attractive opportunity: cheap valuations, companies rich in cash, high free cash flow yield and wide international exposure. Financials, which performed strongly in second half of 2012 and in 2013, have underperformed the Index in the period considered. Nonetheless, we have observed a dichotomy in the market: peripheral banks in general have strongly outperformed the Index, while more conservative and defensive players in core Europe have generally underperformed.
The European recovery appears on track, with improvements in consumer confidence, business sentiment and manufacturing data, as well as bond spreads at a multi-year low.i Although consumer demand remains depressed, we believe the uptick in consumer confidence and easier lending standards for consumer credit could help drive a rebound. Banks have continued to benefit from a lower cost of funds as peripheral bonds' yield spreads have narrowed. A recent loan survey for the eurozone showed an improving picture for both credit supply and demand, as lending standards are easing and demand is rising for all three loan categories — corporate, household mortgage, and household credit card debt. Finally, corporations have turned expansionary, as capital expenditures as a share of gross domestic product has begun to climb off record lows and merger and acquisition activity has reaccelerated to its 2007 peak levels.
During the period, global equities registered new highs and the stocks of peripheral European banks broke out of their trading range. Italy reached a three-year high and was the best-performing European market year-to-date. Asset flows into European equities continued to be strong. Equities saw inflows in every week but one of 2014 so far. Despite strong performance in 2012 and 2013, European stocks are still an under-owned asset class within institutional and private portfolios in Europe, and we believe this could support asset rotation out of fixed income over the medium term.
i Economic and market data referenced in the management team's commentary provided by Morgan Stanley Investment Management, Bloomberg LP, JPMorgan Research, and MSCI.
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
We believe that exposure to the domestic economic recovery and cheap valuations provide strong support to our favorable thesis on European equities. Our investment approach remains the same. We continue to seek high-quality companies with 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, 2014, Variable Investment Series – Multi Cap Growth Portfolio Class X shares produced a total return of 1.90%, underperforming the Russell 3000® Growth Index (the "Index"),4 which returned 5.98%. For the same period, the Portfolio's Class Y shares returned 1.77%. 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 largest detractor from relative performance during the period was the information technology sector, primarily due to stock selection. A holding in a global communication platform was the chief detractor within the sector. Stock selection in the industrials sector was also disadvantageous to performance. Here, a holding in a consulting services firm engaged in the health care and education industries was the main laggard. Relative weakness in the consumer discretionary sector also hampered relative gains, as both stock selection and an overweight position in the sector were unfavorable during the period. Within the sector, a holding in a leading online retailer was the most detrimental to performance.
The Portfolio fared better in the health care sector, where stock selection contributed positively to relative results. Performance in the sector was led by a holding in a developer of genome sequencing tools. Stock selection in the consumer staples sector was beneficial to performance, as well, with a holding in a specialty coffee company contributing the most to relative gains in the sector.
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.
4 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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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (unaudited) continued
We appreciate your ongoing support of Morgan Stanley Variable Investment Series and look forward to continuing to serve your investment needs.
Very truly yours,
John H. Gernon
President and Principal Executive Officer
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Morgan Stanley Variable Investment Series
Letter to the Shareholders n June 30, 2014 (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) 548-7786 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.
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Morgan Stanley Variable Investment Series
Fund Performance n June 30, 2014 (unaudited)
Average Annual Total Returns—Period Ended June 30, 2014(1) | |||||||||||||||||||||||||||
Class X | 1 Year | 5 Years | 10 Years | Since Inception | Gross Expense Ratio | Date of Inception | |||||||||||||||||||||
European Equity | 25.05 | % | 13.41 | % | 7.31 | % | 9.22 | % | 1.22 | % | 3/1/1991 | ||||||||||||||||
Income Plus | 10.36 | 9.38 | 6.71 | 7.38 | 0.62 | 3/1/1987 | |||||||||||||||||||||
Limited Duration | 2.08 | 2.46 | 0.96 | 1.97 | 0.75 | 5/4/1999 | |||||||||||||||||||||
Money Market | 0.01 | 0.01 | 1.53 | 3.98 | 0.66 | 3/9/1984 | |||||||||||||||||||||
Multi Cap Growth | 36.66 | 21.71 | 11.25 | 11.79 | 0.57 | 3/9/1984 |
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. Expenses are as of each Portfolio's fiscal year end as outlined in the Portfolio's current prospectus.
(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.
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Fund Performance n June 30, 2014 (unaudited) continued
Average Annual Total Returns—Period Ended June 30, 2014(1) | |||||||||||||||||||||||||||
Class Y | 1 Year | 5 Years | 10 Years | Since Inception | Gross Expense Ratio | Date of Inception | |||||||||||||||||||||
European Equity | 24.77 | % | 13.12 | % | 7.04 | % | 2.96 | % | 1.47 | % | 6/5/2000 | ||||||||||||||||
Income Plus | 10.06 | 9.09 | 6.45 | 6.77 | 0.87 | 6/5/2000 | |||||||||||||||||||||
Limited Duration | 1.92 | 2.23 | 0.71 | 1.64 | 1.00 | 6/5/2000 | |||||||||||||||||||||
Money Market | 0.01 | 0.01 | 1.41 | 1.62 | 0.91 | 6/5/2000 | |||||||||||||||||||||
Multi Cap Growth | 36.30 | 21.40 | 10.97 | 4.98 | 0.82 | 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. Expenses are as of each Portfolio's fiscal year end as outlined in the Portfolio's current prospectus.
(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.
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Morgan Stanley Variable Investment Series
Expense Examples n June 30, 2014 (unaudited)
As a shareholder of the Portfolio, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, including advisory fees, administration fees, distribution and services (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 01/01/14 – 06/30/14.
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.
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Expense Examples n June 30, 2014 (unaudited) continued
Money Market
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/14 | 06/30/14 | 01/01/14 – 06/30/14 | |||||||||||||
Class X | |||||||||||||||
Actual (0.00% return) | $ | 1,000.00 | $ | 1,000.05 | $ | 0.89 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.90 | $ | 0.90 | |||||||||
Class Y | |||||||||||||||
Actual (0.00% return) | $ | 1,000.00 | $ | 1,000.05 | $ | 0.89 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.90 | $ | 0.90 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.18% and 0.18% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 0.67% and 0.92% for Class X and Class Y shares, respectively.
Limited Duration
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/14 | 06/30/14 | 01/01/14 – 06/30/14 | |||||||||||||
Class X | |||||||||||||||
Actual (1.13% return) | $ | 1,000.00 | $ | 1,011.30 | $ | 3.84 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.98 | $ | 3.86 | |||||||||
Class Y | |||||||||||||||
Actual (1.11% return) | $ | 1,000.00 | $ | 1,011.10 | $ | 5.09 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.74 | $ | 5.11 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.77% and 1.02% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Income Plus
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/14 | 06/30/14 | 01/01/14 – 06/30/14 | |||||||||||||
Class X | |||||||||||||||
Actual (6.42% return) | $ | 1,000.00 | $ | 1,064.20 | $ | 3.22 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.67 | $ | 3.16 | |||||||||
Class Y | |||||||||||||||
Actual (6.22% return) | $ | 1,000.00 | $ | 1,062.20 | $ | 4.50 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.43 | $ | 4.41 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.63% and 0.88% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
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Expense Examples n June 30, 2014 (unaudited) continued
European Equity
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/14 | 06/30/14 | 01/01/14 – 06/30/14 | |||||||||||||
Class X | |||||||||||||||
Actual (2.04% return) | $ | 1,000.00 | $ | 1,020.40 | $ | 5.01 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.84 | $ | 5.01 | |||||||||
Class Y | |||||||||||||||
Actual (1.92% return) | $ | 1,000.00 | $ | 1,019.20 | $ | 6.26 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,018.60 | $ | 6.26 |
@ 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 181/365 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 1.22% and 1.47% for Class X and Class Y shares, respectively.
Multi Cap Growth
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/14 | 06/30/14 | 01/01/14 – 06/30/14 | |||||||||||||
Class X | |||||||||||||||
Actual (1.90% return) | $ | 1,000.00 | $ | 1,019.00 | $ | 2.85 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.97 | $ | 2.86 | |||||||||
Class Y | |||||||||||||||
Actual (1.77% return) | $ | 1,000.00 | $ | 1,017.70 | $ | 4.10 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.73 | $ | 4.11 |
@ 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 181/365 (to reflect the one-half year period).
14
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2014 (unaudited)
Nature, Extent and Quality of Services
The Board reviewed and considered the nature and extent of the investment advisory services provided by the 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-Adviser (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 Adviser under the administration agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Adviser's expense. (The Adviser and Sub-Adviser 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, 2013, 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 European Equity, Income Plus and Multi Cap Growth Portfolios was better than the peer group averages for the one-, three- and five-year periods.
The Board noted that the performance of the Limited Duration Portfolio was better than its peer group average for the three-year period but below its peer group average for the one- and five-year periods.
15
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2014 (unaudited) continued
The Board noted that the performance of the Money Market Portfolio was better than its peer group average for the one- and three-year periods but below its peer group average for the five-year period.
Performance Conclusions
With respect to the European Equity, Income Plus, Limited Duration, Money Market and Multi Cap Growth 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.
The Board noted that the management fees and total expense ratios for the European Equity, Income Plus, Money Market and Multi Cap Growth Portfolios were lower than the peer group averages.
The Board noted that while the Limited Duration Portfolio's management fee was lower than its peer group average, the total expense ratio was higher but close to its peer group average.
Fee and Expense Conclusions
With respect to the European Equity, Income Plus, Limited Duration, Money Market and Multi Cap Growth Portfolios, after discussion, the Board concluded that the management fees and total expense ratios were competitive with the peer group averages.
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
16
Morgan Stanley Variable Investment Series
Investment Advisory Agreement Approval n June 30, 2014 (unaudited) continued
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, research received by the Adviser generated from commission dollars spent on funds' portfolio trading, and fees for trading, 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.
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.
17
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2014 (unaudited)
PRINCIPAL AMOUNT (000) | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
Repurchase Agreements (36.5%) | |||||||||||||||||||
$ | 5,000 | ABN Amro Securities LLC, (dated 06/30/14; proceeds $5,000,014; fully collateralized by a U.S. Government agency security, 3.50% due 10/01/26; valued at $5,150,000) | 0.10 | % | 07/01/14 | $ | 5,000,000 | ||||||||||||
500 | ABN Amro Securities LLC, (dated 06/17/14; proceeds $500,113; fully collateralized by various Common Stocks; valued at $525,050) (Demand 07/07/14) | 0.27 | (a) | 07/17/14 | 500,000 | ||||||||||||||
8,300 | BNP Paribas Securities Corp., (dated 06/30/14; proceeds $8,300,023; fully collateralized by various U.S. Government agency securities, 2.21% - 7.50% due 09/15/29 - 06/20/44; valued at $8,549,000) | 0.10 | 07/01/14 | 8,300,000 | |||||||||||||||
2,500 | BNP Paribas Securities Corp., (dated 06/30/14; proceeds $2,500,013; fully collateralized by various Common Stocks and Preferred Stocks; valued at $2,625,048) | 0.18 | 07/01/14 | 2,500,000 | |||||||||||||||
2,000 | Credit Suisse Securities USA, (dated 06/17/14; proceeds $2,003,230; fully collateralized by a Corporate Bond, 7.50% due 09/15/18; valued at $2,122,262) | 0.63 | 09/17/14 | 2,000,000 | |||||||||||||||
500 | ING Financial Markets LLC, (dated 06/30/14; proceeds $500,002; fully collateralized by a Corporate Bond, 6.40% due 06/15/18; valued at $528,368) | 0.13 | 07/01/14 | 500,000 | |||||||||||||||
250 | ING Financial Markets LLC, (dated 06/16/14; proceeds $250,042; fully collateralized by a Corporate Bond, 6.40% due 06/15/18; valued at $264,184) (Demand 07/07/14) | 0.20 | (a) | 07/16/14 | 250,000 | ||||||||||||||
750 | ING Financial Markets LLC, (dated 06/30/14; proceeds $750,005; fully collateralized by a Corporate Bond, 5.32% due 09/15/16; valued at $792,824) | 0.26 | 07/01/14 | 750,000 | |||||||||||||||
200 | ING Financial Markets LLC, (dated 06/10/14; proceeds $200,058; fully collateralized by a Corporate Bond, 5.32% due 09/15/16; valued at $210,680) (Demand 07/07/14) | 0.35 | (a) | 07/10/14 | 200,000 |
See Notes to Financial Statements
18
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 100 | ING Financial Markets LLC, (dated 04/28/14; proceeds $100,132; fully collateralized by a Corporate Bond, 5.32% due 09/15/16; valued at $105,340) (Demand 07/07/14) | 0.39 | (a)% | 08/28/14 | $ | 100,000 | ||||||||||||
2,000 | Merrill Lynch Pierce Fenner & Smith, (dated 06/30/14; proceeds $2,000,011; fully collateralized by various Common Stocks and Preferred Stocks; valued at $2,100,004) | 0.20 | 07/01/14 | 2,000,000 | |||||||||||||||
500 | Merrill Lynch Pierce Fenner & Smith, (dated 02/04/14; proceeds $501,156; fully collateralized by various Common Stocks, Convertible Bonds, 2.75% - 5.00% due 04/15/15 - 12/15/20, Convertible Preferred Stocks and a Preferred Stock; valued at $545,472) (Demand 07/01/14) | 0.46 | (a) | 08/04/14 | 500,000 | ||||||||||||||
750 | RBC Capital Markets LLC, (dated 04/11/14; proceeds $750,626; fully collateralized by various Corporate Bonds, 4.25% - 9.00% due 02/12/15 - 09/15/21; valued at $795,000) (Demand 07/07/14) | 0.33 | (a) | 07/11/14 | 750,000 | ||||||||||||||
250 | RBC Capital Markets LLC, (dated 06/12/14; proceeds $250,211; fully collateralized by various Corporate Bonds, 7.25% - 8.13% due 05/15/17 - 09/19/23; valued at $265,000) (Demand 07/07/14) | 0.33 | (a) | 09/12/14 | 250,000 | ||||||||||||||
300 | RBS Securities, Inc., (dated 06/30/14; proceeds $300,003; fully collateralized by a U.S. Government Obligation, 0.13% due 04/15/16; valued at $308,762) | 0.33 | 07/01/14 | 300,000 | |||||||||||||||
500 | TD Securities USA LLC, (dated 06/30/14; proceeds $500,002; fully collateralized by various Corporate Bonds, 2.90% - 4.88% due 08/04/20 - 11/15/21 and a U.S. Government agency security, 3.50% due 06/01/43; valued at $518,844) | 0.11 | 07/01/14 | 500,000 | |||||||||||||||
500 | Wells Fargo Securities LLC, (dated 04/28/14; proceeds $500,569; fully collateralized by various Corporate Bonds, 0.51% - 7.88% due 10/29/15 - 12/15/18; valued at $530,316) | 0.45 | 07/28/14 | 500,000 | |||||||||||||||
Total Repurchase Agreements (Cost $24,900,000) | 24,900,000 |
See Notes to Financial Statements
19
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
Certificates of Deposit (20.7%) | |||||||||||||||||||
Domestic Banks (4.0%) | |||||||||||||||||||
$ | 2,000 | Branch Banking & Trust Co. | 0.19 | % | 07/22/14 | $ | 2,000,000 | ||||||||||||
700 | Citibank NA | 0.19 | 08/18/14 | 700,000 | |||||||||||||||
2,700,000 | |||||||||||||||||||
International Banks (16.7%) | |||||||||||||||||||
250 | Banco Del Estado De Chile | 0.19 | 10/01/14 | 250,000 | |||||||||||||||
3,000 | Bank of Montreal | 0.08 | 07/01/14 | 3,000,000 | |||||||||||||||
1,700 | Credit Industriel et Commercial | 0.33 | 07/23/14 - 10/03/14 | 1,700,000 | |||||||||||||||
850 | Oversea Chinese Banking Corporation | 0.20 - 0.23 | 08/15/14 - 09/03/14 | 850,000 | |||||||||||||||
1,300 | Sumitomo Mitsui Banking Corp. | 0.10 - 0.23 | 07/01/14 - 10/01/14 | 1,300,000 | |||||||||||||||
300 | Sumitomo Trust & Banking Co., Ltd. | 0.22 | 08/07/14 | 300,001 | |||||||||||||||
2,500 | Swedbank AB | 0.09 | 07/01/14 | 2,500,000 | |||||||||||||||
1,500 | Toronto Dominion Bank | 0.07 | 07/02/14 | 1,500,000 | |||||||||||||||
11,400,001 | |||||||||||||||||||
Total Certificates of Deposit (Cost $14,100,001) | 14,100,001 | ||||||||||||||||||
Commercial Paper (16.1%) | |||||||||||||||||||
Domestic Bank (2.1%) | |||||||||||||||||||
1,400 | JP Morgan Securities LLC (b) | 0.28 | 07/14/14 | 1,399,858 | |||||||||||||||
Food & Beverage (2.8%) | |||||||||||||||||||
1,000 | Coca-Cola Co. (b) | 0.18 | 09/02/14 - 01/02/15 | 999,518 | |||||||||||||||
900 | Nestle Capital Corp. (b) | 0.18 - 0.20 | 08/19/14 - 10/22/14 | 899,611 | |||||||||||||||
1,899,129 | |||||||||||||||||||
International Banks (11.2%) | |||||||||||||||||||
300 | ASB Finance Ltd. | 0.19 | 09/10/14 | 299,888 | |||||||||||||||
1,000 | Bank of Nova Scotia | 0.20 | 07/01/14 | 1,000,000 | |||||||||||||||
200 | Banque Et Caisse | 0.23 | 01/06/15 | 199,759 | |||||||||||||||
600 | Commonwealth Bank of Australia | 0.20 | 12/05/14 | 599,477 | |||||||||||||||
1,000 | DBS Bank Ltd. (b) | 0.22 - 0.24 | 07/01/14 - 11/26/14 | 999,316 | |||||||||||||||
850 | DBS Bank Ltd. | 0.22 - 0.24 | 07/21/14 - 11/25/14 | 849,681 | |||||||||||||||
700 | Nordea Bank AB (b) | 0.23 | 10/22/14 | 699,506 | |||||||||||||||
1,750 | Sumitomo Mitsui Banking Corp. | 0.23 | 07/03/14 | 1,749,978 | |||||||||||||||
500 | United Overseas Bank Ltd. | 0.25 | 09/25/14 | 499,701 | |||||||||||||||
750 | United Overseas Bank Ltd. (b) | 0.30 | 03/24/15 | 748,338 | |||||||||||||||
7,645,644 | |||||||||||||||||||
Total Commercial Paper (Cost $10,944,631) | 10,944,631 |
See Notes to Financial Statements
20
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE(a) | DEMAND DATE(c) | MATURITY DATE | VALUE | |||||||||||||||||||
Floating Rate Notes (11.5%) | |||||||||||||||||||||||
Domestic Bank (0.6%) | |||||||||||||||||||||||
$ | 400 | U.S. Bank NA | 0.17 | % | 07/09/14 | 12/09/14 | $ | 400,000 | |||||||||||||||
International Banks (10.9%) | |||||||||||||||||||||||
1,000 | Bank of Nova Scotia | 0.24 | 08/18/14 | 02/17/15 | 1,000,000 | ||||||||||||||||||
500 | DBS Bank Ltd. (b) | 0.24 | 09/30/14 | 09/30/14 | 499,989 | ||||||||||||||||||
2,750 | Rabobank Nederland NY | 0.28 - 0.31 | 08/28/14 - 10/06/14 | 11/28/14 - 07/06/15 | 2,750,000 | ||||||||||||||||||
1,000 | Toronto Dominion Bank | 0.22 | 07/07/14 - 08/06/14 | 02/06/15 - 06/08/15 | 1,000,000 | ||||||||||||||||||
2,200 | Westpac Banking Corp. | 0.23 - 0.24 | 08/06/14 - 09/15/14 | 12/15/14 - 05/06/15 | 2,199,958 | ||||||||||||||||||
7,449,947 | |||||||||||||||||||||||
Total Floating Rate Notes (Cost $7,849,947) | 7,849,947 | ||||||||||||||||||||||
Extendible Floating Rate Notes (10.7%) | |||||||||||||||||||||||
Domestic Banks (5.9%) | |||||||||||||||||||||||
2,000 | JP Morgan Chase Bank NA (Extendible Maturity Date 07/07/15) | 0.35 | 09/08/14 | 03/07/19 | 2,000,000 | ||||||||||||||||||
2,000 | Wells Fargo Bank NA (Extendible Maturity Date 07/15/15 - 07/20/15) | 0.32 | 07/21/14 - 09/15/14 | 03/20/19 - 07/15/19 | 2,000,000 | ||||||||||||||||||
4,000,000 | |||||||||||||||||||||||
International Banks (4.8%) | |||||||||||||||||||||||
1,000 | Bank of Nova Scotia (Extendible Maturity Date 07/30/15) | 0.32 | 07/30/14 | 01/31/19 | 1,000,000 | ||||||||||||||||||
1,000 | Royal Bank of Canada (Extendible Maturity Date 07/01/15) | 0.32 | 07/01/14 | 04/01/19 | 999,957 | ||||||||||||||||||
1,300 | Svenska Handelsbanken AB (b) (Extendible Maturity Date 12/15/14) | 0.28 | 07/15/14 | 05/13/16 | 1,300,000 | ||||||||||||||||||
3,299,957 | |||||||||||||||||||||||
Total Extendible Floating Rate Notes (Cost $7,299,957) | 7,299,957 |
See Notes to Financial Statements
21
Morgan Stanley Variable Investment Series - Money Market
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
Time Deposit (4.4%) | |||||||||||||||||||
International Bank | |||||||||||||||||||
$ | 3,000 | Credit Agricole CIB Grand Cayman (Cost $3,000,000) | 0.07 | % | 07/01/14 | $ | 3,000,000 | ||||||||||||
Total Investments (Cost $68,094,536) | 99.9 | % | 68,094,536 | ||||||||||||||||
Other Assets in Excess of Liabilities | 0.1 | 83,501 | |||||||||||||||||
Net Assets | 100.0 | % | $ | 68,178,037 |
(a) Rate shown is the rate in effect at June 30, 2014.
(b) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(c) Date of next interest rate reset.
