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 | 811-07185 | |||||||
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Morgan Stanley Select Dimensions 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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Randy Takian | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | 212-296-6990 |
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Date of fiscal year end: | December 31, 2010 |
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Date of reporting period: | June 30, 2010 |
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Item 1 - Report to Shareholders
MORGAN STANLEY
SELECT DIMENSIONS INVESTMENT SERIES
Semi-Annual Report
JUNE 30, 2010
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 Select Dimensions Investment Series
Table of Contents
Letter to the Shareholders | 1 | ||||||
Fund Performance | 10 | ||||||
Expense Example | 12 | ||||||
Investment Advisory Agreement Approval | 16 | ||||||
Portfolio of Investments: | |||||||
Money Market | 20 | ||||||
Flexible Income | 22 | ||||||
Global Infrastructure | 43 | ||||||
Capital Growth | 47 | ||||||
Focus Growth | 50 | ||||||
Capital Opportunities | 52 | ||||||
Mid Cap Growth | 54 | ||||||
Financial Statements: | |||||||
Statements of Assets and Liabilities | 58 | ||||||
Statements of Operations | 60 | ||||||
Statements of Changes in Net Assets | 62 | ||||||
Notes to Financial Statements | 69 | ||||||
Financial Highlights | 94 | ||||||
Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010
Dear Shareholder,
The first half of 2010 was marked by slowing recovery in the economy and turbulence in the financial markets. Recent gross domestic product (GDP) data showed that the U.S. economy continued to expand in the first quarter of the year, albeit at a slower pace than the last quarter of 2009, and many of the characteristics of recovery remained in evidence. For example, industrial production, capacity utilization and purchasing manager surveys all pointed to sustained levels of global GDP growth. That said, investors remained concerned about the economy's future path. The government's fiscal stimulus packages did help to stabilize the housing market and consumer spending, but fears persisted about the potential impact on the economy as these programs are phased out. Furthermore, the labor market remained weak in spite of modest improvements in the latter months of the period.
After a relatively calm first quarter, financial markets turned choppy in the second quarter as investors focused on the unfolding sovereign debt crisis in Europe and weaker-than-expected economic data, particularly employment in the U.S. In emerging markets, central banks stepped up the movement toward the normalization of monetary policy. China's central bank announced a more flexible exchange rate policy while Chile's central bank surprised observers with a larger-than-expected 50 basis point increase in that country's key policy rate.
Domestic Equity Overview
Over the six-month review period, the U.S. equity market reversed course from the rally that had begun in March of 2009 to finish the period with a return of – 6.66%, as measured by the S&P 500 Index. Volatility returned to the markets, especially in the second quarter of 2010, as investor confidence in the global economic recovery fell. After several consecutive quarters of improving economic data in the U.S., employment and housing reports began to disappoint expectations, fueling concerns about the potential for a double-dip recession in the U.S. even as investors became increasingly concerned about markets elsewhere.
Both growth and value stocks lost ground during the period (as measured by the Russell 1000® Growth and Value Indexes, respectively), though overall small capitalization companies outperformed larger-caps (as measured by the Russell 2000® and S&P 500® Indexes, respectively). All sectors of the S&P 500 Index declined for the six month period, but performance varied widely. The industrial sector lost the least value, followed by the consumer discretionary and consumer staples sectors. The materials sector was the worst performer, followed closely by the energy sector, which suffered amidst the ongoing oil spill in the Gulf of Mexico.
Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
Fixed Income Overview
As with equities, the first quarter of 2010 was overall a good period for fixed income assets, which were supported by a positive macroeconomic backdrop of benign economic data and supportive monetary policy. However, bond markets became more volatile in the second quarter on mounting fiscal and political concerns. Against this backdrop, government bonds continued to be regarded as "safe haven" assets, leading U.S. Treasury yields to decline across the yield curve. With regard to agency debt, yield spreads (a measure of the compensation demanded by investors to assume credit risk) were relatively unchanged on intermediate maturities but widened somewhat on long maturities.