MATURITY SCHEDULE†
1 - 30 Days | 69.2 | % | |||||
31 - 60 Days | 7.8 | ||||||
61 - 90 Days | 14.5 | ||||||
91 - 120 Days | 4.8 | ||||||
121 + Days | 3.7 | ||||||
100.0 | % |
† As a percentage of total investments
See Notes to Financial Statements
22
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Corporate Bonds (66.4%) | |||||||||||||||||||
Basic Materials (1.8%) | |||||||||||||||||||
$ | 190 | ArcelorMittal (Luxembourg) | 9.50 | % | 02/15/15 | $ | 199,738 | ||||||||||||
85 | Ecolab, Inc. | 1.00 | 08/09/15 | 85,439 | |||||||||||||||
115 | Ecolab, Inc. | 3.00 | 12/08/16 | 120,346 | |||||||||||||||
175 | Goldcorp, Inc. (Canada) | 2.125 | 03/15/18 | 175,683 | |||||||||||||||
125 | Rio Tinto Finance USA PLC (United Kingdom) | 1.375 | 06/17/16 | 126,412 | |||||||||||||||
707,618 | |||||||||||||||||||
Communications (6.7%) | |||||||||||||||||||
300 | AT&T, Inc. | 2.375 | 11/27/18 | 305,348 | |||||||||||||||
375 | AT&T, Inc. | 2.50 | 08/15/15 | 383,248 | |||||||||||||||
225 | Baidu, Inc. (China) | 3.25 | 08/06/18 | 233,025 | |||||||||||||||
180 | Comcast Corp. | 5.70 | 05/15/18 | 207,546 | |||||||||||||||
225 | Orange SA (France) | 2.75 | 02/06/19 | 230,728 | |||||||||||||||
125 | Thomson Reuters Corp. (Canada) | 1.30 | 02/23/17 | 125,237 | |||||||||||||||
175 | Time Warner Cable, Inc. | 6.75 | 07/01/18 | 207,264 | |||||||||||||||
425 | Verizon Communications, Inc. | 2.55 | 06/17/19 | 431,645 | |||||||||||||||
225 | Viacom, Inc. | 2.50 | 09/01/18 | 230,198 | |||||||||||||||
275 | Vodafone Group PLC (United Kingdom) | 1.25 | 09/26/17 | 273,557 | |||||||||||||||
2,627,796 | |||||||||||||||||||
Consumer, Cyclical (4.4%) | |||||||||||||||||||
210 | CVS Caremark Corp. | 2.25 | 12/05/18 | 212,789 | |||||||||||||||
250 | Daimler Finance North America LLC (Germany) (a) | 2.375 | 08/01/18 | 256,328 | |||||||||||||||
230 | Glencore Funding LLC (a) | 1.70 | 05/27/16 | 232,202 | |||||||||||||||
200 | Home Depot, Inc. | 2.00 | 06/15/19 | 200,370 | |||||||||||||||
240 | Nissan Motor Acceptance Corp. (a) | 2.65 | 09/26/18 | 246,547 | |||||||||||||||
200 | Target Corp. | 2.30 | 06/26/19 | 201,693 | |||||||||||||||
250 | Volkswagen International Finance N.V. (Germany) (a) | 1.125 | 11/18/16 | 251,029 | |||||||||||||||
135 | Wesfarmers Ltd. (Australia) (a) | 2.983 | 05/18/16 | 140,276 | |||||||||||||||
1,741,234 | |||||||||||||||||||
Consumer, Non-Cyclical (8.7%) | |||||||||||||||||||
265 | AbbVie, Inc. | 1.75 | 11/06/17 | 266,661 | |||||||||||||||
250 | Altria Group, Inc. | 4.125 | 09/11/15 | 260,204 | |||||||||||||||
150 | Amgen, Inc. | 2.50 | 11/15/16 | 155,454 | |||||||||||||||
165 | Anheuser-Busch InBev Worldwide, Inc. (Belgium) | 4.125 | 01/15/15 | 168,326 | |||||||||||||||
200 | BAT International Finance PLC (United Kingdom) (a) | 1.40 | 06/05/15 | 201,743 | |||||||||||||||
265 | Baxter International, Inc. | 1.85 | 06/15/18 | 265,657 | |||||||||||||||
100 | Covidien International Finance SA | 1.35 | 05/29/15 | 100,834 |
See Notes to Financial Statements
23
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 210 | Experian Finance PLC (United Kingdom) (a) | 2.375 | % | 06/15/17 | $ | 215,058 | ||||||||||||
120 | General Mills, Inc. | 0.875 | 01/29/16 | 120,574 | |||||||||||||||
350 | Gilead Sciences, Inc. | 3.05 | 12/01/16 | 366,987 | |||||||||||||||
75 | Kellogg Co. | 1.125 | 05/15/15 | 75,539 | |||||||||||||||
250 | Kraft Foods Group, Inc. | 2.25 | 06/05/17 | 256,994 | |||||||||||||||
150 | Kroger Co. (The) | 2.30 | 01/15/19 | 151,687 | |||||||||||||||
100 | Mastercard, Inc. | 2.00 | 04/01/19 | 100,520 | |||||||||||||||
370 | McKesson Corp. | 3.25 | 03/01/16 | 385,017 | |||||||||||||||
100 | Ventas Realty LP | 1.55 | 09/26/16 | 101,073 | |||||||||||||||
240 | WellPoint, Inc. | 1.875 | 01/15/18 | 241,891 | |||||||||||||||
3,434,219 | |||||||||||||||||||
Diversified (0.5%) | |||||||||||||||||||
200 | LVMH Moet Hennessy Louis Vuitton SA (France) (a) | 1.625 | 06/29/17 | 202,332 | |||||||||||||||
Energy (2.6%) | |||||||||||||||||||
225 | DCP Midstream Operating LP | 2.70 | 04/01/19 | 228,160 | |||||||||||||||
50 | Enbridge, Inc. (Canada) | 0.678 | (b) | 06/02/17 | 50,137 | ||||||||||||||
175 | EnLink Midstream Partners LP | 2.70 | 04/01/19 | 177,687 | |||||||||||||||
115 | Enterprise Products Operating LLC | 1.25 | 08/13/15 | 115,842 | |||||||||||||||
180 | Marathon Petroleum Corp. | 3.50 | 03/01/16 | 188,048 | |||||||||||||||
275 | Phillips 66 | 1.95 | 03/05/15 | 277,798 | |||||||||||||||
1,037,672 | |||||||||||||||||||
Finance (32.2%) | |||||||||||||||||||
265 | ABB Treasury Center USA, Inc. (Switzerland) (a) | 2.50 | 06/15/16 | 273,030 | |||||||||||||||
120 | Abbey National Treasury Services PLC (United Kingdom) | 3.05 | 08/23/18 | 125,789 | |||||||||||||||
230 | ABN Amro Bank N.V. (Netherlands) (a) | 2.50 | 10/30/18 | 233,489 | |||||||||||||||
110 | Aflac, Inc. | 3.45 | 08/15/15 | 113,656 | |||||||||||||||
200 | American Express Credit Corp. | 2.125 | 03/18/19 | 201,074 | |||||||||||||||
205 | American Honda Finance Corp. (Japan) (a) | 1.60 | 02/16/18 | 205,830 | |||||||||||||||
200 | Australia & New Zealand Banking Group Ltd. (Australia) | 1.45 | 05/15/18 | 197,877 | |||||||||||||||
400 | Bank of America Corp. | 2.60 | 01/15/19 | 405,136 | |||||||||||||||
195 | Bank of Montreal, MTN (Canada) | 1.40 | 09/11/17 | 195,688 | |||||||||||||||
210 | BB&T Corp. | 2.25 | 02/01/19 | 212,841 | |||||||||||||||
200 | Berkshire Hathaway Finance Corp. | 2.90 | 10/15/20 | 206,275 | |||||||||||||||
100 | BioMed Realty LP | 2.625 | 05/01/19 | 100,713 | |||||||||||||||
210 | BNP Paribas SA, MTN (France) | 2.70 | 08/20/18 | 215,041 | |||||||||||||||
260 | BNZ International Funding Ltd. (New Zealand) (a) | 2.35 | 03/04/19 | 261,319 | |||||||||||||||
110 | Canadian Imperial Bank of Commerce (Canada) | 1.55 | 01/23/18 | 110,086 | |||||||||||||||
150 | Capital One Financial Corp. | 2.45 | 04/24/19 | 151,575 | |||||||||||||||
300 | Citigroup, Inc. | 8.50 | 05/22/19 | 383,856 |
See Notes to Financial Statements
24
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 250 | Commonwealth Bank of Australia (Australia) | 1.95 | % | 03/16/15 | $ | 252,862 | ||||||||||||
250 | Commonwealth Bank of Australia (Australia) | 2.50 | 09/20/18 | 256,834 | |||||||||||||||
115 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) | 3.375 | 01/19/17 | 121,855 | |||||||||||||||
250 | Credit Agricole SA (France) (a) | 2.125 | 04/17/18 | 252,460 | |||||||||||||||
250 | Credit Suisse (Switzerland) | 2.30 | 05/28/19 | 250,690 | |||||||||||||||
250 | Discover Bank | 2.00 | 02/21/18 | 251,709 | |||||||||||||||
205 | DNB Bank ASA (Norway) (a) | 3.20 | 04/03/17 | 215,847 | |||||||||||||||
175 | ERP Operating LP | 2.375 | 07/01/19 | 175,893 | |||||||||||||||
275 | Ford Motor Credit Co., LLC | 5.00 | 05/15/18 | 306,196 | |||||||||||||||
635 | General Electric Capital Corp. | 1.625 | 04/02/18 | 636,615 | |||||||||||||||
325 | Goldman Sachs Group, Inc. (The) | 2.375 | 01/22/18 | 330,330 | |||||||||||||||
220 | HSBC USA, Inc. | 2.25 | 06/23/19 | 220,984 | |||||||||||||||
255 | Hyundai Capital America (a) | 2.125 | 10/02/17 | 259,083 | |||||||||||||||
200 | ING Bank N.V. (Netherlands) (a) | 3.75 | 03/07/17 | 212,870 | |||||||||||||||
125 | ING US, Inc. | 2.90 | 02/15/18 | 129,641 | |||||||||||||||
200 | Intesa Sanpaolo SpA (Italy) | 3.875 | 01/16/18 | 210,962 | |||||||||||||||
170 | John Deere Capital Corp. | 1.95 | 12/13/18 | 170,649 | |||||||||||||||
300 | JPMorgan Chase & Co. | 1.625 | 05/15/18 | 299,107 | |||||||||||||||
200 | Lloyds Bank PLC (United Kingdom) | 2.30 | 11/27/18 | 203,275 | |||||||||||||||
201 | Macquarie Bank Ltd. (Australia) (a) | 2.60 | 06/24/19 | 202,505 | |||||||||||||||
275 | Metropolitan Life Global Funding I (See Note 7) (a) | 1.50 | 01/10/18 | 273,270 | |||||||||||||||
230 | Mizuho Corporate Bank Ltd. (Japan) (a) | 1.85 | 03/21/18 | 231,115 | |||||||||||||||
250 | National Australia Bank Ltd. (Australia) (a) | 1.25 | 03/17/17 | 250,753 | |||||||||||||||
270 | Nationwide Building Society (United Kingdom) (a) | 4.65 | 02/25/15 | 277,054 | |||||||||||||||
240 | Nordea Bank AB (Sweden) (a) | 0.875 | 05/13/16 | 240,690 | |||||||||||||||
250 | PNC Bank NA | 0.80 | 01/28/16 | 250,816 | |||||||||||||||
250 | Principal Financial Group, Inc. | 1.85 | 11/15/17 | 251,467 | |||||||||||||||
320 | Prudential Financial, Inc., MTN | 4.75 | 09/17/15 | 335,944 | |||||||||||||||
200 | QBE Insurance Group Ltd. (Australia) (a) | 2.40 | 05/01/18 | 199,851 | |||||||||||||||
170 | Royal Bank of Scotland Group PLC (United Kingdom) | 2.55 | 09/18/15 | 173,558 | |||||||||||||||
40 | Santander Holdings USA, Inc. | 3.45 | 08/27/18 | 42,429 | |||||||||||||||
200 | Skandinaviska Enskilda Banken AB (Sweden) (a) | 1.75 | 03/19/18 | 199,959 | |||||||||||||||
300 | Standard Chartered PLC (United Kingdom) (a) | 3.85 | 04/27/15 | 307,951 | |||||||||||||||
260 | Sumitomo Mitsui Banking Corp. (Japan) | 2.45 | 01/10/19 | 266,165 | |||||||||||||||
200 | Swedbank AB (Sweden) (a) | 1.75 | 03/12/18 | 199,901 | |||||||||||||||
225 | Toronto-Dominion Bank (The), MTN (Canada) | 2.625 | 09/10/18 | 232,542 | |||||||||||||||
120 | Wells Fargo & Co. | 2.15 | 01/15/19 | 121,218 | |||||||||||||||
350 | Westpac Banking Corp. (Australia) (a) | 1.375 | 05/30/18 | 347,040 | |||||||||||||||
12,755,365 |
See Notes to Financial Statements
25
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Industrials (2.6%) | |||||||||||||||||||
$ | 215 | Eaton Corp. | 1.50 | % | 11/02/17 | $ | 215,441 | ||||||||||||
200 | Heathrow Funding Ltd. (United Kingdom) (a) | 2.50 | 06/25/15 | 203,315 | |||||||||||||||
115 | Ingersoll-Rand Global Holding Co., Ltd. | 2.875 | 01/15/19 | 118,009 | |||||||||||||||
75 | L-3 Communications Corp. | 1.50 | 05/28/17 | 75,156 | |||||||||||||||
50 | Precision Castparts Corp. | 0.70 | 12/20/15 | 50,124 | |||||||||||||||
110 | Thermo Fisher Scientific, Inc. | 2.40 | 02/01/19 | 111,239 | |||||||||||||||
250 | Waste Management, Inc. | 2.60 | 09/01/16 | 258,792 | |||||||||||||||
1,032,076 | |||||||||||||||||||
Technology (3.4%) | |||||||||||||||||||
100 | Altera Corp. | 2.50 | 11/15/18 | 101,641 | |||||||||||||||
200 | Apple, Inc. | 2.10 | 05/06/19 | 201,239 | |||||||||||||||
160 | Applied Materials, Inc. | 2.65 | 06/15/16 | 165,725 | |||||||||||||||
275 | EMC Corp. | 1.875 | 06/01/18 | 277,077 | |||||||||||||||
110 | Hewlett-Packard Co. | 3.30 | 12/09/16 | 115,830 | |||||||||||||||
200 | Oracle Corp. | 2.25 | 10/08/19 | 199,776 | |||||||||||||||
300 | TSMC Global Ltd. (Taiwan) (a) | 1.625 | 04/03/18 | 296,167 | |||||||||||||||
1,357,455 | |||||||||||||||||||
Utilities (3.5%) | |||||||||||||||||||
100 | Dominion Resources, Inc. | 1.25 | 03/15/17 | 100,460 | |||||||||||||||
350 | Enel Finance International N.V. (Italy) (a) | 3.875 | 10/07/14 | 352,817 | |||||||||||||||
225 | GDF Suez (France) (a) | 1.625 | 10/10/17 | 226,563 | |||||||||||||||
175 | Northeast Utilities | 1.45 | 05/01/18 | 172,009 | |||||||||||||||
200 | Origin Energy Finance Ltd. (Australia) (a) | 3.50 | 10/09/18 | 207,761 | |||||||||||||||
200 | PSEG Power LLC | 5.50 | 12/01/15 | 213,424 | |||||||||||||||
110 | Southern Co. (The) | 2.45 | 09/01/18 | 112,834 | |||||||||||||||
1,385,868 | |||||||||||||||||||
Total Corporate Bonds (Cost $26,009,161) | 26,281,635 | ||||||||||||||||||
Asset-Backed Securities (19.3%) | |||||||||||||||||||
117 | Ally Auto Receivables Trust | 0.57 | 08/20/15 | 116,657 | |||||||||||||||
800 | American Express Credit Account Master Trust | 1.402 | (b) | 03/15/17 | 801,227 | ||||||||||||||
100 | American Homes 4 Rent (a) | 1.25 | (b) | 06/17/31 | 100,228 | ||||||||||||||
CarMax Auto Owner Trust | |||||||||||||||||||
166 | 0.52 | 07/17/17 | 165,778 | ||||||||||||||||
150 | 0.97 | 04/16/18 | 150,861 | ||||||||||||||||
Chase Issuance Trust | |||||||||||||||||||
425 | 0.54 | 10/16/17 | 425,438 | ||||||||||||||||
573 | 0.59 | 08/15/17 | 573,470 |
See Notes to Financial Statements
26
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 150 | Citibank Credit Card Issuance Trust | 2.88 | % | 01/23/23 | $ | 153,484 | ||||||||||||
135 | Colony American Homes 2014-1 (a) | 1.40 | (b) | 05/17/31 | 135,570 | ||||||||||||||
112 | Colony American Homes Single-Family Rental Pass-Through Certificates (a) | 1.10 | (b) | 07/17/31 | 112,067 | ||||||||||||||
Discover Card Execution Note Trust | |||||||||||||||||||
230 | 0.582 | (b) | 07/15/21 | 230,996 | |||||||||||||||
200 | 1.22 | 10/15/19 | 200,565 | ||||||||||||||||
169 | Fifth Third Auto Trust | 0.88 | 10/16/17 | 169,898 | |||||||||||||||
210 | Ford Credit Auto Lease Trust | 0.60 | 03/15/16 | 210,303 | |||||||||||||||
381 | Ford Credit Auto Owner Trust (a) | 2.26 | 11/15/25 | 384,865 | |||||||||||||||
375 | Ford Credit Floorplan Master Owner Trust (a) | 4.20 | 02/15/17 | 383,878 | |||||||||||||||
GE Dealer Floorplan Master Note Trust | |||||||||||||||||||
275 | 0.643 | (b) | 06/20/17 | 275,754 | |||||||||||||||
330 | 0.753 | (b) | 07/20/16 | 330,076 | |||||||||||||||
200 | Hertz Fleet Lease Funding LP (a) | 0.704 | (b) | 12/10/27 | 200,495 | ||||||||||||||
Hyundai Auto Receivables Trust | |||||||||||||||||||
307 | 0.90 | 12/17/18 | 307,294 | ||||||||||||||||
145 | 1.01 | 02/15/18 | 145,914 | ||||||||||||||||
138 | Invitation Homes Trust (a) | 1.154 | (b) | 06/17/31 | 138,529 | ||||||||||||||
475 | John Deere Owner Trust | 0.60 | 03/15/17 | 476,147 | |||||||||||||||
225 | North Carolina State Education Assistance Authority | 1.029 | (b) | 07/25/25 | 226,663 | ||||||||||||||
98 | Panhandle-Plains Higher Education Authority, Inc. | 1.185 | (b) | 07/01/24 | 98,616 | ||||||||||||||
166 | PFS Tax Lien Trust (a) | 1.44 | 05/15/29 | 167,174 | |||||||||||||||
202 | Toyota Auto Receivables Owner Trust | 0.89 | 07/17/17 | 203,044 | |||||||||||||||
377 | VOLT XXIV LLC (a) | 3.25 | 11/25/53 | 378,627 | |||||||||||||||
235 | Volvo Financial Equipment LLC (a) | 0.74 | 03/15/17 | 235,499 | |||||||||||||||
World Omni Automobile Lease Securitization Trust | |||||||||||||||||||
36 | 0.93 | 11/16/15 | 35,568 | ||||||||||||||||
113 | 1.10 | 12/15/16 | 113,757 | ||||||||||||||||
Total Asset-Backed Securities (Cost $7,486,870) | 7,648,442 | ||||||||||||||||||
Agency Adjustable Rate Mortgages (4.9%) | |||||||||||||||||||
Federal Home Loan Mortgage Corporation, Conventional Pools: | |||||||||||||||||||
169 | 2.314 | 06/01/36 | 180,119 | ||||||||||||||||
154 | 2.353 | 07/01/38 | 163,584 | ||||||||||||||||
51 | 2.402 | 07/01/36 | 54,045 | ||||||||||||||||
372 | 2.429 | 07/01/38 | 397,042 | ||||||||||||||||
38 | 2.681 | 01/01/38 | 40,547 |
See Notes to Financial Statements
27
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Federal National Mortgage Association, Conventional Pools: | |||||||||||||||||||
$ | 202 | 2.301 | % | 09/01/38 | $ | 215,005 | |||||||||||||
171 | 2.328 | 05/01/35 | 182,320 | ||||||||||||||||
320 | 2.358 | 04/01/38 | 340,875 | ||||||||||||||||
223 | 2.44 | 10/01/39 | 237,227 | ||||||||||||||||
Government National Mortgage Association, Various Pools: | |||||||||||||||||||
111 | 2.00 | 11/20/39 - 02/20/40 | 114,575 | ||||||||||||||||
Total Agency Adjustable Rate Mortgages (Cost $1,929,930) | 1,925,339 | ||||||||||||||||||
U.S. Treasury Security (3.1%) | |||||||||||||||||||
1,200 | U.S. Treasury Note (Cost $1,207,312) | 0.875 | 01/31/17 | 1,205,484 | |||||||||||||||
Collateralized Mortgage Obligations - Agency Collateral Series (2.4%) | |||||||||||||||||||
245 | Federal Home Loan Mortgage Corporation | 1.426 | 08/25/17 | 247,235 | |||||||||||||||
183 | REMIC | 7.50 | 09/15/29 | 211,584 | |||||||||||||||
Federal National Mortgage Association | |||||||||||||||||||
185 | 0.595 | 08/25/15 | 185,436 | ||||||||||||||||
98 | 0.953 | 11/25/15 | 98,617 | ||||||||||||||||
221 | 1.083 | 02/25/16 | 222,101 | ||||||||||||||||
Total Collateralized Mortgage Obligations - Agency Collateral Series (Cost $952,924) | 964,973 | ||||||||||||||||||
Sovereign (1.1%) | |||||||||||||||||||
245 | Korea Development Bank (The) (Korea, Republic of) | 1.50 | 01/22/18 | 241,958 | |||||||||||||||
200 | Qatar Government International Bond (Qatar) (a) | 4.00 | 01/20/15 | 204,000 | |||||||||||||||
Total Sovereign (Cost $453,928) | 445,958 | ||||||||||||||||||
Mortgage - Other (0.6%) | |||||||||||||||||||
243 | Freddie Mac Structured Agency Credit Risk Debt Notes (Cost $242,957) | 1.152 | 02/25/24 | 243,890 |
See Notes to Financial Statements
28
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Commercial Mortgage-Backed Securities (0.5%) | |||||||||||||||||||
$ | 96 | Citigroup Commercial Mortgage Trust (a) | 2.11 | % | 01/12/30 | $ | 97,927 | ||||||||||||
100 | Hilton USA Trust (a) | 1.151 | (b) | 11/05/30 | 100,187 | ||||||||||||||
Total Commercial Mortgage-Backed Securities (Cost $198,604) | 198,114 | ||||||||||||||||||
Agency Fixed Rate Mortgages (0.5%) | |||||||||||||||||||
Federal National Mortgage Association, Conventional Pools: | |||||||||||||||||||
103 | 6.50 | 01/01/32 - 11/01/33 | 116,838 | ||||||||||||||||
64 | 7.00 | 12/01/31 - 06/01/32 | 70,794 | ||||||||||||||||
Total Agency Fixed Rate Mortgages (Cost $175,414) | 187,632 | ||||||||||||||||||
Short-Term Investments (0.9%) | |||||||||||||||||||
U.S. Treasury Securities (0.4%) | |||||||||||||||||||
U.S. Treasury Bills | |||||||||||||||||||
25 | (c)(d) | 0.023 | 08/21/14 | 24,999 | |||||||||||||||
115 | (c)(d) | 0.063 | 08/21/14 | 114,990 | |||||||||||||||
Total U.S. Treasury Securities (Cost $139,989) | 139,989 | ||||||||||||||||||
NUMBER OF SHARES (000) | |||||||||||||||||||
Investment Company (0.5%) | |||||||||||||||||||
190 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 7) (Cost $190,143) | 190,143 | |||||||||||||||||
Total Short-Term Investments (Cost $330,132) | 330,132 | ||||||||||||||||||
Total Investments (Cost $38,987,232) (e) | 99.7 | % | 39,431,599 | ||||||||||||||||
Other Assets in Excess of Liabilities | 0.3 | 134,039 | |||||||||||||||||
Net Assets | 100.0 | % | $ | 39,565,638 |
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.
See Notes to Financial Statements
29
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
(b) 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, 2014.
(c) Rate shown is the yield to maturity at June 30, 2014.
(d) All or a portion of the security was pledged to cover margin requirements for futures contracts and swap agreements.
(e) Securities are available for collateral in connection with open futures contracts and swap agreements.
FUTURES CONTRACTS OPEN AT JUNE 30, 2014:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
47 | Long | U.S. Treasury 2 yr. Note, Sep-14 | $ | 10,320,906 | $ | (10,281 | ) | ||||||||||||
12 | Long | U.S. Treasury 10 yr. Note, Sep-14 | 1,502,062 | (6,469 | ) | ||||||||||||||
7 | Long | U.S. Treasury Long Bond, Sep-14 | 960,313 | (4,977 | ) | ||||||||||||||
48 | Short | U.S. Treasury 5 yr. Note, Sep-14 | (5,734,125 | ) | 19,000 | ||||||||||||||
Net Unrealized Depreciation | $ | (2,727 | ) |
CREDIT DEFAULT SWAP AGREEMENTS OPEN AT JUNE 30, 2014:
SWAP COUNTERPARTY & REFERENCE OBLIGATION | BUY/SELL PROTECTION | NOTIONAL AMOUNT (000) | INTEREST RATE | TERMINATION DATE | UNREALIZED APPRECIATION (DEPRECIATION) | UPFRONT PAYMENTS PAID (RECEIVED) | VALUE | CREDIT RATING OF REFERENCE OBLIGATION† | |||||||||||||||||||||||||||
Barclays Bank PLC Yum! Brands, Inc. | Buy | $ | 225 | 1.00 | % | 12/20/18 | $ | (2,726 | ) | $ | (3,905 | ) | $ | (6,631 | ) | BBB | |||||||||||||||||||
Barclays Bank PLC Quest Diagnostics, Inc. | Buy | 250 | 1.00 | 03/20/19 | (4,972 | ) | 4,798 | (174 | ) | BBB+ | |||||||||||||||||||||||||
Morgan Stanley & Co., LLC* CDX.NA.IG.22 | Buy | 600 | 1.00 | 06/20/19 | 258 | (12,284 | ) | (12,026 | ) | NR | |||||||||||||||||||||||||
Total Credit Default Swaps | $ | 1,075 | $ | (7,440 | ) | $ | (11,391 | ) | $ | (18,831 | ) |
See Notes to Financial Statements
30
Morgan Stanley Variable Investment Series - Limited Duration
Portfolio of Investments n June 30, 2014 (unaudited) continued
INTEREST RATE SWAP AGREEMENTS OPEN AT JUNE 30, 2014:
SWAP COUNTERPARTY | NOTIONAL AMOUNT (000) | FLOATING RATE INDEX | PAY/RECEIVE FLOATING RATE | FIXED RATE | TERMINATION DATE | UNREALIZED APPRECIATION | |||||||||||||||||||||
Bank of America NA | $ | 660 | 3 Month LIBOR | Receive | 2.10 | % | 02/05/23 | $ | 11,988 | ||||||||||||||||||
Goldman Sachs International | 1,050 | 3 Month LIBOR | Receive | 2.09 | 02/15/23 | 21,061 | |||||||||||||||||||||
Royal Bank of Canada | 1,060 | 3 Month LIBOR | Receive | 2.06 | 02/06/23 | 23,427 | |||||||||||||||||||||
Total Unrealized Appreciation | $ | 56,476 |
LIBOR London Interbank Offered Rate.
NR Not Rated.
* Cleared swap agreement, the broker is Morgan Stanley & Co., LLC.
† Credit rating as issued by Standard & Poor's.
LONG TERM CREDIT ANALYSIS+ | |||||||
AAA | 20.0 | % | |||||
AA | 23.1 | ||||||
A | 37.9 | ||||||
BBB | 17.0 | ||||||
BB | 0.5 | ||||||
Not Rated | 1.5 | ||||||
100.0 | %++ |
+ 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").
++ Does not include open long/short futures contracts with an underlying face amount of $18,517,406 with net unrealized depreciation of $2,727. Also does not include open swap agreements with net unrealized appreciation of $49,036.
See Notes to Financial Statements
31
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Corporate Bonds (97.1%) | |||||||||||||||||||
Basic Materials (4.8%) | |||||||||||||||||||
$ | 545 | ArcelorMittal (Luxembourg) | 10.35 | % | 06/01/19 | $ | 700,325 | ||||||||||||
225 | Ashland, Inc. | 6.875 | 05/15/43 | 243,563 | |||||||||||||||
790 | BHP Billiton Finance USA Ltd. (Australia) | 3.85 | 09/30/23 | 830,061 | |||||||||||||||
390 | Eldorado Gold Corp. (Canada) (a) | 6.125 | 12/15/20 | 395,850 | |||||||||||||||
940 | Freeport-McMoRan Copper & Gold, Inc. | 3.875 | 03/15/23 | 938,856 | |||||||||||||||
690 | Glencore Funding LLC (Switzerland) (a) | 4.125 | 05/30/23 | 694,279 | |||||||||||||||
540 | Goldcorp, Inc. (Canada) | 3.70 | 03/15/23 | 533,604 | |||||||||||||||
175 | Goldcorp, Inc. (Canada) | 5.45 | 06/09/44 | 180,120 | |||||||||||||||
535 | Incitec Pivot Ltd. (Australia) (a) | 4.00 | 12/07/15 | 555,951 | |||||||||||||||
545 | Lubrizol Corp. | 8.875 | 02/01/19 | 700,621 | |||||||||||||||
470 | NOVA Chemicals Corp. (a) | 5.25 | 08/01/23 | 515,237 | |||||||||||||||
375 | Rockwood Specialties Group, Inc. | 4.625 | 10/15/20 | 390,937 | |||||||||||||||
195 | Vale Overseas Ltd. (Brazil) | 6.875 | 11/21/36 | 216,848 | |||||||||||||||
210 | Vale Overseas Ltd. (Brazil) | 6.875 | 11/10/39 | 234,265 | |||||||||||||||
7,130,517 | |||||||||||||||||||
Communications (10.6%) | |||||||||||||||||||
375 | AT&T, Inc. | 5.35 | 09/01/40 | 409,380 | |||||||||||||||
875 | AT&T, Inc. | 6.30 | 01/15/38 | 1,062,421 | |||||||||||||||
200 | Baidu, Inc. (China) | 2.75 | 06/09/19 | 201,009 | |||||||||||||||
200 | Baidu, Inc. (China) | 3.25 | 08/06/18 | 207,133 | |||||||||||||||
310 | Cablevision Systems Corp. | 7.75 | 04/15/18 | 351,462 | |||||||||||||||
575 | CC Holdings GS V LLC/Crown Castle GS III Corp. | 3.849 | 04/15/23 | 578,302 | |||||||||||||||
200 | Columbus International, Inc. (Barbados) (a) | 7.375 | 03/30/21 | 216,250 | |||||||||||||||
670 | Comcast Corp. | 6.40 | 05/15/38 | 856,810 | |||||||||||||||
195 | CSC Holdings LLC | 6.75 | 11/15/21 | 215,231 | |||||||||||||||
251 | Ctrip.com International Ltd. (a) | 1.25 | 10/15/18 | 274,374 | |||||||||||||||
675 | DirecTV Holdings LLC/DirecTV Financing Co., Inc. | 3.80 | 03/15/22 | 698,177 | |||||||||||||||
285 | ENTEL Chile SA (Chile) (a) | 4.875 | 10/30/24 | 297,495 | |||||||||||||||
325 | Juniper Networks, Inc. | 4.50 | 03/15/24 | 340,577 | |||||||||||||||
470 | Lamar Media Corp. (a) | 5.375 | 01/15/24 | 488,800 | |||||||||||||||
350 | MDC Partners, Inc. (Canada) (a) | 6.75 | 04/01/20 | 371,000 | |||||||||||||||
675 | NBC Universal Media LLC | 5.95 | 04/01/41 | 831,779 | |||||||||||||||
350 | Omnicom Group, Inc. | 3.625 | 05/01/22 | 360,682 | |||||||||||||||
250 | Priceline Group, Inc. | 0.35 | 06/15/20 | 296,406 | |||||||||||||||
900 | Qtel International Finance Ltd. (Qatar) (a) | 3.25 | 02/21/23 | 866,250 | |||||||||||||||
243 | SINA Corp. (China) (a) | 1.00 | 12/01/18 | 223,560 | |||||||||||||||
580 | Telefonica Europe BV (Spain) | 8.25 | 09/15/30 | 795,081 | |||||||||||||||
125 | Time Warner Cable, Inc. | 4.50 | 09/15/42 | 122,165 | |||||||||||||||
1,200 | Time Warner Cable, Inc. | 6.75 | 07/01/18 | 1,421,242 | |||||||||||||||
410 | Time Warner, Inc. | 7.70 | 05/01/32 | 570,906 |
See Notes to Financial Statements
32
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 350 | Verizon Communications, Inc. | 5.15 | % | 09/15/23 | $ | 392,410 | ||||||||||||
2,025 | Verizon Communications, Inc. | 6.55 | 09/15/43 | 2,557,680 | |||||||||||||||
500 | Viacom, Inc. | 5.85 | 09/01/43 | 576,545 | |||||||||||||||
226 | Yahoo!, Inc. (a) | 0.00 | 12/01/18 | 226,000 | |||||||||||||||
15,809,127 | |||||||||||||||||||
Consumer, Cyclical (6.1%) | |||||||||||||||||||
413 | American Airlines Pass-Through Trust (a) | 4.00 | 07/15/25 | 421,239 | |||||||||||||||
873 | American Airlines Pass-Through Trust (a) | 4.95 | 01/15/23 | 945,413 | |||||||||||||||
645 | British Airways PLC (United Kingdom) (a) | 4.625 | 06/20/24 | 677,212 | |||||||||||||||
425 | Chrysler Group LLC/CG Co-Issuer, Inc. | 8.00 | 06/15/19 | 463,781 | |||||||||||||||
395 | Daimler Finance North America LLC (Germany) | 8.50 | 01/18/31 | 600,724 | |||||||||||||||
425 | Exide Technologies (b)(c) | 8.625 | 02/01/18 | 258,188 | |||||||||||||||
475 | General Motors Co. (a) | 4.875 | 10/02/23 | 502,312 | |||||||||||||||
325 | Guitar Center, Inc. (a) | 6.50 | 04/15/19 | 322,563 | |||||||||||||||
325 | Home Depot, Inc. | 5.875 | 12/16/36 | 403,374 | |||||||||||||||
141 | Iconix Brand Group, Inc. | 2.50 | 06/01/16 | 204,450 | |||||||||||||||
75 | Johnson Controls, Inc. | 3.625 | 07/02/24 | 75,484 | |||||||||||||||
150 | Johnson Controls, Inc. | 4.95 | 07/02/64 | 152,660 | |||||||||||||||
KRW | 200,000 | Lotte Shopping Co. Ltd., Series LOTT (Korea, Republic of) | 0.00 | 01/24/18 | 200,221 | ||||||||||||||
$ | 575 | QVC, Inc. | 4.375 | 03/15/23 | 585,136 | ||||||||||||||
250 | Target Corp. | 3.50 | 07/01/24 | 253,352 | |||||||||||||||
220 | Toll Brothers Finance Corp. | 0.50 | 09/15/32 | 234,575 | |||||||||||||||
450 | Toyota Motor Credit Corp. (Japan) | 2.75 | 05/17/21 | 452,513 | |||||||||||||||
875 | United Airlines Pass-Through Trust | 4.30 | 08/15/25 | 901,250 | |||||||||||||||
275 | US Airways Pass-Through Trust | 3.95 | 11/15/25 | 279,125 | |||||||||||||||
780 | Wyndham Worldwide Corp. | 4.25 | 03/01/22 | 802,939 | |||||||||||||||
265 | Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | 7.75 | 08/15/20 | 290,175 | |||||||||||||||
9,026,686 | |||||||||||||||||||
Consumer, Non-Cyclical (10.0%) | |||||||||||||||||||
440 | ADT Corp. (The) | 6.25 | 10/15/21 | 467,500 | |||||||||||||||
400 | Albea Beauty Holdings SA (a) | 8.375 | 11/01/19 | 437,000 | |||||||||||||||
465 | Altria Group, Inc. | 5.375 | 01/31/44 | 511,295 | |||||||||||||||
819 | Amgen, Inc. | 5.15 | 11/15/41 | 882,101 | |||||||||||||||
775 | Anheuser-Busch InBev Finance, Inc. (Belgium) | 3.70 | 02/01/24 | 796,987 | |||||||||||||||
340 | Aramark Services, Inc. | 5.75 | 03/15/20 | 361,250 | |||||||||||||||
450 | BioMarin Pharmaceutical, Inc. | 1.50 | 10/15/20 | 476,156 | |||||||||||||||
260 | BRF SA (Brazil) (a) | 3.95 | 05/22/23 | 246,350 | |||||||||||||||
500 | Coca-Cola Co. | 3.20 | 11/01/23 | 506,400 | |||||||||||||||
350 | ESAL GmbH (Brazil) (a) | 6.25 | 02/05/23 | 344,750 | |||||||||||||||
350 | Gilead Sciences, Inc. | 4.80 | 04/01/44 | 370,801 | |||||||||||||||
225 | Grifols Worldwide Operations Ltd. (Spain) (a) | 5.25 | 04/01/22 | 234,000 |
See Notes to Financial Statements
33
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
HKD | 2,000 | Hengan International Group Co., Ltd. (China) | 0.00 | % | 06/27/18 | $ | 266,760 | ||||||||||||
$ | 131 | Jarden Corp. | 1.875 | 09/15/18 | 181,189 | ||||||||||||||
200 | JBS Investments GmbH (Brazil) (a) | 7.75 | 10/28/20 | 215,000 | |||||||||||||||
450 | McKesson Corp. | 2.70 | 12/15/22 | 431,481 | |||||||||||||||
140 | McKesson Corp. | 4.883 | 03/15/44 | 147,605 | |||||||||||||||
760 | Medtronic, Inc. | 3.625 | 03/15/24 | 781,080 | |||||||||||||||
770 | Novartis Capital Corp. (Switzerland) | 3.40 | 05/06/24 | 781,523 | |||||||||||||||
775 | PepsiCo, Inc. | 3.60 | 03/01/24 | 799,951 | |||||||||||||||
321 | PHH Corp. | 4.00 | 09/01/14 | 323,408 | |||||||||||||||
600 | Philip Morris International, Inc. | 4.50 | 03/20/42 | 612,941 | |||||||||||||||
455 | RR Donnelley & Sons Co. | 7.875 | 03/15/21 | 525,525 | |||||||||||||||
425 | Salix Pharmaceuticals Ltd. (a) | 6.00 | 01/15/21 | 456,875 | |||||||||||||||
800 | Sigma Alimentos SA de CV (Mexico) (a) | 5.625 | 04/14/18 | 888,800 | |||||||||||||||
595 | Teva Pharmaceutical Finance IV BV (Israel) | 3.65 | 11/10/21 | 611,575 | |||||||||||||||
370 | United Rentals North America, Inc. | 5.75 | 11/15/24 | 385,263 | |||||||||||||||
750 | UnitedHealth Group, Inc. | 2.875 | 03/15/23 | 737,141 | |||||||||||||||
930 | WM Wrigley Jr Co. (a) | 2.90 | 10/21/19 | 954,763 | |||||||||||||||
190 | Zimmer Holdings, Inc. | 5.75 | 11/30/39 | 221,595 | |||||||||||||||
14,957,065 | |||||||||||||||||||
Diversified (0.2%) | |||||||||||||||||||
200 | Alfa SAB de CV (Mexico) (a) | 5.25 | 03/25/24 | 209,200 | |||||||||||||||
Energy (8.4%) | |||||||||||||||||||
400 | Anadarko Petroleum Corp. | 6.45 | 09/15/36 | 511,758 | |||||||||||||||
675 | Buckeye Partners LP | 4.15 | 07/01/23 | 696,977 | |||||||||||||||
450 | Canadian Natural Resources Ltd. (Canada) | 6.25 | 03/15/38 | 562,125 | |||||||||||||||
400 | Cimarex Energy Co. | 5.875 | 05/01/22 | 444,000 | |||||||||||||||
350 | Continental Resources, Inc. | 5.00 | 09/15/22 | 381,063 | |||||||||||||||
600 | DCP Midstream Operating LP | 3.875 | 03/15/23 | 608,573 | |||||||||||||||
340 | Denbury Resources, Inc. | 5.50 | 05/01/22 | 348,075 | |||||||||||||||
510 | Ecopetrol SA (Colombia) | 5.875 | 09/18/23 | 573,750 | |||||||||||||||
425 | Energy Transfer Partners LP | 3.60 | 02/01/23 | 421,861 | |||||||||||||||
600 | Energy Transfer Partners LP | 4.90 | 02/01/24 | 645,527 | |||||||||||||||
EUR | 200 | Eni SpA, Series GALP (Italy) | 0.25 | 11/30/15 | 282,185 | ||||||||||||||
$ | 650 | EnLink Midstream Partners LP | 2.70 | 04/01/19 | 659,979 | ||||||||||||||
850 | Enterprise Products Operating LLC | 5.95 | 02/01/41 | 1,015,402 | |||||||||||||||
1,175 | Kinder Morgan Energy Partners LP | 3.50 | 09/01/23 | 1,143,373 | |||||||||||||||
100 | Kinder Morgan Energy Partners LP | 4.15 | 02/01/24 | 101,619 | |||||||||||||||
200 | Lukoil International Finance BV (Russia) | 2.625 | 06/16/15 | 204,250 | |||||||||||||||
375 | Marathon Petroleum Corp. | 6.50 | 03/01/41 | 464,724 | |||||||||||||||
500 | Nexen Energy ULC (Canada) | 6.40 | 05/15/37 | 603,620 | |||||||||||||||
240 | Pertamina Persero PT (Indonesia) (a) | 6.45 | 05/30/44 | 238,800 |
See Notes to Financial Statements
34
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 100 | Phillips 66 | 5.875 | % | 05/01/42 | $ | 120,253 | ||||||||||||
675 | Pioneer Natural Resources Co. | 3.95 | 07/15/22 | 710,078 | |||||||||||||||
245 | Plains All American Pipeline LP/PAA Finance Corp. | 6.70 | 05/15/36 | 312,878 | |||||||||||||||
300 | Rowan Cos., Inc. | 5.85 | 01/15/44 | 325,025 | |||||||||||||||
355 | Sinopec Group Overseas Development 2012 Ltd. (China) (a)(d) | 2.75 | 05/17/17 | 366,261 | |||||||||||||||
225 | Spectra Energy Capital LLC | 8.00 | 10/01/19 | 284,195 | |||||||||||||||
450 | Transocean, Inc. | 6.375 | 12/15/21 | 521,365 | |||||||||||||||
12,547,716 | |||||||||||||||||||
Finance (40.4%) | |||||||||||||||||||
EUR | 200 | Aabar Investments PJSC (Germany) | 4.00 | 05/27/16 | 329,591 | ||||||||||||||
$ | 390 | ABB Treasury Center USA, Inc. (Switzerland) (a) | 4.00 | 06/15/21 | 416,603 | ||||||||||||||
300 | Abbey National Treasury Services PLC (United Kingdom) | 4.00 | 03/13/24 | 310,207 | |||||||||||||||
800 | ABN Amro Bank N.V. (Netherlands) (a) | 2.50 | 10/30/18 | 812,136 | |||||||||||||||
475 | ACE INA Holdings, Inc. | 3.35 | 05/15/24 | 480,138 | |||||||||||||||
420 | AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (a) | 3.75 | 05/15/19 | 423,675 | |||||||||||||||
375 | Alexandria Real Estate Equities, Inc. | 3.90 | 06/15/23 | 374,124 | |||||||||||||||
325 | American Campus Communities Operating Partnership LP | 3.75 | 04/15/23 | 321,842 | |||||||||||||||
1,285 | American Financial Group, Inc. | 9.875 | 06/15/19 | 1,684,618 | |||||||||||||||
375 | American International Group, Inc. | 4.875 | 06/01/22 | 418,279 | |||||||||||||||
720 | American International Group, Inc. | 6.40 | 12/15/20 | 870,396 | |||||||||||||||
350 | American International Group, Inc. | 8.25 | 08/15/18 | 435,235 | |||||||||||||||
370 | American Tower Corp. | 3.50 | 01/31/23 | 363,502 | |||||||||||||||
151 | Ares Capital Corp. (a) | 4.375 | 01/15/19 | 159,683 | |||||||||||||||
825 | Banco de Credito del Peru (Peru) (a) | 6.125 | (e) | 04/24/27 | 882,750 | ||||||||||||||
1,920 | Bank of America Corp. | 4.00 | 04/01/24 | 1,963,359 | |||||||||||||||
555 | Bank of America Corp. | 7.75 | 05/14/38 | 764,833 | |||||||||||||||
800 | BBVA Bancomer SA (Mexico) (a) | 6.50 | 03/10/21 | 906,000 | |||||||||||||||
610 | Bear Stearns Cos., LLC (The) | 5.55 | 01/22/17 | 672,829 | |||||||||||||||
300 | Billion Express Investments Ltd. (China) (d) | 0.75 | 10/18/15 | 308,250 | |||||||||||||||
365 | BNP Paribas SA (France) | 5.00 | 01/15/21 | 407,075 | |||||||||||||||
75 | Boston Properties LP | 3.80 | 02/01/24 | 75,996 | |||||||||||||||
425 | BPCE SA (France) (a) | 5.15 | 07/21/24 | 449,557 | |||||||||||||||
385 | Brookfield Asset Management, Inc. (Canada) | 5.80 | 04/25/17 | 427,169 | |||||||||||||||
936 | Capital One Bank, USA NA | 3.375 | 02/15/23 | 931,402 | |||||||||||||||
300 | Citigroup, Inc. | 3.875 | 10/25/23 | 307,877 | |||||||||||||||
170 | Citigroup, Inc. | 5.50 | 09/13/25 | 190,033 | |||||||||||||||
170 | Citigroup, Inc. | 6.675 | 09/13/43 | 212,398 | |||||||||||||||
1,200 | Citigroup, Inc. | 8.125 | 07/15/39 | 1,807,103 | |||||||||||||||
700 | CNA Financial Corp. | 7.35 | 11/15/19 | 865,444 | |||||||||||||||
1,175 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) | 3.95 | 11/09/22 | 1,196,653 |
See Notes to Financial Statements
35
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 260 | Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Netherlands) (a) | 11.00 | (e) % | 06/30/19(f) | $ | 349,749 | ||||||||||||
270 | Credit Agricole SA (France) (a) | 7.875 | (e) | 01/23/24(f) | 295,313 | ||||||||||||||
825 | Credit Suisse AG (Switzerland) (a) | 6.50 | 08/08/23 | 917,812 | |||||||||||||||
425 | Discover Bank | 7.00 | 04/15/20 | 511,116 | |||||||||||||||
715 | Discover Financial Services | 3.85 | 11/21/22 | 729,264 | |||||||||||||||
1,060 | Ford Motor Credit Co., LLC | 4.207 | 04/15/16 | 1,119,212 | |||||||||||||||
600 | Ford Motor Credit Co., LLC | 5.00 | 05/15/18 | 668,063 | |||||||||||||||
400 | Ford Motor Credit Co., LLC | 5.875 | 08/02/21 | 470,320 | |||||||||||||||
545 | General Electric Capital Corp. | 5.30 | 02/11/21 | 620,605 | |||||||||||||||
1,170 | General Electric Capital Corp., MTN | 5.875 | 01/14/38 | 1,424,331 | |||||||||||||||
1,650 | General Electric Capital Corp., Series G | 6.00 | 08/07/19 | 1,956,694 | |||||||||||||||
620 | Genworth Financial, Inc. | 7.70 | 06/15/20 | 765,965 | |||||||||||||||
1,935 | Goldman Sachs Group, Inc. (The) | 3.625 | 01/22/23 | 1,946,875 | |||||||||||||||
900 | Goldman Sachs Group, Inc. (The) | 6.75 | 10/01/37 | 1,086,173 | |||||||||||||||
950 | Goodman Funding Pty Ltd. (Australia) (a) | 6.375 | 04/15/21 | 1,106,357 | |||||||||||||||
600 | Hartford Financial Services Group, Inc. | 5.50 | 03/30/20 | 687,451 | |||||||||||||||
1,675 | HBOS PLC, Series G (United Kingdom) (a) | 6.75 | 05/21/18 | 1,933,000 | |||||||||||||||
400 | Healthcare Trust of America Holdings LP | 3.70 | 04/15/23 | 389,403 | |||||||||||||||
485 | HSBC Finance Corp. | 6.676 | 01/15/21 | 580,799 | |||||||||||||||
200 | HSBC Holdings PLC (United Kingdom) | 4.25 | 03/14/24 | 206,233 | |||||||||||||||
705 | HSBC Holdings PLC (United Kingdom) | 6.50 | 05/02/36 | 868,746 | |||||||||||||||
375 | HSBC USA, Inc. | 3.50 | 06/23/24 | 376,851 | |||||||||||||||
750 | ING Bank N.V. (Netherlands) (a) | 5.80 | 09/25/23 | 846,410 | |||||||||||||||
420 | Intesa Sanpaolo SpA (Italy) | 5.25 | 01/12/24 | 460,160 | |||||||||||||||
310 | Jefferies Finance LLC/JFIN Co-Issuer Corp. (a) | 7.375 | 04/01/20 | 327,050 | |||||||||||||||
490 | JPMorgan Chase & Co. | 3.20 | 01/25/23 | 487,413 | |||||||||||||||
910 | JPMorgan Chase & Co. | 3.875 | 02/01/24 | 938,969 | |||||||||||||||
1,745 | JPMorgan Chase & Co. | 4.50 | 01/24/22 | 1,915,117 | |||||||||||||||
275 | Lincoln National Corp. | 7.00 | 06/15/40 | 378,321 | |||||||||||||||
1,170 | Lloyds Bank PLC (United Kingdom) (a) | 6.50 | 09/14/20 | 1,375,100 | |||||||||||||||
705 | Macquarie Group Ltd. (Australia) (a) | 6.00 | 01/14/20 | 799,603 | |||||||||||||||
600 | Metlife Capital Trust IV (See Note 7) (a) | 7.875 | 12/15/37 | 748,500 | |||||||||||||||
1,315 | Nationwide Building Society (United Kingdom) (a) | 6.25 | 02/25/20 | 1,554,564 | |||||||||||||||
775 | Nationwide Financial Services, Inc. (a) | 5.375 | 03/25/21 | 865,525 | |||||||||||||||
375 | Omega Healthcare Investors, Inc. (a) | 4.95 | 04/01/24 | 384,886 | |||||||||||||||
370 | Platinum Underwriters Finance, Inc., Series B | 7.50 | 06/01/17 | 425,881 | |||||||||||||||
1,035 | Post Apartment Homes LP | 3.375 | 12/01/22 | 1,007,855 | |||||||||||||||
350 | Principal Financial Group, Inc. | 1.85 | 11/15/17 | 352,053 | |||||||||||||||
425 | Principal Financial Group, Inc. | 8.875 | 05/15/19 | 549,270 | |||||||||||||||
925 | Protective Life Corp. | 7.375 | 10/15/19 | 1,145,801 | |||||||||||||||
675 | Prudential Financial, Inc. | 5.625 | (e) | 06/15/43 | 725,409 |
See Notes to Financial Statements
36
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 135 | Prudential Financial, Inc., MTN | 6.625 | % | 12/01/37 | $ | 174,281 | ||||||||||||
775 | QBE Capital Funding III Ltd. (Australia) (a) | 7.25 | (e) | 05/24/41 | 836,200 | ||||||||||||||
575 | Realty Income Corp. | 3.25 | 10/15/22 | 563,868 | |||||||||||||||
280 | Santander Holdings USA, Inc. | 3.45 | 08/27/18 | 297,006 | |||||||||||||||
700 | Santander US Debt SAU (Spain) (a) | 3.724 | 01/20/15 | 710,455 | |||||||||||||||
510 | Standard Chartered PLC (United Kingdom) (a) | 3.95 | 01/11/23 | 508,232 | |||||||||||||||
550 | Turkiye Is Bankasi (Turkey) (a) | 7.85 | 12/10/23 | 610,500 | |||||||||||||||
375 | Voya Financial, Inc. | 5.65 | (e) | 05/15/53 | 383,438 | ||||||||||||||
575 | Weingarten Realty Investors | 3.375 | 10/15/22 | 564,538 | |||||||||||||||
450 | Wells Fargo & Co. | 4.10 | 06/03/26 | 456,739 | |||||||||||||||
670 | Wells Fargo & Co. | 4.125 | 08/15/23 | 697,321 | |||||||||||||||