In other major bond market sectors, yield spreads on agency mortgage-backed securities (MBS) widened by approximately 10 basis points over the course of the period. For the period, 15-year mortgages outperformed 30-year mortgages and higher coupons outperformed lower coupons. Corporate credit spreads also widened during the period as credit concerns returned to the fore, leading high yield to underperform investment grade credit (as measured by the Barclays Capital U.S. Corporate High Yield - 2% Issuer Cap Index and Barclays Capital Corporate Bond Index, respectively). The best performing sectors in the investment grade market were real estate investment trusts (REITs), brokers and technology, while the worst performers were energy, communications and banking.
The money markets continued to gain stability from the expansion of the Federal Reserve's balance sheet. However, notable announcements by the Federal Reserve and Treasury beginning in February indicated that the extraordinary liquidity measures provided by emergency government actions were coming to an end and efforts to begin draining excess reserves from the banking system would soon be underway. Also in February, the SEC published its final Money Market Fund Reform rules, which became effective in May.
International Equity Overview
International equity markets were increasingly volatile during the period as investors digested a spate of political and fiscal troubles in developed markets. In early 2010, sovereign debt woes in Greece reached a boiling point, leading to fears that similarly indebted countries elsewhere in Europe could create even greater danger for the global financial system. Germany ultimately led the rest of Europe to create a bailout fund, helping assuage investors' immediate concerns, but long-term worries remained. Equity markets in Asia also struggled in the wake of China's decision to enact mildly restrictive measures to cool its economy's heated growth (particularly in the property sector), triggering concerns about the potential for a slowdown in Chinese demand. Against this backdrop, international developed markets, as represented by the Morgan Stanley Capital International (MSCI) EAFE Index, finished the period with a double-digit decline.
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Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
Emerging markets as a whole also lost ground during the period, though performance varied by region and by country. Peripheral European markets were hit hard by concerns over fiscal viability on the Continent, with Hungary and Poland performing especially poorly. Performance was more mixed in Asia, with China's economic policy and steep market losses continuing to dominate headlines in the region. Latin American shares also generally declined, though as in Asia, performance was widely dispersed by country. The two best-performing emerging markets for the six-month period were Colombia and Indonesia.
Capital Growth Portfolio
For the six-month period ended June 30, 2010, Select Dimensions – Capital Growth Portfolio Class X shares produced a total return of – 5.30%, outperforming the Russell 1000® Growth Index (the "Index"),1 which returned – 7.65%. For the same period, the Portfolio's Class Y shares returned – 5.45%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Stock selection in technology had the largest positive effect on relative performance for the period. Within the sector, computer services software and systems held the leading contributor. Stock selection in health care also contributed, particularly within the medical equipment industry. Additionally, both stock selection and an overweight in consumer discretionary were advantageous. Within the sector, outperformance was primarily attributable to positions in the hotel/motel industry.
Although the Portfolio outperformed the Index, there were areas detrimental to overall performance. Stock selection in materials and processing had the largest negative effect on relative performance, with the leading detractor in the fertilizers industry. Both a sector overweight and stock selection in financial services detracted, in particular holdings in the financial data and systems industry. Lastly, a sector underweight in consumer staples was disadvantageous; the Portfolio's sole holding here was in the foods industry.
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.
1 The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Index is an index of approximately 1,000 of the largest U.S. securities based on a combination of market capitalization and current index membership. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
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Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
Capital Opportunities Portfolio
For the six-month period ended June 30, 2010, Select Dimensions – Capital Opportunities Portfolio Class X shares produced a total return of – 8.13%, underperforming the Russell 3000® Growth Index (the "Index"),2 which returned – 7.25%. For the same period, the Portfolio's Class Y shares returned – 8.25%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Stock selection in materials and processing had the largest negative effect on relative performance for the period. The sole position in the sector was in the fertilizer industry. Both stock selection and a sector overweight in financial services were disadvantageous, with financial data and systems as the leading detracting industry. Stock selection in health care services also hindered returns.