284 | Wells Fargo & Co. | 5.606 | 01/15/44 | 326,617 | |||||||||||||||
60,196,171 | |||||||||||||||||||
Industrials (6.1%) | |||||||||||||||||||
522 | Anixter, Inc. | 5.625 | 05/01/19 | 563,108 | |||||||||||||||
377 | Bombardier, Inc. (Canada) (a) | 6.125 | 01/15/23 | 390,195 | |||||||||||||||
1,000 | Burlington Northern Santa Fe LLC | 3.05 | 03/15/22 | 1,006,573 | |||||||||||||||
875 | Caterpillar, Inc. | 3.40 | 05/15/24 | 886,770 | |||||||||||||||
330 | CEVA Group PLC (United Kingdom) (a) | 7.00 | 03/01/21 | 340,725 | |||||||||||||||
480 | CRH America, Inc. | 8.125 | 07/15/18 | 590,622 | |||||||||||||||
248 | General Cable Corp. | 4.50 | (g) | 11/15/29 | 246,450 | ||||||||||||||
220 | General Electric Co. | 4.50 | 03/11/44 | 230,180 | |||||||||||||||
1,060 | Heathrow Funding Ltd. (United Kingdom) (a) | 4.875 | 07/15/21 | 1,161,600 | |||||||||||||||
950 | Koninklijke Philips N.V. (Netherlands) | 3.75 | 03/15/22 | 1,000,570 | |||||||||||||||
340 | L-3 Communications Corp. | 4.95 | 02/15/21 | 377,334 | |||||||||||||||
510 | MasTec, Inc. | 4.875 | 03/15/23 | 504,900 | |||||||||||||||
460 | Packaging Corp. of America | 4.50 | 11/01/23 | 493,619 | |||||||||||||||
500 | Silgan Holdings, Inc. (a) | 5.50 | 02/01/22 | 520,000 | |||||||||||||||
775 | Union Pacific Railroad Co. 2014-1 Pass Through Trust | 3.227 | 05/14/26 | 781,177 | |||||||||||||||
9,093,823 | |||||||||||||||||||
Information Technology (0.4%) | |||||||||||||||||||
600 | Oracle Corp. | 4.50 | 07/08/44 | 599,706 | |||||||||||||||
Technology (3.8%) | |||||||||||||||||||
475 | Apple, Inc. | 4.45 | 05/06/44 | 483,294 | |||||||||||||||
225 | Hewlett-Packard Co. | 3.75 | 12/01/20 | 235,516 | |||||||||||||||
495 | Hewlett-Packard Co. | 4.65 | 12/09/21 | 540,905 | |||||||||||||||
234 | Intel Corp. | 2.95 | 12/15/35 | 291,476 | |||||||||||||||
1,150 | International Business Machines Corp. | 1.95 | 02/12/19 | 1,156,846 | |||||||||||||||
255 | Lam Research Corp. | 1.25 | 05/15/18 | 349,669 | |||||||||||||||
400 | NetApp, Inc. | 2.00 | 12/15/17 | 406,230 | |||||||||||||||
264 | Nuance Communications, Inc. | 2.75 | 11/01/31 | 264,990 |
See Notes to Financial Statements
37
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 227 | NVIDIA Corp. (a) | 1.00 | % | 12/01/18 | $ | 251,686 | ||||||||||||
438 | Salesforce.com, Inc. (a) | 0.25 | 04/01/18 | 505,069 | |||||||||||||||
325 | SanDisk Corp. (a) | 0.50 | 10/15/20 | 410,516 | |||||||||||||||
355 | Take-Two Interactive Software, Inc. | 1.75 | 12/01/16 | 466,381 | |||||||||||||||
350 | Xilinx, Inc. | 3.00 | 03/15/21 | 353,791 | |||||||||||||||
5,716,369 | |||||||||||||||||||
Utilities (6.3%) | |||||||||||||||||||
775 | Boston Gas Co. (a) | 4.487 | 02/15/42 | 797,662 | |||||||||||||||
530 | CEZ AS (Czech Republic) (a) | 4.25 | 04/03/22 | 556,405 | |||||||||||||||
495 | CMS Energy Corp. | 5.05 | 03/15/22 | 563,518 | |||||||||||||||
280 | CMS Energy Corp. | 6.25 | 02/01/20 | 332,739 | |||||||||||||||
440 | EDP Finance BV (Portugal) (a) | 4.90 | 10/01/19 | 466,444 | |||||||||||||||
330 | EDP Finance BV (Portugal) (a) | 5.25 | 01/14/21 | 350,625 | |||||||||||||||
675 | Enel Finance International N.V. (Italy) (a) | 5.125 | 10/07/19 | 760,849 | |||||||||||||||
210 | Enel SpA (Italy) (a) | 8.75 | (e) | 09/24/73 | 247,800 | ||||||||||||||
1,400 | Exelon Generation Co., LLC | 4.00 | 10/01/20 | 1,477,964 | |||||||||||||||
200 | Fermaca Enterprises S de RL de CV (Mexico) (a) | 6.375 | 03/30/38 | 209,500 | |||||||||||||||
850 | Jersey Central Power & Light Co. (a) | 4.70 | 04/01/24 | 910,981 | |||||||||||||||
325 | Origin Energy Finance Ltd. (Australia) (a) | 3.50 | 10/09/18 | 337,611 | |||||||||||||||
775 | PPL WEM Holdings Ltd. (a) | 3.90 | 05/01/16 | 811,907 | |||||||||||||||
590 | Puget Energy, Inc. | 6.50 | 12/15/20 | 712,253 | |||||||||||||||
870 | TransAlta Corp. (Canada) | 4.50 | 11/15/22 | 883,240 | |||||||||||||||
9,419,498 | |||||||||||||||||||
Total Corporate Bonds (Cost $134,309,666) | 144,705,878 | ||||||||||||||||||
Asset-Backed Securities (0.8%) | |||||||||||||||||||
CVS Pass-Through Trust | |||||||||||||||||||
934 | 6.036 | 12/10/28 | 1,077,936 | ||||||||||||||||
108 | (a) | 8.353 | 07/10/31 | 142,973 | |||||||||||||||
Total Asset-Backed Securities (Cost $1,042,752) | 1,220,909 | ||||||||||||||||||
Variable Rate Senior Loan Interests (0.4%) | |||||||||||||||||||
Consumer, Cyclical (0.2%) | |||||||||||||||||||
300 | Diamond Resorts Corp., Term Loan | 5.50 | 09/30/14 | 302,625 | |||||||||||||||
Technology (0.2%) | |||||||||||||||||||
365 | Aspect Software, Inc., Term B | 7.25 | 08/07/14 | 369,497 | |||||||||||||||
Total Variable Rate Senior Loan Interests (Cost $670,306) | 672,122 |
See Notes to Financial Statements
38
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
NUMBER OF SHARES | VALUE | ||||||||||||||||||
Convertible Preferred Stock (0.3%) | |||||||||||||||||||
Electric Utilities | |||||||||||||||||||
5,800 | NextEra Energy, Inc. (Cost $328,396) | $ | 376,942 | ||||||||||||||||
PRINCIPAL AMOUNT (000) | COUPON RATE | MATURITY DATE | |||||||||||||||||
Short-Term Investments (0.8%) | |||||||||||||||||||
U.S. Treasury Securities (0.7%) | |||||||||||||||||||
U.S. Treasury Bills | |||||||||||||||||||
$ | 40 | (h)(i) | 0.023 | % | 08/21/14 | 39,999 | |||||||||||||
60 | (h)(i) | 0.04 | 08/21/14 | 59,997 | |||||||||||||||
10 | (h)(i) | 0.058 | 08/21/14 | 9,999 | |||||||||||||||
967 | (h)(i) | 0.063 | 08/21/14 | 966,915 | |||||||||||||||
Total U.S. Treasury Securities (Cost $1,076,910) | 1,076,910 | ||||||||||||||||||
NUMBER OF SHARES (000) | |||||||||||||||||||
Investment Company (0.1%) | |||||||||||||||||||
80Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 7) (Cost $80,208) | 80,208 | ||||||||||||||||||
Total Short-Term Investments (Cost $1,157,118) | 1,157,118 | ||||||||||||||||||
Total Investments (Cost $137,508,238) (j) | 99.4 | % | 148,132,969 | ||||||||||||||||
Other Assets in Excess of Liabilities | 0.6 | 967,788 | |||||||||||||||||
Net Assets | 100.0 | % | $ | 149,100,757 |
MTN Medium Term Note.
PJSC Public Joint Stock Company.
(a) 144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
(b) Issuer in bankruptcy.
(c) Non-income producing security; bond in default.
(d) Security trades on the Hong Kong exchange.
See Notes to Financial Statements
39
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
(e) 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, 2014.
(f) Perpetual — One or more securities do not have a predetermined maturity date. Rates for these securities are fixed for a period of time, after which they revert to a floating rate. Interest rates in effect are as of June 30, 2014.
(g) Multi-step coupon rate changes in predetermined increments to maturity. Rate disclosed is as of June 30, 2014. Maturity date disclosed is the ultimate maturity date.
(h) Rate shown is the yield to maturity at June 30, 2014.
(i) All or a portion of the security was pledged to cover margin requirements for futures contracts and swap agreements.
(j) Securities are available for collateral in connection with open foreign currency forward exchange contracts, futures contracts and swap agreements.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS OPEN AT JUNE 30, 2014:
COUNTERPARTY | CONTRACTS TO DELIVER | IN EXCHANGE FOR | DELIVERY DATE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
HSBC Bank PLC | HKD | 2,082,500 | $ | 268,664 | 07/17/14 | $ | 21 | ||||||||||||
UBS AG | EUR | 590,333 | $ | 805,256 | 07/17/14 | (3,133 | ) | ||||||||||||
Net Unrealized Depreciation | $ | (3,112 | ) |
FUTURES CONTRACTS OPEN AT JUNE 30, 2014:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
215 | Long | U.S. Treasury 2 yr. Note, Sep-14 | $ | 47,212,656 | $ | (47,031 | ) | ||||||||||||
127 | Long | U.S. Treasury Ultra Long Bond, Sep-14 | 19,042,063 | (126,081 | ) | ||||||||||||||
16 | Long | U.S. Treasury Long Bond, Sep-14 | 2,195,000 | (5,828 | ) | ||||||||||||||
196 | Short | U.S. Treasury 5 yr. Note, Sep-14 | (23,414,344 | ) | 71,336 | ||||||||||||||
212 | Short | U.S. Treasury 10 yr. Note, Sep-14 | (26,536,438 | ) | 100,485 | ||||||||||||||
Net Unrealized Depreciation | $ | (7,119 | ) |
See Notes to Financial Statements
40
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
CREDIT DEFAULT SWAP AGREEMENTS OPEN AT JUNE 30, 2014:
SWAP COUNTERPARTY & REFERENCE OBLIGATION | BUY/SELL PROTECTION | NOTIONAL AMOUNT (000) | INTEREST RATE | TERMINATION DATE | UNREALIZED APPRECIATION (DEPRECIATION) | UPFRONT PAYMENTS PAID (RECEIVED) | VALUE | CREDIT RATING OF REFERENCE OBLIGATION† | |||||||||||||||||||||||||||
Barclays Bank PLC Yum! Brands, Inc. | Buy | $ | 825 | 1.00 | % | 12/20/18 | $ | (9,996 | ) | $ | (14,319 | ) | $ | (24,315 | ) | BBB | |||||||||||||||||||
Barclays Bank PLC Quest Diagnostics, Inc. | Buy | 845 | 1.00 | 03/20/19 | (16,806 | ) | 16,218 | (588 | ) | BBB+ | |||||||||||||||||||||||||
Morgan Stanley & Co., LLC* CDX.NA.IG.22 | Buy | 10,225 | 1.00 | 06/20/19 | 4,410 | (209,345 | ) | (204,935 | ) | NR | |||||||||||||||||||||||||
Morgan Stanley & Co., LLC* CDX.NA.HY.21 | Buy | 3,564 | 5.00 | 12/20/18 | (34,210 | ) | (296,152 | ) | (330,362 | ) | NR | ||||||||||||||||||||||||
Morgan Stanley & Co., LLC* CDX.NA.IG.22 | Buy | 1,411 | 5.00 | 06/20/19 | (16,723 | ) | (107,600 | ) | (124,323 | ) | NR | ||||||||||||||||||||||||
Total Credit Default Swaps | $ | 16,870 | $ | (73,325 | ) | $ | (611,198 | ) | $ | (684,523 | ) |
INTEREST RATE SWAP AGREEMENTS OPEN AT JUNE 30, 2014:
SWAP COUNTERPARTY | NOTIONAL AMOUNT (000) | FLOATING RATE INDEX | PAY/RECEIVE FLOATING RATE | FIXED RATE | TERMINATION DATE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||||||||
Bank of America NA | $ | 2,000 | 3 Month LIBOR | Receive | 2.04 | % | 02/13/23 | $ | 48,344 | ||||||||||||||||||
Deutsche Bank AG | 6,510 | 3 Month LIBOR | Receive | 3.03 | 05/14/43 | 324,566 | |||||||||||||||||||||
Deutsche Bank AG | 2,185 | 3 Month LIBOR | Receive | 2.80 | 05/01/43 | 202,554 | |||||||||||||||||||||
Goldman Sachs International | 2,200 | 3 Month LIBOR | Receive | 2.42 | 03/22/22 | (34,052 | ) | ||||||||||||||||||||
JPMorgan Chase Bank NA | 1,069 | 3 Month LIBOR | Receive | 2.43 | 03/22/22 | (17,795 | ) | ||||||||||||||||||||
Morgan Stanley & Co., LLC* | 7,820 | 3 Month LIBOR | Receive | 2.75 | 11/20/23 | (160,049 | ) | ||||||||||||||||||||
Net Unrealized Appreciation | $ | 363,568 |
LIBOR London Interbank Offered Rate.
NR Not Rated.
† Credit rating as issued by Standard & Poor's.
* Cleared swap agreements, the broker is Morgan Stanley & Co., LLC.
See Notes to Financial Statements
41
Morgan Stanley Variable Investment Series - Income Plus
Portfolio of Investments n June 30, 2014 (unaudited) (continued)
Currency Abbreviations
EUR Euro.
HKD Hong Kong Dollar.
KRW South Korean Won.
USD United States Dollar.
LONG TERM CREDIT ANALYSIS+ | |||||||
AA | 6.7 | % | |||||
A | 32.6 | ||||||
BBB | 45.8 | ||||||
BB | 8.8 | ||||||
B or Below | 2.8 | ||||||
Not Rated | 3.3 | ||||||
100.0 | %++ |
+ 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").
++ Does not include open long/short futures contracts with an underlying face amount of $118,400,501 with net unrealized depreciation of $7,119. Does not include open foreign currency forward exchange contracts with net unrealized depreciation of $3,112. Also does not include open swap agreements with net unrealized appreciation of $290,243.
See Notes to Financial Statements
42
Morgan Stanley Variable Investment Series - European Equity
Portfolio of Investments n June 30, 2014 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (97.8%) | |||||||||||
France (16.8%) | |||||||||||
Aerospace & Defense | |||||||||||
17,236 | Airbus Group N.V. | $ | 1,155,046 | ||||||||
Banks | |||||||||||
17,646 | BNP Paribas SA | 1,197,140 | |||||||||
55,029 | Credit Agricole SA | 776,117 | |||||||||
1,973,257 | |||||||||||
Electrical Equipment | |||||||||||
13,819 | Schneider Electric SE | 1,300,912 | |||||||||
Hotels, Restaurants & Leisure | |||||||||||
20,967 | Accor SA | 1,090,697 | |||||||||
Insurance | |||||||||||
50,415 | AXA SA | 1,204,976 | |||||||||
Media | |||||||||||
27,623 | SES SA | 1,047,730 | |||||||||
Multi-Utilities | |||||||||||
49,546 | Suez Environnement Co. | 948,450 | |||||||||
Total France | 8,721,068 | ||||||||||
Germany (15.5%) | |||||||||||
Automobiles | |||||||||||
16,905 | Daimler AG (Registered) | 1,583,325 | |||||||||
4,950 | Volkswagen AG (Preference) | 1,300,027 | |||||||||
2,883,352 | |||||||||||
Health Care Providers & Services | |||||||||||
6,135 | Fresenius SE & Co., KGaA | 914,832 | |||||||||
Industrial Conglomerates | |||||||||||
11,772 | Siemens AG (Registered) | 1,554,717 | |||||||||
Insurance | |||||||||||
4,811 | Muenchener Rueckversicherungs AG (Registered) (a) | 1,066,549 | |||||||||
Pharmaceuticals | |||||||||||
11,722 | Bayer AG (Registered) | 1,655,654 | |||||||||
Total Germany | 8,075,104 |
NUMBER OF SHARES | VALUE | ||||||||||
Ireland (1.9%) | |||||||||||
Construction Materials | |||||||||||
39,177 | CRH PLC | $ | 1,005,309 | ||||||||
Italy (1.8%) | |||||||||||
Banks | |||||||||||
113,071 | UniCredit SpA | 946,774 | |||||||||
Netherlands (2.2%) | |||||||||||
Media | |||||||||||
50,019 | Reed Elsevier N.V. | 1,147,225 | |||||||||
Spain (4.2%) | |||||||||||
Banks | |||||||||||
89,092 | Banco Bilbao Vizcaya Argentaria SA | 1,135,639 | |||||||||
Information Technology Services | |||||||||||
25,474 | Amadeus IT Holding SA, Class A | 1,050,633 | |||||||||
Total Spain | 2,186,272 | ||||||||||
Sweden (3.0%) | |||||||||||
Household Products | |||||||||||
31,456 | Svenska Cellulosa AB SCA, Class B | 819,644 | |||||||||
Wireless Telecommunication Services | |||||||||||
8,296 | Millicom International Cellular SA SDR | 759,876 | |||||||||
Total Sweden | 1,579,520 | ||||||||||
Switzerland (17.5%) | |||||||||||
Chemicals | |||||||||||
2,426 | Syngenta AG (Registered) | 903,595 | |||||||||
Food Products | |||||||||||
30,878 | Nestle SA (Registered) | 2,392,105 | |||||||||
Insurance | |||||||||||
4,036 | Zurich Insurance Group AG (b) | 1,216,534 |
See Notes to Financial Statements
43
Morgan Stanley Variable Investment Series - European Equity
Portfolio of Investments n June 30, 2014 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Pharmaceuticals | |||||||||||
24,542 | Novartis AG (Registered) | $ | 2,222,285 | ||||||||
7,848 | Roche Holding AG (Genusschein) | 2,340,772 | |||||||||
4,563,057 | |||||||||||
Total Switzerland | 9,075,291 | ||||||||||
United Kingdom (34.9%) | |||||||||||
Aerospace & Defense | |||||||||||
51,049 | Rolls-Royce Holdings PLC (b) | 933,934 | |||||||||
Banks | |||||||||||
308,765 | Barclays PLC | 1,124,478 | |||||||||
180,714 | HSBC Holdings PLC | 1,833,685 | |||||||||
2,958,163 | |||||||||||
Household Products | |||||||||||
16,286 | Reckitt Benckiser Group PLC | 1,421,465 | |||||||||
Insurance | |||||||||||
60,325 | Prudential PLC | 1,384,451 | |||||||||
Metals & Mining | |||||||||||
193,154 | Glencore PLC | 1,076,150 | |||||||||
Oil, Gas & Consumable Fuels | |||||||||||
60,795 | BG Group PLC | 1,284,950 | |||||||||
191,555 | BP PLC | 1,687,982 | |||||||||
42,475 | Royal Dutch Shell PLC, Class A | 1,758,049 | |||||||||
4,730,981 | |||||||||||
Pharmaceuticals | |||||||||||
55,061 | GlaxoSmithKline PLC | 1,473,779 | |||||||||
Tobacco | |||||||||||
28,305 | British American Tobacco PLC | 1,684,784 | |||||||||
24,719 | Imperial Tobacco Group PLC | 1,112,598 | |||||||||
2,797,382 | |||||||||||
Wireless Telecommunication Services | |||||||||||
409,563 | Vodafone Group PLC | 1,366,806 | |||||||||
Total United Kingdom | 18,143,111 | ||||||||||
Total Common Stocks (Cost $34,423,316) | 50,879,674 |
NUMBER OF SHARES (000) | VALUE | ||||||||||
Short-Term Investments (3.3%) Securities held as Collateral on Loaned Securities (1.4%) | |||||||||||
Investment Company (1.2%) | |||||||||||
599 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 7) (Cost $598,994) | $ | 598,994 | ||||||||
PRINCIPAL AMOUNT (000) | |||||||||||
Repurchase Agreement (0.2%) | |||||||||||
$ | 111 | Barclays Capital, Inc. (0.07%, dated 06/30/14, due 07/01/14; proceeds $111,308; fully collateralized by a U.S. Government Obligation; 3.63% due 08/15/43; valued at $113,535) (Cost $111,308) | 111,308 | ||||||||
Total Securities held as Collateral on Loaned Securities (Cost $710,302) | 710,302 |
See Notes to Financial Statements
44
Morgan Stanley Variable Investment Series - European Equity
Portfolio of Investments n June 30, 2014 (unaudited) continued
NUMBER OF SHARES (000) | VALUE | ||||||||||
Investment Company (1.9%) | |||||||||||
1,010 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 7) (Cost $1,009,541) | $ | 1,009,541 | ||||||||
Total Short-Term Investments (Cost $1,719,843) | 1,719,843 | ||||||||||
Total Investments (Cost $36,143,159) | 101.1 | % | 52,599,517 | ||||||||
Liabilities in Excess of Other Assets | (1.1 | ) | (557,003 | ) | |||||||
Net Assets | 100.0 | % | $ | 52,042,514 |
SDR Swedish Depositary Receipt.
(a) All or a portion of this security was on loan at June 30, 2014.
(b) Non-income producing security.
SUMMARY OF INVESTMENTS INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Pharmaceuticals | $ | 7,692,490 | 14.8 | % | |||||||
Banks | 7,013,833 | 13.5 | |||||||||
Insurance | 4,872,510 | 9.4 | |||||||||
Oil, Gas & Consumable Fuels | 4,730,981 | 9.1 | |||||||||
Automobiles | 2,883,352 | 5.6 | |||||||||
Tobacco | 2,797,382 | 5.4 | |||||||||
Food Products | 2,392,105 | 4.6 | |||||||||
Household Products | 2,241,109 | 4.3 | |||||||||
Media | 2,194,955 | 4.2 | |||||||||
Wireless Telecommunication Services | 2,126,682 | 4.1 | |||||||||
Aerospace & Defense | 2,088,980 | 4.0 | |||||||||
Industrial Conglomerates | 1,554,717 | 3.0 | |||||||||
Electrical Equipment | 1,300,912 | 2.5 | |||||||||
Hotels, Restaurants & Leisure | 1,090,697 | 2.1 | |||||||||
Metals & Mining | 1,076,150 | 2.1 | |||||||||
Information Technology Services | 1,050,633 | 2.0 | |||||||||
Investment Company | 1,009,541 | 2.0 | |||||||||
Construction Materials | 1,005,309 | 1.9 | |||||||||
Multi-Utilities | 948,450 | 1.8 | |||||||||
Health Care Providers & Services | 914,832 | 1.8 | |||||||||
Chemicals | 903,595 | 1.8 | |||||||||
$ | 51,889,215 | ++ | 100.0 | % |
++ Does not reflect the value of securities held as collateral on loaned securities.