Although the Portfolio underperformed the Index, there were areas that contributed to relative performance. Stock selection in technology had the largest positive effect. Within the sector, computer services software and systems held the leading contributor. Stock selection in producer durables also supported returns, especially in the commercial services industry, although an underweight to the sector did detract. The Portfolio's lack of exposure to the utilities industry was also advantageous.
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.
Flexible Income Portfolio
For the six-month period ended June 30, 2010, Select Dimensions – Flexible Income Portfolio Class X shares produced a total return of 3.46%, underperforming the Barclays Capital Intermediate U.S. Government/Credit Index (the "Index"),3 which returned 4.56%. For the same period, the Portfolio's Class Y shares returned 3.38%. Past performance is no guarantee of future results.
2 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.
3 The Barclays Capital Intermediate U.S. Government/Credit Index 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 1 to 10 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 Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Within the Portfolio's investment grade corporate credit holdings, an emphasis on financials detracted from relative performance for the period due to spread widening in the sector. Overall, the Portfolio maintained an overweight to investment grade credit, and within the sector we continued to focus on relatively senior securities and on issues of companies whose creditworthiness in our view would not be materially hurt by a cyclical decline in earnings.
The Portfolio's positions in high yield corporate credit and emerging market debt, sectors that are not represented in the Index, detracted from relative returns as significant spread widening in both sectors hindered their performance. However, the Portfolio also maintained a tactical position in non-agency mortgages, which was beneficial to relative performance. This sector is also not represented in the Index.
With regard to interest rate positioning, we initiated a trade with interest rate swaps designed to benefit from a decline in rates in the intermediate segment of the yield curve relative to the long end of the curve. This change in rates occurred as we expected, and we subsequently exited the position near the end of the reporting period. The Portfolio was also positioned for a flattening of the curve between the 2-year and 5-year segments. Overall, these interest rate trades had a minimal impact on performance.
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.
Focus Growth Portfolio
For the six-month period ended June 30, 2010, Select Dimensions – Focus Growth Portfolio Class X shares produced a total return of – 5.52%, outperforming the Russell 1000® Growth Index (the "Index"),4 which returned – 7.65%. For the same period, the Portfolio's Class Y shares returned – 5.63%. 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.
4 The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Index is an index of approximately 1,000 of the largest U.S. securities based on a combination of market capitalization and current index membership. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
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Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
Stock selection in technology had the largest positive effect on relative performance for the period, although an overweight to the sector modestly detracted. Within the sector, the computer services and software systems industry held the leading contributor. Stock selection in health care was advantageous, with the leading contributor in the medical equipment industry. Stock selection in producer durables also had a positive effect on relative performance, particularly holdings in commercial services.
Although the Portfolio outperformed the Index, there were areas detrimental to overall performance. Stock selection in materials and processing was disadvantageous. The leading detractor here was in the fertilizer industry. An underweight in consumer discretionary as well as stock selection in diversified retail holdings also hindered returns. Lastly, an underweight in consumer staples detracted, as did weak results from a food industry holding 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.
Global Infrastructure Portfolio
For the six-month period ended June 30, 2010, Select Dimensions – Global Infrastructure Portfolio Class X shares produced a total return of – 12.20%, underperforming the Dow Jones Brookfield Global Infrastructure Index (the "Index"),5 which returned – 7.45%, and the S&P Global BMI Index,6 which returned – 8.26%, and ou tperforming the S&P 500® Utilities Index/S&P Global Infrastructure Index,7 which returned – 13.05%. For the same period, the Portfolio's Class Y shares returned – 12.31%. Past performa nce 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.
5 The Dow Jones Brookfield Global Infrastructure IndexSM is a float-adjusted market capitalization weighted index that measures the stock performance of companies that exhibit strong infrastructure characteristics. The Index intends to measure all sectors of the infrastructure market. The Index was first published in July 2008; however, back-tested hypothetical performance information is available for this Index since December 31, 2002. Returns are calculated using the return data of the S&P Global BMI Index through December 31, 2002 and the return data of the Dow Jones Brookfield Global Infrastructure Index for periods thereafter. It is not possible to invest directly in an index. The Portfolio's secondary benchmark was changed in March 2010 from the S&P 500 Utilities Index/S&P Global Infrastructure Index t o the Dow Jones Brookfield Global Infrastructure Index to more accurately reflect the Portfolio's investable universe.
6 The Standard & Poor's Global BMI Index (S&P Global BMI Index) is a broad market index designed to capture exposure to equities in all countries in the world that meet minimum size and liquidity requirements. As of the date of this Report, there are approximately 10,000 index members representing 25 developed and 21 emerging market countries. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
7 The S&P 500® Utilities Index/S&P Global Infrastructure Index is a custom index represented by the performance of the S&P 500® Utilities Index for periods from the Portfolio's inception to and including November 5, 2008 (the date the Portfolio completed implementation of the change to its principal investment strategy), and the performance of the S&P Global Infrastructure Index for periods thereafter. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
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Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
Portfolio performance over this time-period reflects a number of changes coincident with our assumption of portfolio management responsibilities at the end of March 2010, the two most important being (1) a change in the Portfolio's sector benchmark to the Dow Jones Brookfield Global Infrastructure Index and (2) a shift in Portfolio holdings to reflect our fundamental, value-driven investment strategy. Holdings in the Portfolio now generally reflect companies with "core" infrastructure characteristics such as asset ownership/control, high barriers to entry, and cash flow stability. Furthermore, investments in companies with exposure to commodity price fluctuations have been significantly reduced. While these changes have had some marginal negative impact on short-term performance, we anticipate the changes in Portfolio strategy and company constituents will provide investors with a more attractive risk/return profile over the lon g run.
We are committed to our core investment philosophy as an infrastructure value investor. This results in the ownership of stocks which we believe provide infrastructure exposure at the best valuation relative to their underlying assets and growth prospects. Our research led us to an overweighting in the Portfolio to the communications, toll roads, and diversified sectors, and an underweighting to companies in the European regulated utilities, transmission and distribution, ports and water sectors. The Portfolio's overweight position in communications reflected our belief that certain companies within the sector were trading at meaningful discounts to intrinsic value and possessed good growth prospects that are not dependent on a strong global macroeconomic recovery. For the toll road and diversified sectors, the Portfolio's overweight positions in large part reflect investments in companies domiciled in southern Europe, but with much more diversified geographic operating exposure. These companies were trading at what we believed to be significant discounts to intrinsic value that were unjustified given the companies' cash flow characteristics and ability to withstand long periods of capital markets instability, such as what was experienced in Europe through the first half of 2010.
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.
Mid Cap Growth Portfolio
For the six-month period ended June 30, 2010, Select Dimensions – Mid Cap Growth Portfolio Class X shares produced a total return of 1.23%, outperforming the Russell Midcap® Growth Index (the "Index"),8 which returned – 3.31%. For the same period, the Portfolio's Class Y shares returned 1.11%. Past performance is no guarantee of future results.
8 The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap® Index is a subset of the Russell 1000® Index and includes approximately 800 of the smallest securities in the Russell 1000® Index, which in turn consists of approximately 1,000 of the largest U.S. securities based on a combination of market capitalization and current index membership. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index .
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Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
Both stock selection and a sector underweight in technology had the largest positive effect on relative performance for the period. Within the sector, computer services software and systems held the leading outperformer. Stock selection and an overweight in the consumer discretionary sector was also additive, with specialty retail the leading contributing industry in the sector. Stock selection and an underweight in utilities also supported relative returns; the sole contributor in the sector was a telecommunications holding.
Although the Portfolio outperformed the benchmark, other areas hindered relative performance. Both stock selection and an overweight in financial services detracted from relative performance. Within the sector, holdings in diversified financial services underperformed. An underweight in health care hindered relative results, as did stock selection in the pharmaceuticals industry. Lastly, stock selection in materials and processing was modestly disadvantageous. The leading detractor here was in the fertilizer industry.