See Notes to Financial Statements
45
Morgan Stanley Variable Investment Series - Multi Cap Growth
Portfolio of Investments n June 30, 2014 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (98.1%) | |||||||||||
Automobiles (3.8%) | |||||||||||
42,431 | Tesla Motors, Inc. (a) | $ | 10,185,986 | ||||||||
Chemicals (2.1%) | |||||||||||
44,332 | Monsanto Co. | 5,529,974 | |||||||||
Commercial Services & Supplies (2.4%) | |||||||||||
214,831 | Edenred (France) | 6,514,354 | |||||||||
Communications Equipment (2.4%) | |||||||||||
95,931 | Motorola Solutions, Inc. | 6,386,127 | |||||||||
Diversified Financial Services (2.6%) | |||||||||||
152,104 | MSCI, Inc. (a) | 6,973,968 | |||||||||
Electrical Equipment (0.5%) | |||||||||||
18,952 | SolarCity Corp. (a)(b) | 1,338,011 | |||||||||
Food Products (2.9%) | |||||||||||
85,368 | Mead Johnson Nutrition Co. | 7,953,736 | |||||||||
Health Care Equipment & Supplies (3.7%) | |||||||||||
24,377 | Intuitive Surgical, Inc. (a) | 10,038,449 | |||||||||
Health Care Technology (3.3%) | |||||||||||
72,219 | athenahealth, Inc. (a) | 9,036,763 | |||||||||
Hotels, Restaurants & Leisure (3.9%) | |||||||||||
105,024 | Fiesta Restaurant Group, Inc. (a) | 4,874,164 | |||||||||
71,921 | Starbucks Corp. | 5,565,247 | |||||||||
10,439,411 | |||||||||||
Information Technology Services (5.7%) | |||||||||||
105,323 | Mastercard, Inc., Class A | 7,738,081 | |||||||||
36,565 | Visa, Inc., Class A | 7,704,611 | |||||||||
15,442,692 | |||||||||||
Insurance (1.5%) | |||||||||||
72,465 | Arch Capital Group Ltd. (a) | 4,162,390 | |||||||||
Internet & Catalog Retail (11.6%) | |||||||||||
64,674 | Amazon.com, Inc. (a) | 21,004,822 | |||||||||
8,659 | Priceline Group, Inc. (a) | 10,416,777 | |||||||||
31,421,599 |
NUMBER OF SHARES | VALUE | ||||||||||
Internet Software & Services (22.3%) | |||||||||||
335,989 | Facebook, Inc., Class A (a) | $ | 22,608,700 | ||||||||
14,256 | Google, Inc., Class A (a) | 8,335,055 | |||||||||
20,392 | Google, Inc., Class C (a) | 11,731,110 | |||||||||
40,687 | LinkedIn Corp., Class A (a) | 6,976,600 | |||||||||
262,275 | Twitter, Inc. (a) | 10,745,407 | |||||||||
60,396,872 | |||||||||||
Life Sciences Tools & Services (6.1%) | |||||||||||
92,405 | Illumina, Inc. (a) | 16,497,989 | |||||||||
Media (1.6%) | |||||||||||
36,473 | Naspers Ltd., Class N (South Africa) | 4,293,765 | |||||||||
Oil, Gas & Consumable Fuels (1.0%) | |||||||||||
31,647 | Range Resources Corp. | 2,751,707 | |||||||||
Pharmaceuticals (2.8%) | |||||||||||
60,847 | Valeant Pharmaceuticals International, Inc. (Canada) (a) | 7,674,024 | |||||||||
Professional Services (5.8%) | |||||||||||
142,714 | Advisory Board Co. (The) (a) | 7,392,585 | |||||||||
119,996 | Corporate Executive Board Co. (The) | 8,186,127 | |||||||||
15,578,712 | |||||||||||
Software (6.9%) | |||||||||||
55,294 | FireEye, Inc. (a) | 2,242,172 | |||||||||
149,598 | Salesforce.com, Inc. (a) | 8,688,652 | |||||||||
53,092 | Splunk, Inc. (a) | 2,937,580 | |||||||||
52,239 | Workday, Inc., Class A (a) | 4,694,196 | |||||||||
18,562,600 | |||||||||||
Tech Hardware, Storage & Peripherals (2.7%) | |||||||||||
79,408 | Apple, Inc. | 7,379,385 | |||||||||
Textiles, Apparel & Luxury Goods (2.5%) | |||||||||||
34,215 | Christian Dior SA (France) | 6,807,393 | |||||||||
Total Common Stocks (Cost $142,792,750) | 265,365,907 |
See Notes to Financial Statements
46
Morgan Stanley Variable Investment Series - Multi Cap Growth
Portfolio of Investments n June 30, 2014 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Preferred Stocks (1.9%) | |||||||||||
Hotels, Restaurants & Leisure (0.7%) | |||||||||||
114,561 | Blue Bottle Coffee, Inc., Series B (a)(c)(d)(e) (acquisition cost - $1,657,606; acquired 01/24/14) | $ | 1,789,443 | ||||||||
Internet & Catalog Retail (0.6%) | |||||||||||
14,239 | Airbnb, Inc., Series D (a)(c)(d)(e) (acquisition cost - $1,739,139; acquired 04/16/14) | 1,739,138 | |||||||||
Software (0.6%) | |||||||||||
141,612 | Lookout, Inc., Series F (a)(c)(d)(e) (acquisition cost - $1,617,648; acquired 06/17/14) | 1,617,648 | |||||||||
Total Preferred Stocks (Cost $5,014,393) | 5,146,229 | ||||||||||
NOTIONAL AMOUNT | |||||||||||
Call Options Purchased (0.0%) | |||||||||||
Foreign Currency Options | |||||||||||
3,207,286 | USD/CNY December 2014 @ CNY 6.50 | 1,408 | |||||||||
39,918,529 | USD/CNY December 2014 @ CNY 6.50 | 18,363 | |||||||||
45,129,097 | USD/CNY December 2014 @ CNY 6.50 | 21,391 | |||||||||
48,990,861 | USD/CNY June 2015 @ CNY 6.62 | 77,601 | |||||||||
Total Call Options Purchased (Cost $414,359) | 118,763 |
NUMBER OF SHARES (000) | VALUE | ||||||||||
Short-Term Investments (0.7%) Securities held as Collateral on Loaned Securities (0.5%) | |||||||||||
Investment Company (0.4%) | |||||||||||
1,048 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 7) (Cost $1,047,636) | $ | 1,047,636 | ||||||||
PRINCIPAL AMOUNT (000) | |||||||||||
Repurchase Agreements (0.1%) | |||||||||||
$ | 109 | Barclays Capital, Inc. (0.08%, dated 06/30/14, due 07/01/14; proceeds $108,562; fully collateralized by various U.S. Government agency securities; 3.50% - 4.50% due 09/01/33 - 06/20/44; valued at $110,733) | 108,562 | ||||||||
136 | BNP Paribas Securities Corp. (0.11%, dated 06/30/14, due 07/01/14; proceeds $136,234; fully collateralized by a U.S. Government agency security; 4.00% due 06/20/44; valued at $139,029) | 136,234 | |||||||||
Total Repurchase Agreements (Cost $244,796) | 244,796 | ||||||||||
Total Securities held as Collateral on Loaned Securities (Cost $1,292,432) | 1,292,432 |
See Notes to Financial Statements
47
Morgan Stanley Variable Investment Series - Multi Cap Growth
Portfolio of Investments n June 30, 2014 (unaudited) continued
NUMBER OF SHARES (000) | VALUE | ||||||||||
Investment Company (0.2%) | |||||||||||
502 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 7) (Cost $501,923) | $ | 501,923 | ||||||||
Total Short-Term Investments (Cost $1,794,355) | 1,794,355 | ||||||||||
Total Investments (Cost $150,015,857) | 100.7 | % | 272,425,254 | ||||||||
Liabilities in Excess of Other Assets | (0.7 | ) | (1,868,272 | ) | |||||||
Net Assets | 100.0 | % | $ | 270,556,982 |
(a) Non-income producing security.
(b) All or a portion of this security was on loan at June 30, 2014.
(c) At June 30, 2014, the Portfolio held fair valued securities valued at $5,146,229, representing 1.9% 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.
(d) Security cannot be offered for public resale without first being registered under the Securities Act of 1933 and related rules ("restricted security"). Acquisition date represents the day on which an enforceable right to acquire such security is obtained and is presented along with related cost in the security description. The Portfolio has registration rights for certain restricted securities. Any costs related to such registration are borne by the issuer. The aggregate value of restricted securities (excluding 144A holdings) at June 30, 2014 amounts to $5,146,229 and represents 1.9% of net assets.
(e) Illiquid security.
Currency Abbreviation
CNY — Chinese Yuan Renminbi.
USD — United States Dollar.
SUMMARY OF INVESTMENTS INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Internet Software & Services | $ | 60,396,872 | 22.3 | % | |||||||
Internet & Catalog Retail | 33,160,737 | 12.2 | |||||||||
Software | 20,180,248 | 7.4 | |||||||||
Life Sciences Tools & Services | 16,497,989 | 6.1 | |||||||||
Professional Services | 15,578,712 | 5.8 | |||||||||
Information Technology Services | 15,442,692 | 5.7 | |||||||||
Hotels, Restaurants & Leisure | 12,228,854 | 4.5 | |||||||||
Automobiles | 10,185,986 | 3.8 | |||||||||
Health Care Equipment & Supplies | 10,038,449 | 3.7 | |||||||||
Health Care Technology | 9,036,763 | 3.3 | |||||||||
Food Products | 7,953,736 | 2.9 | |||||||||
Pharmaceuticals | 7,674,024 | 2.8 | |||||||||
Tech Hardware, Storage & Peripherals | 7,379,385 | 2.7 | |||||||||
Diversified Financial Services | 6,973,968 | 2.6 | |||||||||
Textiles, Apparel & Luxury Goods | 6,807,393 | 2.5 | |||||||||
Commercial Services & Supplies | 6,514,354 | 2.4 | |||||||||
Communications Equipment | 6,386,127 | 2.4 | |||||||||
Chemicals | 5,529,974 | 2.0 | |||||||||
Media | 4,293,765 | 1.6 | |||||||||
Insurance | 4,162,390 | 1.5 | |||||||||
Oil, Gas & Consumable Fuels | 2,751,707 | 1.0 | |||||||||
Electrical Equipment | 1,338,011 | 0.5 | |||||||||
Investment Company | 501,923 | 0.2 | |||||||||
Other | 118,763 | 0.1 | |||||||||
$ | 271,132,822 | ++ | 100.0 | % |
++ Does not reflect the value of securities held as collateral on loaned securities.
See Notes to Financial Statements
48
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Morgan Stanley Variable Investment Series
Financial Statements
Statements of Assets and Liabilities
June 30, 2014 (unaudited)
Money Market | Limited Duration | Income Plus | |||||||||||||
Assets: | |||||||||||||||
Investments in securities, at value* | $ | 68,094,536 | (1) | $ | 38,968,186 | $ | 147,304,261 | ||||||||
Investment in affiliate, at value** | — | 463,413 | 828,708 | ||||||||||||
Total investments in securities, at value | 68,094,536 | 39,431,599 | 148,132,969 | ||||||||||||
Unrealized appreciation on open swap agreements | — | 56,476 | 575,464 | ||||||||||||
Unrealized appreciation on open foreign currency forward exchange contracts | — | — | 21 | ||||||||||||
Cash | 14,810 | — | — | ||||||||||||
Receivable for: | |||||||||||||||
Interest | 10,460 | 188,502 | 1,714,746 | ||||||||||||
Shares of beneficial interest sold | 103,414 | 19,196 | 70,084 | ||||||||||||
Investments sold | — | 133,249 | 4,808 | ||||||||||||
Dividends | — | — | — | ||||||||||||
Foreign withholding taxes reclaimed | — | — | — | ||||||||||||
Variation margin on open futures contracts | — | 1,003 | 64,004 | ||||||||||||
Premium paid on open swap agreements | — | 4,798 | 16,218 | ||||||||||||
Interest and dividends from affiliates | — | 1,977 | 2,124 | ||||||||||||
Variation margin on open swap agreements | — | 296 | — | ||||||||||||
Due from Adviser | 654 | — | — | ||||||||||||
Prepaid expenses and other assets | 6,852 | 1,553 | 8,610 | ||||||||||||
Total Assets | 68,230,726 | 39,838,649 | 150,589,048 | ||||||||||||
Liabilities: | |||||||||||||||
Collateral on securities loaned, at value | — | — | — | ||||||||||||
Unrealized depreciation on open swap agreements | — | 7,698 | 78,649 | ||||||||||||
Unrealized depreciation on open foreign currency forward exchange contracts | — | — | 3,133 | ||||||||||||
Due to broker | — | — | 630,000 | ||||||||||||
Payable for: | |||||||||||||||
Investments purchased | — | 199,776 | 599,706 | ||||||||||||
Shares of beneficial interest redeemed | 22,518 | 468 | 15,383 | ||||||||||||
Advisory fee | — | 10,130 | 53,291 | ||||||||||||
Distribution fee (Class Y) | — | 6,593 | 16,288 | ||||||||||||
Administration fee | — | 2,709 | 10,158 | ||||||||||||
Premium received on open swap agreements | — | 3,905 | 14,319 | ||||||||||||
Variation margin on open swap agreements | — | — | 1,845 | ||||||||||||
Transfer agent fee | — | 390 | 7 | ||||||||||||
Accrued expenses and other payables | 30,171 | 41,342 | 65,512 | ||||||||||||
Total Liabilities | 52,689 | 273,011 | 1,488,291 | ||||||||||||
Net Assets | $ | 68,178,037 | $ | 39,565,638 | $ | 149,100,757 | |||||||||
Composition of Net Assets: | |||||||||||||||
Paid-in-capital | $ | 68,182,225 | $ | 68,724,853 | $ | 139,309,211 | |||||||||
Net unrealized appreciation (depreciation) | — | 490,676 | 10,904,750 | ||||||||||||
Accumulated undistributed net investment income (net investment loss) | (2,581 | ) | 189,462 | 2,537,307 | |||||||||||
Accumulated net realized gain (loss) | (1,607 | ) | (29,839,353 | ) | (3,650,511 | ) | |||||||||
Net Assets | $ | 68,178,037 | $ | 39,565,638 | $ | 149,100,757 | |||||||||
* Cost | $ | 68,094,536 | $ | 38,523,524 | $ | 136,795,030 | |||||||||
** Affiliated Cost | $ | — | $ | 463,708 | $ | 713,208 | |||||||||
Class X Shares: | |||||||||||||||
Net Assets | $ | 31,129,218 | $ | 8,793,982 | $ | 72,684,183 | |||||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 31,130,948 | 1,173,912 | 6,207,711 | ||||||||||||
Net Asset Value Per Share | $ | 1.00 | $ | 7.49 | $ | 11.71 | |||||||||
Class Y Shares: | |||||||||||||||
Net Assets | $ | 37,048,819 | $ | 30,771,656 | $ | 76,416,574 | |||||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 37,051,281 | 4,111,081 | 6,537,126 | ||||||||||||
Net Asset Value Per Share | $ | 1.00 | $ | 7.49 | $ | 11.69 |
(1) Including repurchase agreements of $24,900,000.
(2) Including securities loaned at value of $701,085 and $1,338,011, respectively.
(3) Including foreign currency valued at $48,500 with a cost of $48,220.
See Notes to Financial Statements
50
European Equity | Multi Cap Growth | ||||||||||
Assets: | |||||||||||
Investments in securities, at value* | $ | 50,990,982 | (2) | $ | 270,875,695 | (2) | |||||
Investment in affiliate, at value** | 1,608,535 | 1,549,559 | |||||||||
Total investments in securities, at value | 52,599,517 | 272,425,254 | |||||||||
Unrealized appreciation on open swap agreements | — | — | |||||||||
Unrealized appreciation on open foreign currency forward exchange contracts | — | — | |||||||||
Cash | 63,560 | (3) | 81,588 | ||||||||
Receivable for: | |||||||||||
Interest | — | — | |||||||||
Shares of beneficial interest sold | 587 | 44,610 | |||||||||
Investments sold | 11,236 | — | |||||||||
Dividends | 85,149 | 61,752 | |||||||||
Foreign withholding taxes reclaimed | 94,314 | — | |||||||||
Variation margin on open futures contracts | — | — | |||||||||
Premium paid on open swap agreements | — | — | |||||||||
Interest and dividends from affiliates | 68 | 134 | |||||||||
Variation margin on open swap agreements | — | — | |||||||||
Due from Adviser | — | — | |||||||||
Prepaid expenses and other assets | 5,787 | 14,060 | |||||||||
Total Assets | 52,860,218 | 272,627,398 | |||||||||
Liabilities: | |||||||||||
Collateral on securities loaned, at value | 725,363 | 1,374,020 | |||||||||
Unrealized depreciation on open swap agreements | — | — | |||||||||
Unrealized depreciation on open foreign currency forward exchange contracts | — | — | |||||||||
Due to broker | — | 300,000 | |||||||||
Payable for: | |||||||||||
Investments purchased | — | — | |||||||||
Shares of beneficial interest redeemed | 28,706 | 134,240 | |||||||||
Advisory fee | 28,727 | 92,863 | |||||||||
Distribution fee (Class Y) | 2,322 | 12,555 | |||||||||
Administration fee | 3,592 | 18,001 | |||||||||
Premium received on open swap agreements | — | — | |||||||||
Variation margin on open swap agreements | — | — | |||||||||
Transfer agent fee | 210 | 457 | |||||||||
Accrued expenses and other payables | 28,784 | 138,280 | |||||||||
Total Liabilities | 817,704 | 2,070,416 | |||||||||
Net Assets | $ | 52,042,514 | $ | 270,556,982 | |||||||
Composition of Net Assets: | |||||||||||
Paid-in-capital | $ | 42,813,611 | $ | 128,105,429 | |||||||
Net unrealized appreciation (depreciation) | 16,460,449 | 122,409,397 | |||||||||
Accumulated undistributed net investment income (net investment loss) | 1,979,348 | (58,343 | ) | ||||||||
Accumulated net realized gain (loss) | (9,210,894 | ) | 20,100,499 | ||||||||
Net Assets | $ | 52,042,514 | $ | 270,556,982 | |||||||
* Cost | $ | 34,534,624 | $ | 148,466,298 | |||||||
** Affiliated Cost | $ | 1,608,535 | $ | 1,549,559 | |||||||
Class X Shares: | |||||||||||
Net Assets | $ | 41,296,752 | $ | 210,316,628 | |||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 2,055,842 | 3,892,801 | |||||||||
Net Asset Value Per Share | $ | 20.09 | $ | 54.03 | |||||||
Class Y Shares: | |||||||||||
Net Assets | $ | 10,745,762 | $ | 60,240,354 | |||||||
Shares Outstanding (unlimited shares authorized, $0.01 par value) | 536,008 | 1,131,735 | |||||||||
Net Asset Value Per Share | $ | 20.05 | $ | 53.23 |
51
Morgan Stanley Variable Investment Series
Financial Statements continued
Statements of Operations
For the six months ended June 30, 2014 (unaudited)
Money Market | Limited Duration | Income Plus | |||||||||||||
Net Investment Income: | |||||||||||||||
Income | |||||||||||||||
Interest | $ | 66,136 | $ | 372,856 | $ | 3,074,205 | |||||||||
Dividends† | — | — | 18,055 | ||||||||||||
Income from securities loaned - net | — | — | — | ||||||||||||
Interest and dividends from affiliates (Note 7) | — | 2,221 | 24,207 | ||||||||||||
Total Income | 66,136 | 375,077 | 3,116,467 | ||||||||||||
†Net of foreign withholding taxes | — | — | — | ||||||||||||
Expenses | |||||||||||||||
Advisory fee (Note 4) | 158,296 | 60,812 | 319,098 | ||||||||||||
Professional fees | 36,917 | 41,884 | 44,145 | ||||||||||||
Administration fee (Note 4) | 17,588 | 16,217 | 60,781 | ||||||||||||
Custodian fees | 12,388 | 12,998 | 19,318 | ||||||||||||
Pricing fees | — | 10,913 | — | ||||||||||||
Shareholder reports and notices | 5,886 | 4,894 | 9,146 | ||||||||||||
Transfer agent fees and expenses | 2,459 | 1,518 | 1,212 | ||||||||||||
Trustees' fees and expenses | 1,009 | 815 | 1,316 | ||||||||||||
Distribution fee (Class Y shares) (Note 5) | 47,073 | 39,385 | 98,634 | ||||||||||||
Other | 2,632 | 6,893 | 26,783 | ||||||||||||
Total Expenses | 284,248 | 196,329 | 580,433 | ||||||||||||
Less: amounts waived | (221,631 | )(4) | — | — | |||||||||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 7) | — | (358 | ) | (1,209 | ) | ||||||||||
Net Expenses | 62,617 | 195,971 | 579,224 | ||||||||||||
Net Investment Income (Loss) | 3,519 | 179,106 | 2,537,243 | ||||||||||||
Realized and Unrealized Gain (Loss): | |||||||||||||||
Realized Gain (Loss) on: | |||||||||||||||
Investments | 40 | 102,865 | 2,268,483 | ||||||||||||
Futures contracts | — | 82,928 | 1,583,658 | ||||||||||||
Swap agreements | — | (50,902 | ) | (176,499 | ) | ||||||||||
Foreign currency forward exchange contracts | — | — | 419 | ||||||||||||
Foreign currency translation | — | — | 699 | ||||||||||||
Net Realized Gain | 40 | 134,891 | 3,676,760 | ||||||||||||
Change in Unrealized Appreciation (Depreciation) on: | |||||||||||||||
Investments | — | 215,406 | 4,932,662 | ||||||||||||
Investments in affiliates (Note 7) | — | 5,544 | 57,000 | ||||||||||||
Futures contracts | — | 77,461 | 79,664 | ||||||||||||
Swap agreements | — | (160,339 | ) | (1,904,033 | ) | ||||||||||
Foreign currency forward exchange contracts | — | — | 5,571 | ||||||||||||
Foreign currency translation | — | — | (153 | ) | |||||||||||
Net Change in Unrealized Appreciation (Depreciation) | — | 138,072 | 3,170,711 | ||||||||||||
Net Gain (Loss) | 40 | 272,963 | 6,847,471 | ||||||||||||
Net Increase | $ | 3,559 | $ | 452,069 | $ | 9,384,714 |
(4) See Note 5.
(5) See Note 4.
See Notes to Financial Statements
52
European Equity | Multi Cap Growth | ||||||||||
Net Investment Income: | |||||||||||
Income | |||||||||||
Interest | $ | — | $ | — | |||||||
Dividends† | 2,222,015 | 696,700 | |||||||||
Income from securities loaned - net | 39,342 | 134,807 | |||||||||
Interest and dividends from affiliates (Note 7) | 248 | 2,215 | |||||||||
Total Income | 2,261,605 | 833,722 | |||||||||
†Net of foreign withholding taxes | 133,818 | 45,145 | |||||||||
Expenses | |||||||||||
Advisory fee (Note 4) | 230,388 | 586,208 | |||||||||
Professional fees | 40,516 | 55,395 | |||||||||
Administration fee (Note 4) | 21,185 | 111,659 | |||||||||
Custodian fees | 14,780 | 10,860 | |||||||||
Pricing fees | — | — | |||||||||
Shareholder reports and notices | 5,224 | 14,848 | |||||||||
Transfer agent fees and expenses | 1,772 | 1,648 | |||||||||
Trustees' fees and expenses | 1,439 | 7,836 | |||||||||
Distribution fee (Class Y shares) (Note 5) | 13,892 | 82,692 | |||||||||
Other | 7,886 | 8,513 | |||||||||
Total Expenses | 337,082 | 879,659 | |||||||||
Less: amounts waived | (58,379 | )(5) | (1,397 | )(5) | |||||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 7) | (557 | ) | (4,644 | ) | |||||||
Net Expenses | 278,146 | 873,618 | |||||||||
Net Investment Income (Loss) | 1,983,459 | (39,896 | ) | ||||||||
Realized and Unrealized Gain (Loss): | |||||||||||
Realized Gain (Loss) on: | |||||||||||
Investments | 3,078,019 | 20,135,552 | |||||||||
Futures contracts | — | — | |||||||||
Swap agreements | — | — | |||||||||
Foreign currency forward exchange contracts | — | — | |||||||||
Foreign currency translation | (5,875 | ) | (1,566 | ) | |||||||
Net Realized Gain | 3,072,144 | 20,133,986 | |||||||||
Change in Unrealized Appreciation (Depreciation) on: | |||||||||||
Investments | (4,011,439 | ) | (15,404,395 | ) | |||||||
Investments in affiliates (Note 7) | — | — | |||||||||
Futures contracts | — | — | |||||||||
Swap agreements | — | — | |||||||||
Foreign currency forward exchange contracts | — | — | |||||||||
Foreign currency translation | (260 | ) | — | ||||||||
Net Change in Unrealized Appreciation (Depreciation) | (4,011,699 | ) | (15,404,395 | ) | |||||||
Net Gain (Loss) | (939,555 | ) | 4,729,591 | ||||||||
Net Increase | $ | 1,043,904 | $ | 4,689,695 |
53
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, 2014 | For The Year Ended December 31, 2013 | For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||||||||||
Operations: | |||||||||||||||||||||||||||
Net investment income (loss) | $ | 3,519 | $ | 8,325 | $ | 179,106 | $ | 485,624 | $ | 2,537,243 | $ | 6,220,980 | |||||||||||||||
Net realized gain | 40 | 181 | 134,891 | 221,661 | 3,676,760 | 3,197,006 | |||||||||||||||||||||
Net change in unrealized appreciation (depreciation) | — | — | 138,072 | (675,597 | ) | 3,170,711 | (8,029,174 | ) | |||||||||||||||||||
Net Increase | 3,559 | 8,506 | 452,069 | 31,688 | 9,384,714 | 1,388,812 | |||||||||||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||||||||||
Net investment income | |||||||||||||||||||||||||||
Class X shares | (1,636 | ) | (3,879 | ) | (155,915 | ) | (250,020 | ) | (3,018,703 | ) | (3,915,814 | ) | |||||||||||||||
Class Y shares | (1,883 | ) | (4,439 | ) | (458,467 | ) | (817,023 | ) | (2,962,049 | ) | (4,145,124 | ) | |||||||||||||||
Net realized gain | |||||||||||||||||||||||||||
Class X shares | — | — | — | — | — | — | |||||||||||||||||||||
Class Y shares | — | — | — | — | — | — | |||||||||||||||||||||
Total Dividends and Distributions | (3,519 | ) | (8,318 | ) | (614,382 | ) | (1,067,043 | ) | (5,980,752 | ) | (8,060,938 | ) | |||||||||||||||
Net increase (decrease) from transactions in shares of beneficial interest | (5,124,133 | ) | (17,530,755 | ) | (2,592,061 | ) | (6,008,408 | ) | (10,729,733 | ) | (21,246,050 | ) | |||||||||||||||
Net Increase (Decrease) | (5,124,093 | ) | (17,530,567 | ) | (2,754,374 | ) | (7,043,763 | ) | (7,325,771 | ) | (27,918,176 | ) | |||||||||||||||
Net Assets: | |||||||||||||||||||||||||||
Beginning of period | 73,302,130 | 90,832,697 | 42,320,012 | 49,363,775 | 156,426,528 | 184,344,704 | |||||||||||||||||||||
End of Period | $ | 68,178,037 | $ | 73,302,130 | $ | 39,565,638 | $ | 42,320,012 | $ | 149,100,757 | $ | 156,426,528 | |||||||||||||||
Accumulated Undistributed Net Investment Income (Loss) | $ | (2,581 | ) | $ | (2,581 | ) | $ | 189,462 | $ | 624,738 | $ | 2,537,307 | $ | 5,980,816 |
See Notes to Financial Statements
54
European Equity | Multi Cap Growth | ||||||||||||||||||
For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||
Operations: | |||||||||||||||||||
Net investment income (loss) | $ | 1,983,459 | $ | 1,190,720 | $ | (39,896 | ) | $ | (279,819 | ) | |||||||||
Net realized gain | 3,072,144 | 2,377,762 | 20,133,986 | 35,123,309 | |||||||||||||||
Net change in unrealized appreciation (depreciation) | (4,011,699 | ) | 9,249,212 | (15,404,395 | ) | 70,572,291 | |||||||||||||
Net Increase | 1,043,904 | 12,817,694 | 4,689,695 | 105,415,781 | |||||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||
Net investment income | |||||||||||||||||||
Class X shares | (966,435 | ) | (1,199,464 | ) | — | (803,872 | ) | ||||||||||||
Class Y shares | (223,195 | ) | (318,348 | ) | — | (149,244 | ) | ||||||||||||
Net realized gain | |||||||||||||||||||
Class X shares | — | — | (26,529,060 | ) | (2,596,410 | ) | |||||||||||||
Class Y shares | — | — | (7,687,678 | ) | (880,535 | ) | |||||||||||||
Total Dividends and Distributions | (1,189,630 | ) | (1,517,812 | ) | (34,216,738 | ) | (4,430,061 | ) | |||||||||||
Net increase (decrease) from transactions in shares of beneficial interest | (3,032,778 | ) | (7,992,151 | ) | 4,260,060 | (15,635,322 | ) | ||||||||||||
Net Increase (Decrease) | (3,178,504 | ) | 3,307,731 | (25,266,983 | ) | 85,350,398 | |||||||||||||
Net Assets: | |||||||||||||||||||
Beginning of period | 55,221,018 | 51,913,287 | 295,823,965 | 210,473,567 | |||||||||||||||
End of Period | $ | 52,042,514 | $ | 55,221,018 | $ | 270,556,982 | $ | 295,823,965 | |||||||||||
Accumulated Undistributed Net Investment Income (Loss) | $ | 1,979,348 | $ | 1,185,519 | $ | (58,343 | ) | $ | (18,447 | ) |
55
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, 2014 | For The Year Ended December 31, 2013 | For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Class X Shares | |||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||
Sold | 3,483,550 | 7,380,723 | 16,525 | 43,669 | 47,144 | 64,030 | |||||||||||||||||||||
Issued due to a tax-free reorganization | — | — | — | — | — | — | |||||||||||||||||||||
Reinvestment of dividends and distributions | 1,636 | 3,879 | 20,816 | 33,469 | 257,788 | 353,732 | |||||||||||||||||||||
Redeemed | (6,306,716 | ) | (15,701,483 | ) | (103,598 | ) | (214,752 | ) | (540,462 | ) | (1,222,438 | ) | |||||||||||||||
Net Increase (Decrease) - Class X | (2,821,530 | ) | (8,316,881 | ) | (66,257 | ) | (137,614 | ) | (235,530 | ) | (804,676 | ) | |||||||||||||||
Amount | |||||||||||||||||||||||||||
Sold | $ | 3,483,550 | $ | 7,380,723 | $ | 125,346 | $ | 332,159 | $ | 564,411 | $ | 746,626 | |||||||||||||||
Issued due to tax-free reorganization | — | — | — | — | — | — | |||||||||||||||||||||
Reinvestment of dividends and distributions | 1,636 | 3,879 | 155,915 | 250,020 | 3,018,703 | 3,915,814 | |||||||||||||||||||||
Redeemed | (6,306,716 | ) | (15,701,483 | ) | (786,714 | ) | (1,641,542 | ) | (6,427,963 | ) | (14,284,563 | ) | |||||||||||||||
Net Increase (Decrease) - Class X | $ | (2,821,530 | ) | $ | (8,316,881 | ) | $ | (505,453 | ) | $ | (1,059,363 | ) | $ | (2,844,849 | ) | $ | (9,622,123 | ) | |||||||||
Class Y Shares | |||||||||||||||||||||||||||
Sold | 6,290,152 | 14,392,152 | 79,550 | 140,151 | 32,674 | 285,191 | |||||||||||||||||||||
Issued due to a tax-free reorganization | — | — | — | — | — | — | |||||||||||||||||||||
Reinvestment of dividends and distributions | 1,883 | 4,439 | 61,211 | 109,521 | 253,383 | 375,124 | |||||||||||||||||||||
Redeemed | (8,594,638 | ) | (23,610,465 | ) | (416,207 | ) | (899,133 | ) | (949,532 | ) | (1,640,218 | ) | |||||||||||||||
Net Increase (Decrease) - Class Y | (2,302,603 | ) | (9,213,874 | ) | (275,446 | ) | (649,461 | ) | (663,475 | ) | (979,903 | ) | |||||||||||||||
Amount | |||||||||||||||||||||||||||
Sold | $ | 6,290,152 | $ | 14,392,152 | $ | 602,865 | $ | 1,069,903 | $ | 388,491 | $ | 3,272,780 | |||||||||||||||
Issued due to a tax-free reorganization | — | — | — | — | — | — | |||||||||||||||||||||
Reinvestment of dividends and distributions | 1,883 | 4,439 | 458,467 | 817,023 | 2,962,049 | 4,145,124 | |||||||||||||||||||||
Redeemed | (8,594,638 | ) | (23,610,465 | ) | (3,147,940 | ) | (6,835,971 | ) | (11,235,424 | ) | (19,041,831 | ) | |||||||||||||||
Net Increase (Decrease) - Class Y | $ | (2,302,603 | ) | $ | (9,213,874 | ) | $ | (2,086,608 | ) | $ | (4,949,045 | ) | $ | (7,884,884 | ) | $ | (11,623,927 | ) |
See Notes to Financial Statements
56
European Equity | Multi Cap Growth | ||||||||||||||||||
For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | For The Six Months Ended June 30, 2014 | For The Year Ended December 31, 2013 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Class X Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 17,262 | 29,245 | 7,888 | 22,511 | |||||||||||||||
Issued due to a tax-free reorganization | — | — | — | 249,276 | |||||||||||||||
Reinvestment of dividends and distributions | 48,105 | 72,916 | 491,006 | 75,161 | |||||||||||||||
Redeemed | (163,433 | ) | (408,264 | ) | (293,034 | ) | (681,103 | ) | |||||||||||
Net Increase (Decrease) - Class X | (98,066 | ) | (306,103 | ) | 205,860 | (334,155 | ) | ||||||||||||
Amount | |||||||||||||||||||
Sold | $ | 349,259 | $ | 532,041 | $ | 494,768 | $ | 1,091,891 | |||||||||||
Issued due to tax-free reorganization | — | — | — | 10,973,148 | |||||||||||||||
Reinvestment of dividends and distributions | 966,435 | 1,199,464 | 26,529,060 | 3,400,282 | |||||||||||||||
Redeemed | (3,304,924 | ) | (7,259,851 | ) | (17,753,232 | ) | (33,184,994 | ) | |||||||||||
Net Increase (Decrease) - Class X | $ | (1,989,230 | ) | $ | (5,528,346 | ) | $ | 9,270,596 | $ | (17,719,673 | ) | ||||||||
Class Y Shares | |||||||||||||||||||
Sold | 1,130 | 5,705 | 3,739 | 2,273 | |||||||||||||||
Issued due to a tax-free reorganization | — | — | — | 360,951 | |||||||||||||||
Reinvestment of dividends and distributions | 11,132 | 19,400 | 144,424 | 23,002 | |||||||||||||||
Redeemed | (64,019 | ) | (161,337 | ) | (219,450 | ) | (306,356 | ) | |||||||||||
Net Increase (Decrease) - Class Y | (51,757 | ) | (136,232 | ) | (71,287 | ) | 79,870 | ||||||||||||
Amount | |||||||||||||||||||
Sold | $ | 23,098 | $ | 99,702 | $ | 212,651 | $ | 119,830 | |||||||||||
Issued due to a tax-free reorganization | — | — | — | 15,701,356 | |||||||||||||||
Reinvestment of dividends and distributions | 223,195 | 318,348 | 7,687,678 | 1,029,779 | |||||||||||||||
Redeemed | (1,289,841 | ) | (2,881,855 | ) | (12,910,865 | ) | (14,766,614 | ) | |||||||||||
Net Increase (Decrease) - Class Y | $ | (1,043,548 | ) | $ | (2,463,805 | ) | $ | (5,010,536 | ) | $ | 2,084,351 |
57
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (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 applies investment company accounting and reporting guidance.
The Fund, organized on February 25, 1983 as a Massachusetts business trust, consists of five 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 |
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:
PORTFOLIO | INVESTMENT OBJECTIVE | ||||||
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 by investing primarily in U.S. government securities and other fixed-income securities. As a secondary objective, the Portfolio seeks capital appreciation but only when consistent with its primary objective. | ||||||
European Equity | Seeks to maximize the capital appreciation of its investments. | ||||||
Multi Cap Growth | Seeks, as its primary objective, growth of capital through investments in common stocks of companies believed by the Adviser to have potential for superior growth. As a secondary objective, the Portfolio seeks income but only when consistent with its primary objective. |
58
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
The following is a summary of significant accounting 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. The amortized cost of an instrument is determined by valuing it at its original cost and thereafter amortizing any discount or premium from its face value at a constant rate until maturity. All remaining Portfolios: (1) an equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), if there were no sales on a given day, the security is valued at the mean between the last reported bid and asked prices; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at its latest reported sales price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (3) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the New York Stock Exchange ("NYSE"); (4) futures are valued at the latest price published by the commodities exchange on which they trade; (5) swaps are marked-to-market daily based upon quotations from market makers; (6) listed options are valued at the last reported sales price on the exchange on which they are listed (or at the exchange official closing price if such exchange reports an official closing price). If an official closing price or last reported sales price is unavailable, the listed option should be fair valued at the mean between their latest bid and asked price. Unlisted options are valued by an outside pricing service approved by the Fund's Board of Trustees (the "Trustees") or quotes from a broker or dealer; (7) certain senior collateralized loans ("Senior Loans") are valued based on quotations received from an independent pricing service; (8) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Limited (the "Sub-Adviser"), each a wholly owned subsidiary of Morgan Stanley, determines that the closing price, last sale price or the mean between the last reported bid and asked prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the 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; (9) certain portfolio securities
59
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
may be valued by an outside pricing service approved by the Trustees. The pricing service may utilize a matrix system or other model incorporating attributes such as security quality, maturity and coupon as the evaluation model parameters, and/or research evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the portfolio securities valued by such pricing service; (10) 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 (11) short-term taxable debt securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, unless the Adviser determines such price does not reflect the securities' market value, in which case these securities will be valued at their fair market value determined by the Adviser. Other taxable short-term debt securities with maturities of more than 60 days will be valued on a mark-to-market basis until such time as they reach a maturity of 60 days, whereupon they will be valued at amortized cost using their value on the 61st day unless the Adviser determines such price does not reflect the securities' fair value, in which case these securities will be valued at their fair market value as determined by the Adviser.
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. 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 ad hoc 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.
60
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
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. 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.
Repurchase agreements are subject to Master Netting Agreements which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated on the Portfolio of Investments, the cash or securities to be repurchased exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.
E. Foreign Currency Translation and Foreign Investments — The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Portfolio are presented at the foreign exchange rates and market values at the close of the period, the Portfolio does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Portfolio does not isolate the effect of changes in foreign
61
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statements of Assets and Liabilities. The change in unrealized currency gains (losses) on foreign currency translations for the period is reflected in the Statements of Operations.
F. Restricted Securities — Certain Portfolios invest in unregistered or otherwise restricted securities. The term "restricted securities" refers to securities that are unregistered or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale. As a result, restricted securities may be more difficult to value and the Portfolio may have difficulty disposing of such assets either in a timely manner or for a reasonable price. In order to dispose of an unregistered security, the Portfolio, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered so that the Portfolio could sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and acquirer of the securities. The Portfolio would, in either case, bear market risks during that period. Restricted securities are identified in the Portfolio of Investments.
G. Senior Loans — Senior Loans are typically structured by a syndicate of lenders ("Lenders"), one or more of which administers the Senior Loan on behalf of the Lenders ("Agent"). Lenders may sell interests in Senior Loans to third parties ("Participations") or may assign all or a portion of their interest in a Senior Loan to third parties ("Assignments"). Senior Loans are exempt from registration under the Securities Act of 1933. Presently, Senior Loans are not readily marketable and are often subject to restrictions on resale.
62
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
H. Securities Lending — Certain Portfolios may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Portfolio. The Portfolio receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily, by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned-Net" in the Portfolio's Statement of Operations.
A Portfolio has the right under the lending agreement to recover the securities from the borrower on demand.
The following table presents financial instruments that are subject to enforceable netting arrangements as of June 30, 2014.
GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES | |||||||||||||||||||
PORTFOLIO | GROSS ASSET AMOUNTS PRESENTED IN STATEMENTS OF ASSETS AND LIABILITIES | FINANCIAL INSTRUMENT | COLLATERAL RECEIVED | NET AMOUNT (NOT LESS THAN $0) | |||||||||||||||
European Equity | $ | 701,085 | (a) | — | $ | (701,085 | )(b)(c) | $ | 0 | ||||||||||
Multi Cap Growth | 1,338,011 | (a) | — | (1,338,011 | )(c)(d) | 0 |
(a) Represents market value of loaned securities at period end.
(b) The Portfolio received cash collateral of $725,363, of which $710,302 was subsequently invested in a Repurchase Agreement and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. As of June 30, 2014 there was uninvested cash of $15,061, which is not reflected in the Portfolio of Investments.
(c) The actual collateral received is greater than the amount shown here due to overcollateralization.
(d) The Portfolio received cash collateral of $1,374,020, of which $1,292,432 was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. As of June 30, 2014 there was uninvested cash of $81,588, which is not reflected in the Portfolio of Investments.
I. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually (except for Money Market which declares and pays daily). Net realized capital gains, if any, are distributed at least annually.
63
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
J. 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.
K. 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.
L. 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
64
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is a summary of the inputs used to value each Portfolio's investments as of June 30, 2014.
Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
Money Market | |||||||||||||||||||
Assets: | |||||||||||||||||||
Repurchase Agreements | $ | — | $ | 24,900,000 | $ | — | $ | 24,900,000 | |||||||||||
Certificates of Deposit | — | 14,100,001 | — | 14,100,001 | |||||||||||||||
Commercial Paper | — | 10,944,631 | — | 10,944,631 | |||||||||||||||
Floating Rate Notes | — | 7,849,947 | — | 7,849,947 | |||||||||||||||
Extendible Floating Rate Notes | — | 7,299,957 | — | 7,299,957 | |||||||||||||||
Time Deposit | — | 3,000,000 | — | 3,000,000 | |||||||||||||||
Total Assets | $ | — | $ | 68,094,536 | $ | — | $ | 68,094,536 | |||||||||||
Limited Duration | |||||||||||||||||||
Assets: | |||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Corporate Bonds | $ | — | $ | 26,281,635 | $ | — | $ | 26,281,635 | |||||||||||
Asset-Backed Securities | — | 7,648,442 | — | 7,648,442 | |||||||||||||||
Agency Adjustable Rate Mortgages | — | 1,925,339 | — | 1,925,339 | |||||||||||||||
U.S. Treasury Security | — | 1,205,484 | — | 1,205,484 | |||||||||||||||
Collateralized Mortgage Obligations — Agency Collateral Series | — | 964,973 | — | 964,973 | |||||||||||||||
Sovereign | — | 445,958 | — | 445,958 | |||||||||||||||
Mortgage — Other | — | 243,890 | — | 243,890 | |||||||||||||||
Commercial Mortgage-Backed Securities | — | 198,114 | — | 198,114 | |||||||||||||||
Agency Fixed Rate Mortgages | — | 187,632 | — | 187,632 | |||||||||||||||
Total Fixed Income Securities | — | 39,101,467 | — | 39,101,467 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
U.S. Treasury Securities | — | 139,989 | — | 139,989 | |||||||||||||||
Investment Company | 190,143 | — | — | 190,143 | |||||||||||||||
Total Short-Term Investments | 190,143 | 139,989 | — | 330,132 | |||||||||||||||
Futures Contracts | 19,000 | — | — | 19,000 | |||||||||||||||
Credit Default Swap Agreements | — | 258 | — | 258 | |||||||||||||||
Interest Rate Swap Agreements | — | 56,476 | — | 56,476 | |||||||||||||||
Total Assets | 209,143 | 39,298,190 | — | 39,507,333 |
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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 | $ | (21,727 | ) | $ | — | $ | — | $ | (21,727 | ) | |||||||||
Credit Default Swap Agreements | — | (7,698 | ) | — | (7,698 | ) | |||||||||||||
Total Liabilities | (21,727 | ) | (7,698 | ) | — | (29,425 | ) | ||||||||||||
Total | $ | 187,416 | $ | 39,290,492 | $ | — | $ | 39,477,908 | |||||||||||
Income Plus | |||||||||||||||||||
Assets: | |||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||
Corporate Bonds | $ | — | $ | 144,705,878 | $ | — | $ | 144,705,878 | |||||||||||
Asset-Backed Securities | — | 1,220,909 | — | 1,220,909 | |||||||||||||||
Variable Rate Senior Loan Interests | — | 672,122 | — | 672,122 | |||||||||||||||
Total Fixed Income Securities | — | 146,598,909 | — | 146,598,909 | |||||||||||||||
Convertible Preferred Stock | 376,942 | — | — | 376,942 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
U.S. Treasury Securities | — | 1,076,910 | — | 1,076,910 | |||||||||||||||
Investment Company | 80,208 | — | — | 80,208 | |||||||||||||||
Total Short-Term Investments | 80,208 | 1,076,910 | — | 1,157,118 | |||||||||||||||
Foreign Currency Forward Exchange Contracts | — | 21 | — | 21 | |||||||||||||||
Futures Contracts | 171,821 | — | — | 171,821 | |||||||||||||||
Credit Default Swap Agreements | — | 4,410 | — | 4,410 | |||||||||||||||
Interest Rate Swap Agreements | — | 575,464 | — | 575,464 | |||||||||||||||
Total Assets | 628,971 | 148,255,714 | — | 148,884,685 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Foreign Currency Forward Exchange Contracts | — | (3,133 | ) | — | (3,133 | ) | |||||||||||||
Futures Contracts | (178,940 | ) | — | — | (178,940 | ) | |||||||||||||
Credit Default Swap Agreements | — | (77,735 | ) | — | (77,735 | ) | |||||||||||||
Interest Rate Swap Agreements | — | (211,896 | ) | — | (211,896 | ) | |||||||||||||
Total Liabilities | (178,940 | ) | (292,764 | ) | — | (471,704 | ) | ||||||||||||
Total | $ | 450,031 | $ | 147,962,950 | $ | — | $ | 148,412,981 |
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Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total | |||||||||||||||
European Equity | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Aerospace & Defense | $ | 2,088,980 | $ | — | $ | — | $ | 2,088,980 | |||||||||||
Automobiles | 2,883,352 | — | — | 2,883,352 | |||||||||||||||
Banks | 7,013,833 | — | — | 7,013,833 | |||||||||||||||
Chemicals | 903,595 | — | — | 903,595 | |||||||||||||||
Construction Materials | 1,005,309 | — | — | 1,005,309 | |||||||||||||||
Electrical Equipment | 1,300,912 | — | — | 1,300,912 | |||||||||||||||
Food Products | 2,392,105 | — | — | 2,392,105 | |||||||||||||||
Health Care Providers & Services | 914,832 | — | — | 914,832 | |||||||||||||||
Hotels, Restaurants & Leisure | 1,090,697 | — | — | 1,090,697 | |||||||||||||||
Household Products | 2,241,109 | — | — | 2,241,109 | |||||||||||||||
Industrial Conglomerates | 1,554,717 | — | — | 1,554,717 | |||||||||||||||
Information Technology Services | 1,050,633 | — | — | 1,050,633 | |||||||||||||||
Insurance | 4,872,510 | — | — | 4,872,510 | |||||||||||||||
Media | 2,194,955 | — | — | 2,194,955 | |||||||||||||||
Metals & Mining | 1,076,150 | — | — | 1,076,150 | |||||||||||||||
Multi-Utilities | 948,450 | — | — | 948,450 | |||||||||||||||
Oil, Gas & Consumable Fuels | 4,730,981 | — | — | 4,730,981 | |||||||||||||||
Pharmaceuticals | 7,692,490 | — | — | 7,692,490 | |||||||||||||||
Tobacco | 2,797,382 | — | — | 2,797,382 | |||||||||||||||
Wireless Telecommunication Services | 2,126,682 | — | — | 2,126,682 | |||||||||||||||
Total Common Stocks | 50,879,674 | — | — | 50,879,674 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 1,608,535 | — | — | 1,608,535 | |||||||||||||||
Repurchase Agreement | — | 111,308 | — | 111,308 | |||||||||||||||
Total Short-Term Investments | 1,608,535 | 111,308 | — | 1,719,843 | |||||||||||||||
Total Assets | $ | 52,488,209 | $ | 111,308 | $ | — | $ | 52,599,517 |
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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 | |||||||||||||||||||
Automobiles | $ | 10,185,986 | $ | — | $ | — | $ | 10,185,986 | |||||||||||
Chemicals | 5,529,974 | — | — | 5,529,974 | |||||||||||||||
Commercial Services & Supplies | 6,514,354 | — | — | 6,514,354 | |||||||||||||||
Communications Equipment | 6,386,127 | — | — | 6,386,127 | |||||||||||||||
Diversified Financial Services | 6,973,968 | — | — | 6,973,968 | |||||||||||||||
Electrical Equipment | 1,338,011 | — | — | 1,338,011 | |||||||||||||||
Food Products | 7,953,736 | — | — | 7,953,736 | |||||||||||||||
Health Care Equipment & Supplies | 10,038,449 | — | — | 10,038,449 | |||||||||||||||
Health Care Technology | 9,036,763 | — | — | 9,036,763 | |||||||||||||||
Hotels, Restaurants & Leisure | 10,439,411 | — | — | 10,439,411 | |||||||||||||||
Information Technology Services | 15,442,692 | — | — | 15,442,692 | |||||||||||||||
Insurance | 4,162,390 | — | — | 4,162,390 | |||||||||||||||
Internet & Catalog Retail | 31,421,599 | — | — | 31,421,599 | |||||||||||||||
Internet Software & Services | 60,396,872 | — | — | 60,396,872 | |||||||||||||||
Life Sciences Tools & Services | 16,497,989 | — | — | 16,497,989 | |||||||||||||||
Media | 4,293,765 | — | — | 4,293,765 | |||||||||||||||
Oil, Gas & Consumable Fuels | 2,751,707 | — | — | 2,751,707 | |||||||||||||||
Pharmaceuticals | 7,674,024 | — | — | 7,674,024 | |||||||||||||||
Professional Services | 15,578,712 | — | — | 15,578,712 | |||||||||||||||
Software | 18,562,600 | — | — | 18,562,600 | |||||||||||||||
Tech Hardware, Storage & Peripherals | 7,379,385 | — | — | 7,379,385 | |||||||||||||||
Textiles, Apparel & Luxury Goods | 6,807,393 | — | — | 6,807,393 | |||||||||||||||
Total Common Stocks | 265,365,907 | — | — | 265,365,907 | |||||||||||||||
Preferred Stocks | — | — | 5,146,229 | 5,146,229 | |||||||||||||||
Call Options Purchased | — | 118,763 | — | 118,763 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 1,549,559 | — | — | 1,549,559 | |||||||||||||||
Repurchase Agreements | — | 244,796 | — | 244,796 | |||||||||||||||
Total Short-Term Investments | 1,549,559 | 244,796 | — | 1,794,355 | |||||||||||||||
Total Assets | $ | 266,915,466 | $ | 363,559 | $ | 5,146,229 | $ | 272,425,254 |
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, 2014, the Fund did not have any investments transfer between investment levels.
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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 | |||||||
Preferred Stocks | |||||||
Beginning Balance | $ | — | |||||
Purchases | 5,014,393 | ||||||
Sales | — | ||||||
Amortization of discount | — | ||||||
Transfers in | — | ||||||
Transfers out | — | ||||||
Corporate Action | — | ||||||
Change in unrealized appreciation/depreciation | 131,836 | ||||||
Realized gains (losses) | — | ||||||
Ending Balance | $ | 5,146,229 | |||||
Net change in unrealized appreciation/depreciation from investments still held as of June 30, 2014 | $ | 131,836 |
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, 2014.
Multi-Cap Growth
Fair Value at June 30, 2014 | Valuation Technique | Unobservable Input | Range | Selected Value | Impact to Valuation from an Increase in Input | ||||||||||||||||||||||||||
Hotels, Restaurants & Leisure | |||||||||||||||||||||||||||||||
Preferred Stock | $ | 1,789,443 | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 14.4692 | $ | 14.4692 | $ | 14.4692 | Increase | ||||||||||||||||||||
Discounted Cash Flow | Weighted Average Cost of Capital | 17.0 | % | 19.0 | % | 18.0 | % | Decrease | |||||||||||||||||||||||
Perpetual Growth Rate | 3.0 | % | 4.0 | % | 3.5 | % | Increase |
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Fair Value at June 30, 2014 | Valuation Technique | Unobservable Input | Range | Selected Value | Impact to Valuation from an Increase in Input | ||||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value/ Revenue | 7.9 | x | 12.1 | x | 9.0 | x | Increase | |||||||||||||||||||||||
Discount for Lack of Marketability | 15.0 | % | 15.0 | % | 15.0 | % | Decrease | ||||||||||||||||||||||||
Internet & Catalog Retail | |||||||||||||||||||||||||||||||
Preferred Stock | $ | 1,739,138 | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 122.1391 | $ | 122.1391 | $ | 122.1391 | Increase | ||||||||||||||||||||
Discounted Cash Flow | Weighted Average Cost of Capital | 16.5 | % | 18.5 | % | 17.5 | % | Decrease | |||||||||||||||||||||||
Perpetual Growth Rate | 3.0 | % | 4.0 | % | 3.5 | % | Increase | ||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value/ Revenue | 11.5 | x | 17.1 | x | 15.5 | x | Increase | |||||||||||||||||||||||
Discount for Lack of Marketability | 15.0 | % | 15.0 | % | 15.0 | % | Decrease | ||||||||||||||||||||||||
Software | |||||||||||||||||||||||||||||||
Preferred Stock | $ | 1,617,648 | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 11.4231 | $ | 11.4231 | $ | 11.4231 | Increase | ||||||||||||||||||||
Discounted Cash Flow | Weighted Average Cost of Capital | 17.0 | % | 19.0 | % | 18.0 | % | Decrease | |||||||||||||||||||||||
Perpetual Growth Rate | 3.0 | % | 4.0 | % | 3.5 | % | Increase | ||||||||||||||||||||||||
Market Comparable Companies | Enterprise Value/ Revenue | 13.9 | x | 23.5 | x | 23.5 | x | Increase | |||||||||||||||||||||||
Discount for Lack of Marketability | 15.0 | % | 15.0 | % | 15.0 | % | Decrease |
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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, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of 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 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:
Options In respect to options, certain Portfolios are subject to equity risk, interest rate risk and foreign currency exchange risk in the normal course of pursuing its investment objectives. If a Portfolio buys an option, it buys a legal contract giving it the right to buy or sell a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed-upon price typically in exchange for a premium paid by a Portfolio. A Portfolio may purchase and/or sell put and call options. Purchasing call options tends to increase a Portfolio's exposure to the underlying (or similar) instrument. Purchasing put
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options tends to decrease a Portfolio's exposure to the underlying (or similar) instrument. When entering into purchased option contracts, a Portfolio bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, a Portfolio may not achieve the anticipated benefits of the purchased option contracts; however the risk of loss is limited to the premium paid. Purchased options are reported as part of "Total Investments in Securities" on the Statements of Assets and Liabilities. Premium paid for purchasing options which expired are treated as realized losses. If a Portfolio sells an option, it sells to another party the right to buy from or sell to a Portfolio a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed upon price typically in exchange for a premium received by a Portfolio. When options are purchased OTC, a Portfolio bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. Options may also be illiquid and a Portfolio may have difficulty closing out its position. A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well-conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.
Foreign Currency Forward Exchange Contracts In connection with its investments in foreign securities, certain Portfolios entered into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which 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
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realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.
Futures A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return, and the potential loss from futures contracts can exceed a Portfolio's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a broker with whom a Portfolio has open positions in the futures contract.
Swaps A Portfolio may enter into OTC swap contracts or cleared swap transactions. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). A Portfolio's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each party. Cleared swap transactions help reduce counterparty credit risk. In a cleared swap, a Portfolio's ultimate counterparty is a clearinghouse rather than a bank, dealer or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by a Portfolio or if the reference index, security or investments do not perform as expected.
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A Portfolio's use of swaps during the period included those based on the credit of an underlying security commonly referred to as credit default swaps. A Portfolio may be either the buyer or seller in a credit default swap. As the buyer in a credit default swap, a Portfolio would pay to the counterparty the periodic stream of payments. If no default occurs, a Portfolio would receive no benefit from the contract. As the seller in a credit default swap, a Portfolio would receive the stream of payments but would be subject to exposure on the notional amount of the swap, which it would be required to pay in the event of default. The use of credit default swaps could result in losses to a Portfolio if the Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation. During the period swap agreements are open, payments are received from or made to the clearinghouse or counterparty based upon changes in the value of the contract (variation margin). The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis.
The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.
When 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.
Upfront payments received or paid by a Portfolio will be reflected as an asset or liability 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.
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The following table sets forth the fair value of each Portfolio's derivative contracts by primary risk exposure as of June 30, 2014.
PORTFOLIO | PRIMARY RISK EXPOSURE | ASSET DERIVATIVES STATEMENT OF ASSETS AND LIABILITIES LOCATION | FAIR VALUE | LIABILITY DERIVATIVES STATEMENT OF ASSETS AND LIABILITIES LOCATION | FAIR VALUE | ||||||||||||||||||
Limited Duration | Interest Rate Risk | Variation margin on open futures contracts | $ | 19,000 | (e) | Variation margin on open futures contracts | $ | (21,727 | )(e) | ||||||||||||||
Unrealized appreciation on open swap agreements | 56,476 | Unrealized depreciation on open swap agreements | — | ||||||||||||||||||||
Credit Risk | Variation margin on open swap agreements | 258 | (e) | Variation margin on open swap agreements | — | ||||||||||||||||||
Unrealized appreciation on open swap agreements | — | Unrealized depreciation on open swap agreements | (7,698 | ) | |||||||||||||||||||
$ | 75,734 | $ | (29,425 | ) | |||||||||||||||||||
Income Plus | Interest Rate Risk | Variation margin on open futures contracts | $ | 171,821 | (e) | Variation margin on open futures contracts | $ | (178,940 | )(e) | ||||||||||||||
Variation margin on open swap agreements | — | Variation margin on open swap agreements | (160,049 | )(e) | |||||||||||||||||||
Unrealized appreciation on open swap agreements | 575,464 | Unrealized depreciation on open swap agreements | (51,847 | ) | |||||||||||||||||||
Credit Risk | Variation margin on open swap agreements | 4,410 | (e) | Variation margin on open swap agreements | (50,933 | )(e) | |||||||||||||||||
Unrealized appreciation on open swap agreements | — | Unrealized depreciation on open swap agreements | (26,802 | ) | |||||||||||||||||||
Foreign Currency Risk | Unrealized appreciation on open foreign currency forward exchange contracts | 21 | Unrealized depreciation on open foreign currency forward exchange contracts | (3,133 | ) | ||||||||||||||||||
$ | 751,716 | $ | (471,704 | ) | |||||||||||||||||||
Multi Cap Growth | Foreign Currency Risk | Investments, at Value (Options Purchased) | $ | 118,763 | (f) | Investments, at Value (Options Purchased) | $ | — |
(e) Includes cumulative appreciation (depreciation) as reported in the Portfolio of Investments. Only current day's net variation margin is reported within the Statement of Assets and Liabilities.
(f) Amounts are included in Investments in securities in the Statement of Assets and Liabilities.
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The following tables set forth by primary risk exposure of each Portfolio's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the six months ended June 30, 2014 in accordance with ASC 815.
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS
PORTFOLIO | PRIMARY RISK EXPOSURE | FUTURES | OPTIONS PURCHASED | FOREIGN CURRENCY FORWARD EXCHANGE | SWAPS | ||||||||||||||||||
Limited Duration | Interest Rate Risk | $ | 82,928 | $ | — | $ | — | $ | (36,545 | ) | |||||||||||||
Credit Risk | — | — | — | (14,357 | ) | ||||||||||||||||||
Total | $ | 82,928 | $ | — | $ | — | $ | (50,902 | ) | ||||||||||||||
Income Plus | Interest Rate Risk | $ | 1,583,658 | $ | — | $ | — | $ | (78,259 | ) | |||||||||||||
Credit Risk | — | — | — | (98,240 | ) | ||||||||||||||||||
Foreign Currency Risk | — | — | 419 | — | |||||||||||||||||||
Total | $ | 1,583,658 | $ | — | $ | 419 | $ | (176,499 | ) |
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVE CONTRACTS
PORTFOLIO | PRIMARY RISK EXPOSURE | FUTURES | OPTIONS PURCHASED(g) | FOREIGN CURRENCY FORWARD EXCHANGE | SWAPS | ||||||||||||||||||
Limited Duration | Interest Rate Risk | $ | 77,461 | $ | — | $ | — | $ | (167,156 | ) | |||||||||||||
Credit Risk | — | — | — | 6,817 | |||||||||||||||||||
Total | $ | 77,461 | $ | — | $ | — | $ | (160,339 | ) | ||||||||||||||
Income Plus | Interest Rate Risk | $ | 79,664 | $ | — | $ | — | $ | (1,887,656 | ) | |||||||||||||
Credit Risk | — | — | — | (16,377 | ) | ||||||||||||||||||
Foreign Currency Risk | — | — | 5,571 | — | |||||||||||||||||||
Total | $ | 79,664 | $ | — | $ | 5,571 | $ | (1,904,033 | ) | ||||||||||||||
Multi Cap Growth | Foreign Currency Risk | $ | — | $ | (166,636 | ) | $ | — | $ | — |
(g) Amounts are included in Investments in the Statement of Operations.
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At June 30, 2014, each Portfolio's derivative assets and liabilities are as follows:
GROSS AMOUNTS OF ASSETS AND LIABILITIES PRESENTED
IN THE STATEMENT OF ASSETS AND LIABILITIES
PORTFOLIO | DERIVATIVES(h) | ASSETS(i) | LIABILITIES(i) | ||||||||||||
Limited Duration | Swap Agreements | $ | 56,476 | $ | (7,698 | ) | |||||||||
Income Plus | Foreign Currency Forward Exchange Contracts | $ | 21 | $ | (3,133 | ) | |||||||||
Swap Agreements | 575,464 | (78,649 | ) | ||||||||||||
Total | $ | 575,485 | $ | (81,782 | ) | ||||||||||
Multi Cap Growth | Options Purchased | $ | 118,763 | $ | — |
(h) Excludes exchange traded derivatives.
(i) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statements of Assets and Liabilities.
Certain Portfolios typically enter into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, a Portfolio typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potentially deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between a Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event a Portfolio exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of a Portfolio's net liability, may be delayed or denied.
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The following tables present derivative financial instruments that are subject to enforceable netting arrangements as of June 30, 2014.
GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES
PORTFOLIO | COUNTERPARTY | GROSS ASSET DERIVATIVES PRESENTED IN STATEMENTS OF ASSETS AND LIABILITIES | FINANCIAL INSTRUMENT | COLLATERAL RECEIVED(j) | NET AMOUNT (NOT LESS THAN $0) | ||||||||||||||||||
Limited Duration | Bank of America | $ | 11,988 | $ | — | $ | — | $ | 11,988 | ||||||||||||||
| Goldman Sachs International | 21,061 | — | — | 21,061 | ||||||||||||||||||
Royal Bank of Canada | 23,427 | — | — | 23,427 | |||||||||||||||||||
Total | $ | 56,476 | $ | — | $ | — | $ | 56,476 | |||||||||||||||
Income Plus | Bank of America | $ | 48,344 | $ | — | $ | — | $ | 48,344 | ||||||||||||||
| Deutsche Bank | 527,120 | — | (527,120 | ) | 0 | |||||||||||||||||
HSBC Bank PLC | 21 | — | — | 21 | |||||||||||||||||||
Total | $ | 575,485 | $ | — | $ | (527,120 | ) | $ | 48,365 | ||||||||||||||
Multi Cap Growth | Royal Bank of Scotland | $ | 118,763 | $ | — | $ | (118,763 | ) | $ | 0 |
(j) In some instances, the actual collateral received may be more than the amount shown here due to overcollateralization.
GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES
PORTFOLIO | COUNTERPARTY | GROSS LIABILITIES DERIVATIVES PRESENTED IN STATEMENTS OF ASSETS AND LIABILITIES | FINANCIAL INSTRUMENT | COLLATERAL PLEDGED | NET AMOUNT (NOT LESS THAN $0) | ||||||||||||||||||
Limited Duration | Barclays Bank PLC | $ | 7,698 | $ | — | $ | — | $ | 7,698 | ||||||||||||||
Income Plus | Barclays Bank PLC | $ | 26,802 | $ | — | $ | — | $ | 26,802 | ||||||||||||||
| Goldman Sachs International | 34,052 | — | — | 34,052 | ||||||||||||||||||
JPMorgan Chase Bank NA | 17,795 | — | — | 17,795 | |||||||||||||||||||
UBS AG | 3,133 | — | — | 3,133 | |||||||||||||||||||
Total | $ | 81,782 | $ | — | $ | — | $ | 81,782 |
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For the six months ended June 30, 2014, the average monthly amount outstanding for each derivative type is as follows:
Limited Duration: | |||||||
Futures Contracts: | |||||||
Average monthly original value | $ | 18,100,143 | |||||
Swap Agreements: | |||||||
Average monthly notional amount | $ | 3,345,000 | |||||
Income Plus: | |||||||
Foreign Currency Forward Exchange Contracts: | |||||||
Average monthly principal amount | $ | 2,378,407 | |||||
Futures Contracts: | |||||||
Average monthly original value | $ | 106,005,033 | |||||
Swap Agreements: | |||||||
Average monthly notional amount | $ | 30,141,417 | |||||
Multi Cap Growth: | |||||||
Options Purchased: | |||||||
Average monthly notional amount | 96,420,055 |
4. Advisory/Administration and Sub-Advisory Agreements
Pursuant to an Investment Advisory Agreement with the Adviser and Sub-Adviser, 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. For the six months ended June 30, 2014, the advisory fee rate (net of waivers) was equivalent to an annual effective rate of 0.00% of the Portfolio's daily net assets.
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. For the six months ended June 30, 2014, the advisory fee rate (net of rebate) was equivalent to an annual effective rate of 0.42% of the Portfolio's daily net assets.
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
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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. For the six months ended June 30, 2014, the advisory fee rate (net of waivers/rebate) was equivalent to an annual effective rate of 0.65% of the Portfolio's daily net assets.
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. For the six months ended June 30, 2014, the advisory fee rate (net of waivers/rebate) was equivalent to an annual effective rate of 0.42% of the Portfolio's daily net assets.
Under the Sub-Advisory Agreement between the Adviser and Sub-Adviser, the Sub-Adviser provides European Equity Portfolio with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Trustees. The Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser receives from the Portfolio.
Morgan Stanley Services Company Inc. was the Fund's Administrator. Effective January 1, 2014, the Adviser also serves as the Administrator to the Fund and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% (Money Market Portfolio's rate is 0.05%) to each Portfolio's daily net assets.
The Adviser/Administrator has agreed to reduce its advisory fee, its administration fee and/or reimburse European Equity Portfolio so that total annual Portfolio operating expenses, excluding certain investment related expenses, 12b-1 fees, taxes, interest and other extraordinary expenses (including litigation), will not exceed 1.00%. The fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Trustees act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the six months ended June 30, 2014, approximately $58,379 of advisory fees were waived pursuant to this arrangement.
Pursuant to the Reorganization (defined herein, page 88), the Adviser/Administrator has agreed to reduce its advisory fee, its administration fee and/or reimburse Multi Cap Growth Portfolio so that total Portfolio operating expenses, excluding certain investment related expenses, 12b-1 fees, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.57%. The fee waivers and/or expense reimbursements will continue for at least two years from the date of the Reorganization or until such time that the Trustees act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the six months ended June 30, 2014, approximately $1,397 of advisory fees were waived pursuant to this arrangement.
Pursuant to an Administration Agreement with the Adviser/Administrator, 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.
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Under a Sub-Administration agreement between the Administrator and 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 each Portfolio.
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-Adviser. 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/reimburse all or a portion of the Money Market Portfolio's distribution fee, advisory fee and administration fee, respectively, to the extent that total expenses exceed total income of the Money Market Portfolio on a daily basis. For the six months ended June 30, 2014, the Distributor waived $47,073, the Adviser waived $158,296 and the Administrator waived $14,695. For the six months ended June 30, 2014, the Adviser waived additional fees and/or reimbursed expenses to the extent the Portfolio's total expenses exceeded total income on a daily basis in the amount of $1,567. The fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Trustees act to discontinue all or a portion of such waivers and/or expense reimbursements when they deem such action is appropriate.
6. Dividend Disbursing and Transfer Agent
The Fund's dividend disbursing and transfer agent is Boston Financial Data Services, Inc. ("BFDS"). Pursuant to a Transfer Agency Agreement, the Fund pays BFDS a fee based on the number of classes, accounts and transactions relating to the Portfolios of the Fund.
7. Security Transactions and Transactions with Affiliates
For the six months ended June 30, 2014, 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 | $ | 1,004,875 | $ | 4,003,216 | $ | 8,929,386 | $ | 7,444,889 | |||||||||||
Income Plus | — | — | 36,354,686 | 45,527,869 | |||||||||||||||
European Equity | — | — | 7,602,170 | 10,884,500 | |||||||||||||||
Multi Cap Growth | — | — | 36,000,985 | 52,006,959 |
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Each Portfolio (except Money Market) invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly, and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of advisory and administrative fees paid by the Fund due to its investment in the Liquidity Funds.
A summary of each Portfolio's transactions in shares of the Liquidity Funds during the six months ended June 30, 2014 is as follows:
PORTFOLIO | VALUE DECEMBER 31, 2013 | PURCHASES AT COST | SALES | DIVIDEND INCOME | VALUE JUNE 30, 2014 | ||||||||||||||||||
Limited Duration | $ | 1,468,944 | $ | 6,408,712 | $ | 7,687,513 | $ | 159 | $ | 190,143 | |||||||||||||
Income Plus | 4,473,538 | 21,057,183 | 25,450,513 | 582 | 80,208 | ||||||||||||||||||
European Equity | 2,104,199 | 7,226,015 | 7,721,679 | 248 | 1,608,535 | ||||||||||||||||||
Multi Cap Growth | 25,988,819 | 33,523,103 | 57,962,363 | 2,215 | 1,549,559 |
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 | $ | 358 | |||||
Income Plus | 1,209 | ||||||
European Equity | 557 | ||||||
Multi Cap Growth | 4,644 |
The following Portfolios had transactions with the following affiliates of the Fund:
PORTFOLIO | ISSUER | VALUE DECEMBER 31, 2013 | PURCHASES AT COST | SALES | NET REALIZED GAIN | INTEREST INCOME | VALUE JUNE 30, 2014 | ||||||||||||||||||||||||
Limited Duration | Metropolitan Life Global Funding I | $ | 267,725 | $ | — | $ | — | $ | — | $ | 2,062 | $ | 273,270 | ||||||||||||||||||
Income Plus | MetLife Capital Trust IV | 691,500 | — | — | — | 23,625 | 748,500 |
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
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Notes to Financial Statements n June 30, 2014 (unaudited) continued
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, 2014, 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 | |||||||
EUROPEAN EQUITY | MULTI CAP GROWTH | ||||||
$ | 212 | $ | 3,958 |
AGGREGATE PENSION LIABILITY | |||||||||||||||||||||
MONEY MARKET | LIMITED DURATION | INCOME PLUS | EUROPEAN EQUITY | MULTI CAP GROWTH | |||||||||||||||||
$ | 3,832 | $ | 2,089 | $ | 7,851 | $ | 2,770 | $ | 15,618 |
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.
8. 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.
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.
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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, 2013, remains subject to examination by taxing authorities.
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 years 2013 and 2012 was as follows:
2013 DISTRIBUTIONS PAID FROM: | 2012 DISTRIBUTIONS PAID FROM: | ||||||||||||||||||
PORTFOLIO | ORDINARY INCOME | LONG-TERM CAPITAL GAIN | ORDINARY INCOME | LONG-TERM CAPITAL GAIN | |||||||||||||||
Money Market | $ | 8,318 | $ | — | $ | 10,504 | $ | — | |||||||||||
Limited Duration | 1,067,043 | — | 1,503,210 | — | |||||||||||||||
Income Plus | 8,060,938 | — | 10,700,252 | — | |||||||||||||||
European Equity | 1,517,812 | — | 1,421,625 | — | |||||||||||||||
Multi Cap Growth | 951,967 | 3,478,094 | — | 4,886,471 |
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 for 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, partnership basis adjustments, distribution redesignations, book amortization of premium on debt securities,
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nondeductible expenses and expenses and merger adjustments, resulted in the following reclassifications among the Portfolio's components of net assets at December 31, 2013:
PORTFOLIO | ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME | ACCUMULATED NET REALIZED GAIN (LOSS) | PAID-IN-CAPITAL | ||||||||||||
Money Market | $ | (107 | ) | $ | 107 | $ | — | ||||||||
Limited Duration | 143,120 | 1,124,249 | (1,267,369 | ) | |||||||||||
Income Plus | (225,235 | ) | 225,235 | — | |||||||||||
European Equity | (1,450 | ) | 1,450 | — | |||||||||||
Multi Cap Growth | 444,999 | (501,796 | ) | 56,797 |
At December 31, 2013, the components of distributable earnings on a tax basis were as follows:
PORTFOLIO | UNDISTRIBUTED ORDINARY INCOME | UNDISTRIBUTED LONG-TERM CAPITAL GAIN | |||||||||
Money Market | $ | 4,572 | $ | — | |||||||
Limited Duration | 614,378 | — | |||||||||
Income Plus | 5,980,746 | — | |||||||||
European Equity | 1,189,628 | — | |||||||||
Multi Cap Growth | 4,912,282 | 29,304,421 |
At June 30, 2014, cost, gross unrealized appreciation (depreciation) and net unrealized appreciation (depreciation) of the investments of each of the Portfolios were:
PORTFOLIO | COST | APPRECIATION | DEPRECIATION | NET APPRECIATION (DEPRECIATION) | |||||||||||||||
Money Market | $ | 68,094,536 | $ | — | $ | — | $ | — | |||||||||||
Limited Duration | 38,987,232 | 573,404 | 129,037 | 444,367 | |||||||||||||||
Income Plus | 137,508,238 | 11,180,376 | 555,645 | 10,624,731 | |||||||||||||||
European Equity | 36,143,159 | 17,485,680 | 1,029,322 | 16,456,358 | |||||||||||||||
Multi Cap Growth | 150,015,857 | 124,597,379 | 2,187,982 | 122,409,397 |
At December 31, 2013, the following Portfolios had available for Federal income tax purposes unused short term and/or long term capital losses that will not expire:
PORTFOLIO | SHORT TERM LOSSES (NO EXPIRATION) | LONG TERM LOSSES (NO EXPIRATION) | |||||||||
Money Market | $ | 1,647 | $ | — | |||||||
Limited Duration | 732 | 338,635 |
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Notes to Financial Statements n June 30, 2014 (unaudited) continued
In addition, At December 31, 2013, the following Portfolios had available capital loss carryforwards to offset future net capital gains, to the extent provided by regulations, through the indicated expiration dates:
AMOUNTS IN THOUSANDS AVAILABLE THROUGH DECEMBER 31, | |||||||||||||||||||||||||||||||
PORTFOLIO | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | TOTAL | ||||||||||||||||||||||||
Limited Duration | $ | 2,233 | $ | 1,063 | $ | 17,119 | $ | 8,980 | $ | — | $ | — | $ | 29,395 | |||||||||||||||||
Income Plus | — | — | 7,196 | — | — | — | 7,196 | ||||||||||||||||||||||||
European Equity | — | — | — | 8,281 | 3,315 | — | 11,596 |
During the year ended December 31, 2013, the following Portfolio expired capital loss carryforwards for U.S. Federal income tax purposes as follows:
PORTFOLIO | EXPIRED CAPITAL LOSS CARRYFORWARDS | ||||||
Limited Duration | $ | 1,267,369 |
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, 2013, the following Portfolios utilized capital loss carryforwards for U.S. Federal income tax purposes as follows:
PORTFOLIO | UTILIZED CAPITAL LOSS CARRYFORWARDS | ||||||
Money Market | $ | 288 | |||||
Income Plus | 3,153,122 | ||||||
European Equity | 2,344,666 |
9. 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 the 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
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Notes to Financial Statements n June 30, 2014 (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 Portfolios. 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.
The Money Market Portfolio may enter into repurchase agreements under which the Portfolio sends 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.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
At June 30, 2014, European Equity Portfolio's investments in securities of issuers in the United Kingdom, Switzerland, Germany and France represented 34.9%, 17.5%, 15.5% and 16.8%, 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.
10. Regulatory Matters
On July 23, 2014, the Securities and Exchange Commission voted to amend Rule 2a-7, which governs money market funds. The majority of these amendments, except for certain disclosure enhancements, will not take effect for two years. The most significant change is a requirement that institutional prime and institutional
87
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
municipal money market funds move to a floating net asset value. Government, treasury, retail prime and retail municipal money market funds will continue to transact at a stable $1.00 share price. At this time, the Fund's management is evaluating the implications and its impact to the Fund.
11. Portfolio Reorganizations
On April 29, 2013, the Multi Cap Growth Portfolio (the "Portfolio") acquired the net assets of Morgan Stanley Variable Investment Series Aggressive Equity Portfolio ("Aggressive Equity Portfolio"), an open-end investment company, based on the respective valuations as of the close of business on April 26, 2013, pursuant to a Plan of Reorganization approved by the shareholders of Aggressive Equity Portfolio on February 21, 2013 ("Reorganization"). The purpose of the transaction was to combine two portfolios managed by Morgan Stanley Investment Management Inc. with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 249,276 Class X shares of the Portfolio at a net asset value of $44.02 per share for 592,874 Class X shares of Aggressive Equity Portfolio; 360,951 Class Y shares of the Portfolio at a net asset value of $43.50 for 875,713 Class Y shares of Aggressive Equity Portfolio. The net assets of Aggressive Equity Portfolio before the Reorganization were $26,674,482, including unrealized appreciation of $7,944,634 at April 26, 2013. The investment portfolio of Aggressive Equity Portfolio, with a fair value of $26,791,965 and identified cost of $18,847,335 on April 26, 2013, was the principal asset acquired by the Portfolio. For financial reporting purposes, assets received and shares issued by the Portfolio were recorded at fair value; however, the cost basis of the investments received from Aggressive Equity Portfolio was carried forward to align ongoing reporting of the Portfolio's realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the Reorganization, the net assets of the Portfolio were $213,552,626. Immediately after the merger, the net assets of the Portfolio were $240,227,108.
Upon closing of the Reorganization, shareholders of Aggressive Equity Portfolio received shares of the Portfolio as follows:
AGGRESSIVE EQUITY PORTFOLIO | MULTI CAP GROWTH PORTFOLIO | ||||||
Class X | Class X | ||||||
Class Y | Class Y |
88
Morgan Stanley Variable Investment Series
Notes to Financial Statements n June 30, 2014 (unaudited) continued
Assuming the acquisition had been completed on January 1, 2013, the beginning of the annual reporting period of the Portfolio, the Portfolio's pro forma results of operations for the period ended December 31, 2013, are as follows:
Net investment income(1) | $ | 5,039 | |||||
Net gain realized and unrealized gain(2) | $ | 106,904,086 | |||||
Net increase (decrease) in net assets resulting from operations | $ | 106,909,125 |
(1) $(279,819) as reported, plus $37,505 Aggressive Equity Portfolio premerger, plus $247,353 of estimated pro-forma eliminated expenses.
(2) $105,695,600 as reported, plus $1,208,486 Aggressive Equity Portfolio premerger.
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Aggressive Equity Portfolio that have been included in the Portfolio's Statement of Operations since April 29, 2013.
On February 21, 2013, shareholders of the Strategist Portfolio (the "Portfolio") approved an Agreement and Plan of Reorganization by and between Morgan Stanley Variable Investment Series (the "Fund"), on behalf of the Portfolio, and The Universal Institutional Funds, Inc., on behalf of the Global Tactical Asset Allocation Portfolio ("Global Tactical Asset Allocation"), pursuant to which substantially all of the assets and liabilities of the Portfolio would be transferred to Global Tactical Asset Allocation in exchange for shares of Global Tactical Asset Allocation and pursuant to which the Portfolio will be liquidated and terminated (the "Reorganization"). Each Class X shareholder of the Portfolio received Class I shares of Global Tactical Asset Allocation and each Class Y shareholder of the Portfolio received Class II shares of the Global Tactical Asset Allocation. The Reorganization was consummated on April 29, 2013.
On March 17, 2014, shareholders of the Global Infrastructure Portfolio (the "Portfolio") approved an Agreement and Plan of Reorganization by and between Morgan Stanley Variable Investment Series, on behalf of the Portfolio and The Universal Institutional Funds, Inc., on behalf of its newly created series Global Infrastructure Portfolio ("UIF Global Infrastructure"), pursuant to which substantially all of the assets and liabilities of the Portfolio would be transferred to UIF Global Infrastructure in exchange for shares of UIF Global Infrastructure and pursuant to which the Portfolio would be liquidated and terminated (the "Reorganization"). Each Class X shareholder of the Portfolio received Class I shares of UIF Global Infrastructure and each Class Y shareholder of the Portfolio received Class II shares of UIF Global Infrastructure. The Reorganization was consummated on April 28, 2014.
89
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 | |||||||||||||||||||||||||||||||
2009^ | $ | 1.00 | $ | 0.000 | (d) | — | $ | 0.000 | (d) | $ | (0.000 | )(d) | — | $ | (0.000 | )(d) | |||||||||||||||
2010^ | 1.00 | 0.000 | (d) | — | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | ||||||||||||||||||||
2011 | 1.00 | 0.000 | (d) | $ | (0.000 | )(d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | ||||||||||||||||||
2012 | 1.00 | 0.000 | (d) | 0.000 | (d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
2013 | 1.00 | 0.000 | (d) | 0.000 | (d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
2014^^ | 1.00 | 0.000 | (d) | 0.000 | (d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2009^ | 1.00 | 0.000 | (d) | — | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | ||||||||||||||||||||
2010^ | 1.00 | 0.000 | (d) | — | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | ||||||||||||||||||||
2011 | 1.00 | 0.000 | (d) | (0.000 | )(d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
2012 | 1.00 | 0.000 | (d) | 0.000 | (d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
2013 | 1.00 | 0.000 | (d) | 0.000 | (d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
2014^^ | 1.00 | 0.000 | (d) | 0.000 | (d) | 0.000 | (d) | (0.000 | )(d) | — | (0.000 | )(d) | |||||||||||||||||||
LIMITED DURATION CLASS X SHARES | |||||||||||||||||||||||||||||||
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 | 0.12 | 0.13 | 0.25 | (0.23 | ) | — | (0.23 | ) | ||||||||||||||||||||||
2013 | 7.71 | 0.10 | (0.07 | ) | 0.03 | (0.20 | ) | — | (0.20 | ) | |||||||||||||||||||||
2014^^ | 7.54 | 0.04 | 0.05 | 0.09 | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
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 | 0.10 | 0.13 | 0.23 | (0.21 | ) | — | (0.21 | ) | ||||||||||||||||||||||
2013 | 7.69 | 0.08 | (0.07 | ) | 0.01 | (0.18 | ) | — | (0.18 | ) | |||||||||||||||||||||
2014^^ | 7.52 | 0.03 | 0.05 | 0.08 | (0.11 | ) | — | (0.11 | ) |
See Notes to Financial Statements
90
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 | |||||||||||||||||||||||||||||||
2009^ | $ | 1.00 | 0.03 | % | $ | 84,486 | 0.40 | %(e)(f) | 0.03 | %(e)(f) | — | N/A | |||||||||||||||||||
2010^ | 1.00 | 0.01 | 59,932 | 0.29 | (f) | 0.00 | (f)(g) | — | N/A | ||||||||||||||||||||||
2011 | 1.00 | 0.01 | 51,431 | 0.22 | (f) | 0.01 | (f) | — | N/A | ||||||||||||||||||||||
2012 | 1.00 | 0.01 | 42,267 | 0.27 | (f) | 0.01 | (f) | — | N/A | ||||||||||||||||||||||
2013 | 1.00 | 0.01 | 33,951 | 0.19 | (f) | 0.01 | (f) | — | N/A | ||||||||||||||||||||||
2014^^ | 1.00 | 0.00 | (g)(k) | 31,129 | 0.18 | (f)(l) | 0.01 | (f)(l) | — | N/A | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2009^ | 1.00 | 0.01 | 81,145 | 0.41 | (e)(f) | 0.01 | (e)(f) | — | N/A | ||||||||||||||||||||||
2010^ | 1.00 | 0.01 | 67,139 | 0.29 | (f) | 0.00 | (f)(g) | — | N/A | ||||||||||||||||||||||
2011 | 1.00 | 0.01 | 55,849 | 0.22 | (f) | 0.01 | (f) | — | N/A | ||||||||||||||||||||||
2012 | 1.00 | 0.01 | 48,565 | 0.27 | (f) | 0.01 | (f) | — | N/A | ||||||||||||||||||||||
2013 | 1.00 | 0.01 | 39,351 | 0.19 | (f) | 0.01 | (f) | — | N/A | ||||||||||||||||||||||
2014^^ | 1.00 | 0.00 | (g)(k) | 37,049 | 0.18 | (f)(l) | 0.01 | (f)(l) | — | N/A | |||||||||||||||||||||
LIMITED DURATION CLASS X SHARES | |||||||||||||||||||||||||||||||
2009^ | 7.84 | 5.76 | 16,889 | 0.49 | (h) | 2.61 | (h) | 0.00 | %(g) | 105 | % | ||||||||||||||||||||
2010^ | 7.74 | 2.35 | 14,921 | 0.55 | (h) | 2.25 | (h) | 0.00 | (g) | 88 | |||||||||||||||||||||
2011 | 7.69 | 2.75 | 12,693 | 0.60 | (h) | 2.15 | (h) | 0.00 | (g) | 45 | |||||||||||||||||||||
2012 | 7.71 | 3.34 | 10,628 | 0.63 | (h) | 1.52 | (h) | 0.00 | (g) | 58 | |||||||||||||||||||||
2013 | 7.54 | 0.39 | 9,346 | 0.75 | (h) | 1.27 | (h) | 0.00 | (g) | 53 | |||||||||||||||||||||
2014^^ | 7.49 | 1.13 | (k) | 8,794 | 0.77 | (h)(l) | 1.08 | (h)(l) | 0.00 | (g)(l) | 25 | (k) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2009^ | 7.81 | 5.56 | 60,753 | 0.74 | (h) | 2.36 | (h) | 0.00 | (g) | 105 | |||||||||||||||||||||
2010^ | 7.72 | 2.22 | 53,760 | 0.80 | (h) | 2.00 | (h) | 0.00 | (g) | 88 | |||||||||||||||||||||
2011 | 7.67 | 2.45 | 44,085 | 0.85 | (h) | 1.90 | (h) | 0.00 | (g) | 45 | |||||||||||||||||||||
2012 | 7.69 | 3.05 | 38,736 | 0.88 | (h) | 1.27 | (h) | 0.00 | (g) | 58 | |||||||||||||||||||||
2013 | 7.52 | 0.09 | 32,974 | 1.00 | (h) | 1.02 | (h) | 0.00 | (g) | 53 | |||||||||||||||||||||
2014^^ | 7.49 | 1.11 | (k) | 30,772 | 1.02 | (h)(l) | 0.83 | (h)(l) | 0.00 | (g)(l) | 25 | (k) |
91
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 | ||||||||||||||||||||||||
INCOME PLUS CLASS X SHARES | |||||||||||||||||||||||||||||||
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 | 0.48 | 1.04 | 1.52 | (0.68 | ) | — | (0.68 | ) | ||||||||||||||||||||||
2013 | 11.97 | 0.45 | (0.35 | ) | 0.10 | (0.59 | ) | — | (0.59 | ) | |||||||||||||||||||||
2014^^ | 11.48 | 0.20 | 0.54 | 0.74 | (0.51 | ) | — | (0.51 | ) | ||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
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 | 0.45 | 1.04 | 1.49 | (0.65 | ) | — | (0.65 | ) | ||||||||||||||||||||||
2013 | 11.93 | 0.41 | (0.33 | ) | 0.08 | (0.56 | ) | — | (0.56 | ) | |||||||||||||||||||||
2014^^ | 11.45 | 0.19 | 0.52 | 0.71 | (0.47 | ) | — | (0.47 | ) | ||||||||||||||||||||||
EUROPEAN EQUITY CLASS X SHARES | |||||||||||||||||||||||||||||||
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 | 0.53 | 2.03 | 2.56 | (0.43 | ) | — | (0.43 | ) | ||||||||||||||||||||||
2013 | 16.32 | 0.42 | 3.95 | 4.37 | (0.53 | ) | — | (0.53 | ) | ||||||||||||||||||||||
2014^^ | 20.16 | 0.76 | (0.35 | ) | 0.41 | (0.48 | ) | — | (0.48 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
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 | 0.49 | 2.03 | 2.52 | (0.38 | ) | — | (0.38 | ) | ||||||||||||||||||||||
2013 | 16.26 | 0.33 | 3.98 | 4.31 | (0.48 | ) | — | (0.48 | ) | ||||||||||||||||||||||
2014^^ | 20.09 | 0.73 | (0.34 | ) | 0.39 | (0.43 | ) | — | (0.43 | ) | |||||||||||||||||||||
MULTI CAP GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
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 | 0.20 | 4.40 | 4.60 | — | (0.90 | ) | (0.90 | ) | ||||||||||||||||||||||
2013 | 41.01 | (0.03 | ) | 20.55 | 20.52 | (0.20 | ) | (0.66 | ) | (0.86 | ) | ||||||||||||||||||||
2014^^ | 60.67 | 0.01 | 1.14 | 1.15 | — | (7.79 | ) | (7.79 | ) |
See Notes to Financial Statements
92
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 | ||||||||||||||||||||||||
INCOME PLUS CLASS X SHARES | |||||||||||||||||||||||||||||||
2009^ | $ | 10.99 | 22.57 | % | $ | 114,488 | 0.56 | %(h) | 5.64 | %(h) | 0.00 | %(g) | 75 | % | |||||||||||||||||
2010^ | 11.26 | 9.28 | 106,363 | 0.59 | (h) | 5.23 | (h) | 0.00 | (g) | 53 | |||||||||||||||||||||
2011 | 11.13 | 5.01 | 90,876 | 0.59 | (h) | 5.01 | (h) | 0.00 | (g) | 43 | |||||||||||||||||||||
2012 | 11.97 | 14.09 | 86,765 | 0.61 | (h) | 4.14 | (h) | 0.00 | (g) | 68 | |||||||||||||||||||||
2013 | 11.48 | 1.03 | 73,998 | 0.62 | (h) | 3.82 | (h) | 0.00 | (g) | 55 | |||||||||||||||||||||
2014^^ | 11.71 | 6.42 | (k) | 72,684 | 0.63 | (h)(l) | 3.47 | (h)(l) | 0.00 | (g)(l) | 24 | (k) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2009^ | 10.95 | 22.29 | 148,108 | 0.81 | (h) | 5.39 | (h) | 0.00 | (g) | 75 | |||||||||||||||||||||
2010^ | 11.22 | 9.01 | 124,322 | 0.84 | (h) | 4.98 | (h) | 0.00 | (g) | 53 | |||||||||||||||||||||
2011 | 11.09 | 4.71 | 102,948 | 0.84 | (h) | 4.76 | (h) | 0.00 | (g) | 43 | |||||||||||||||||||||
2012 | 11.93 | 13.82 | 97,579 | 0.86 | (h) | 3.89 | (h) | 0.00 | (g) | 68 | |||||||||||||||||||||
2013 | 11.45 | 0.81 | 82,429 | 0.87 | (h) | 3.57 | (h) | 0.00 | (g) | 55 | |||||||||||||||||||||
2014^^ | 11.69 | 6.22 | (k) | 76,417 | 0.88 | (h)(l) | 3.22 | (h)(l) | 0.00 | (g)(l) | 24 | (k) | |||||||||||||||||||
EUROPEAN EQUITY CLASS X SHARES | |||||||||||||||||||||||||||||||
2009^ | 15.42 | 27.73 | 61,197 | 1.00 | (h)(i) | 2.67 | (h)(i) | 0.00 | (g) | 26 | |||||||||||||||||||||
2010^ | 16.05 | 7.23 | (j) | 54,824 | 1.00 | (h)(i) | 1.81 | (h)(i) | 0.00 | (g) | 22 | ||||||||||||||||||||
2011 | 14.19 | (9.64 | ) | 41,181 | 1.00 | (h)(i) | 2.56 | (h)(i) | 0.00 | (g) | 11 | ||||||||||||||||||||
2012 | 16.32 | 18.51 | 40,141 | 1.00 | (h)(i) | 3.50 | (h)(i) | 0.00 | (g) | 11 | |||||||||||||||||||||
2013 | 20.16 | 27.50 | 43,414 | 1.00 | (h)(i) | 2.32 | (h)(i) | 0.00 | (g) | 10 | |||||||||||||||||||||
2014^^ | 20.09 | 2.04 | (k) | 41,297 | 1.00 | (h)(i)(l) | 7.54 | (h)(i)(l) | 0.00 | (g)(l) | 14 | (k) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2009^ | 15.35 | 27.41 | 19,323 | 1.25 | (h)(i) | 2.42 | (h)(i) | 0.00 | (g) | 26 | |||||||||||||||||||||
2010^ | 15.98 | 6.96 | (j) | 17,821 | 1.25 | (h)(i) | 1.56 | (h)(i) | 0.00 | (g) | 22 | ||||||||||||||||||||
2011 | 14.12 | (9.85 | ) | 11,668 | 1.25 | (h)(i) | 2.31 | (h)(i) | 0.00 | (g) | 11 | ||||||||||||||||||||
2012 | 16.26 | 18.16 | 11,773 | 1.25 | (h)(i) | 3.25 | (h)(i) | 0.00 | (g) | 11 | |||||||||||||||||||||
2013 | 20.09 | 27.20 | 11,807 | 1.25 | (h)(i) | 2.07 | (h)(i) | 0.00 | (g) | 10 | |||||||||||||||||||||
2014^^ | 20.05 | 1.92 | (k) | 10,746 | 1.25 | (h)(i)(l) | 7.29 | (h)(i)(l) | 0.00 | (g)(l) | 14 | (k) | |||||||||||||||||||
MULTI CAP GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2009^ | 31.42 | 71.32 | 202,279 | 0.55 | (h) | 0.44 | (h) | 0.00 | (g) | 23 | |||||||||||||||||||||
2010^ | 40.07 | 27.76 | 220,553 | 0.58 | (h) | 0.19 | (h) | 0.00 | (g) | 29 | |||||||||||||||||||||
2011 | 37.31 | (6.74 | ) | 173,284 | 0.56 | (h) | 0.03 | (h) | 0.00 | (g) | 24 | ||||||||||||||||||||
2012 | 41.01 | 12.37 | 164,917 | 0.58 | (h) | 0.48 | (h) | 0.00 | (g) | 44 | |||||||||||||||||||||
2013 | 60.67 | 50.76 | 223,689 | 0.57 | (h) | (0.06 | )(h) | 0.00 | (g) | 34 | |||||||||||||||||||||
2014^^ | 54.03 | 1.90 | (k) | 210,317 | 0.57 | (h)(l) | 0.03 | (h)(l) | 0.00 | (g)(l) | 13 | (k) |
93
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 | ||||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
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 | 0.09 | 4.37 | 4.46 | — | $ | (0.90 | ) | (0.90 | ) | |||||||||||||||||||||
2013 | 40.56 | (0.15 | ) | 20.32 | 20.17 | (0.11 | ) | (0.66 | ) | (0.77 | ) | ||||||||||||||||||||
2014^^ | 59.96 | (0.07 | ) | 1.13 | 1.06 | — | (7.79 | ) | (7.79 | ) |
^^ For the six months ended June 30, 2014 (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) Amount is less than $0.001.
(e) Reflects fees paid in connection with the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. This fee had an effect of 0.04% for the year ended 2009.
(f) 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, 2014 | |||||||||||
Class X | 0.67 | % | (0.48 | )% | |||||||
Class Y | 0.92 | (0.73 | ) | ||||||||
December 31, 2013 | |||||||||||
Class X | 0.66 | (0.46 | ) | ||||||||
Class Y | 0.91 | (0.71 | ) | ||||||||
December 31, 2012 | |||||||||||
Class X | 0.63 | (0.35 | ) | ||||||||
Class Y | 0.88 | (0.60 | ) | ||||||||
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 | ) |
See Notes to Financial Statements
94
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 | ||||||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2009^ | $ | 31.21 | 70.85 | % | $ | 64,122 | 0.80 | %(h) | 0.19 | %(h) | 0.00 | %(g) | 23 | % | |||||||||||||||||
2010^ | 39.77 | 27.43 | 67,303 | 0.83 | (h) | (0.06 | )(h) | 0.00 | (g) | 29 | |||||||||||||||||||||
2011 | 37.00 | (6.97 | ) | 49,678 | 0.81 | (h) | (0.22 | )(h) | 0.00 | (g) | 24 | ||||||||||||||||||||
2012 | 40.56 | 12.09 | 45,556 | 0.83 | (h) | 0.23 | (h) | 0.00 | (g) | 44 | |||||||||||||||||||||
2013 | 59.96 | 50.37 | 72,135 | 0.82 | (h) | (0.31 | )(h) | 0.00 | (g) | 34 | |||||||||||||||||||||
2014^^ | 53.23 | 1.77 | (k) | 60,240 | 0.82 | (h)(l) | (0.22 | )(h)(l) | 0.00 | (g)(l) | 13 | (k) |
(g) Amount is less than 0.005%.
(h) 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."
(i) 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, 2014 | |||||||||||
Class X | 1.22 | % | 7.32 | % | |||||||
Class Y | 1.47 | 7.07 | |||||||||
December 31, 2013 | |||||||||||
Class X | 1.22 | 2.10 | |||||||||
Class Y | 1.47 | 1.85 | |||||||||
December 31, 2012 | |||||||||||
Class X | 1.22 | 3.28 | |||||||||
Class Y | 1.47 | 3.03 | |||||||||
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 |
(j) 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.
(k) Not annualized.
(l) Annualized.
95
Morgan Stanley Variable Investment Series
Results of Special Shareholder Meeting (unaudited)
On May 17, 2014, a Special Meeting of Shareholders of Global Infrastructure Portfolio (the "Portfolio") was held in order to consider and vote upon a proposal to approve an Agreement and Plan of Reorganization. The voting results were as follows:
Number of Shares | |||||||||||||||
For | Against | Abstain | |||||||||||||
6,384,187 | 219,758 | 929,893 |
96
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 | |||||||
John H. Gernon President and Principal Executive Officer | |||||||
Stefanie V. Chang Yu Chief Compliance Officer | |||||||
Joseph C. Benedetti Vice President | |||||||
Francis J. Smith Treasurer and Principal Financial Officer | |||||||
Mary E. Mullin Secretary | |||||||
Transfer Agent | Custodian | ||||||
Boston Financial Data Services, Inc. 2000 Crown Colony Drive Quincy, Massachusetts 02169 | 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-Adviser | |||||||
Morgan Stanley Investment Management Limited 25 Cabot Square, Canary Wharf London, E14 4QA, England |
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) 548-7786.
This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing.
Morgan Stanley Distribution, Inc., member FINRA.
#40113A
VARINSAN
976270 EXP 08.31.15
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/ John H. Gernon |
|
John H. Gernon |
|
Principal Executive Officer |
|
August 19, 2014 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John H. Gernon |
|
John H. Gernon |
|
Principal Executive Officer |
|
August 19, 2014 |
|
|
|
/s/ Francis Smith |
|
Francis Smith |
|
Principal Financial Officer |
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August 19, 2014 |
|