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.
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, 2010, Money Market Portfolio had net assets of more than $120 million with an average portfolio maturity of 18 days. For the seven-day period ended June 30, 2010, the Portfolio's Class X shares provided an effective annualized yield of 0.01% (subsidized) and – 0.28% (non-subsidized) and a current yield of 0.01% (subsidized) and – 0.28% (non-subsidized), while its 30-day moving average yield for June was 0.01% (subsidized) and – 0.27% (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, 2010, 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, 2010, the Portfolio's Class Y shares provided an effective annualized yield of 0.01% (subsidized) and – 0.53% (non-subsidized) and a current yield of 0.01% (subsidized) and – 0.53% (non-subsidized), while its 30-day moving average yield for June was 0.01% (subsidized)
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Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n June 30, 2010 continued
and – 0.52% (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, 2010, 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.
During the reporting period, we continued to place a strong emphasis on purchasing high quality corporate, financial, and banking obligations. We focused on maintaining high levels of liquidity and a short weighted average maturity to guard against the uncertainty caused by volatility in the financial markets. Our strategy in managing the Portfolio remained consistent with our long-term focus on capital preservation and very high liquidity, and as in the past, we adhered to a conservative approach. We continue to review all eligible securities on our purchase list in an attempt to ensure that they continue to meet our high standards of minimal credit risk.
There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.
We appreciate your ongoing support of Morgan Stanley Select Dimensions Investment Series and look forward to continuing to serve your investment needs.
Very truly yours,
Randy Takian
President and Principal Executive Officer
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Morgan Stanley Select Dimensions Investment Series
Fund Performance n June 30, 2010
Average Annual Total Returns—Period Ended June 30, 2010(1) | |||||||||||||||||||||||
Class X | 1 Year | 5 Years | 10 Years | Since Inception | Date of Inception | ||||||||||||||||||
Capital Growth | 24.29 | % | 3.39 | % | -1.96 | % | 5.71 | % | 11/9/1994 | ||||||||||||||
Capital Opportunities | 18.85 | 4.27 | -6.46 | 2.12 | 1/21/1997 | ||||||||||||||||||
Flexible Income | 13.54 | 1.57 | 2.83 | 3.58 | 11/9/1994 | ||||||||||||||||||
Focus Growth | 24.76 | 2.41 | -2.54 | 7.85 | 11/9/1994 | ||||||||||||||||||
Global Infrastructure | 2.75 | 0.94 | -0.13 | 7.66 | 11/9/1994 | ||||||||||||||||||
Mid Cap Growth | 30.45 | 5.72 | 0.73 | 9.48 | 11/9/1994 | ||||||||||||||||||
Money Market | 0.01 | 2.69 | 2.44 | 3.46 | 11/9/1994 |
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please contact the issuing insurance company or speak with your Financial Advisor. Investment return and principal value will fluctuate. When you sell Portfolio shares, they may be worth less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance for Class Y shares will vary from the performance of Class X shares due to differences in expenses.
(1) Performance assumes reinvestment of all distributions for the underlying Portfolio 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 Select Dimensions Investment Series
Fund Performance n June 30, 2010
Average Annual Total Returns—Period Ended June 30, 2010(1) | |||||||||||||||||||||||
Class Y | 1 Year | 5 Years | 10 Years | Since Inception | Date of Inception | ||||||||||||||||||
Capital Growth | 23.97 | % | 3.13 | % | N/A | -2.44 | % | 7/24/2000 | |||||||||||||||
Capital Opportunities | 18.46 | 4.00 | N/A | -7.12 | 7/24/2000 | ||||||||||||||||||
Flexible Income | 13.32 | 1.32 | N/A | 2.63 | 7/24/2000 | ||||||||||||||||||
Focus Growth | 24.39 | 2.15 | N/A | -2.87 | 7/24/2000 | ||||||||||||||||||
Global Infrastructure | 2.50 | 0.70 | N/A | -0.59 | 7/24/2000 | ||||||||||||||||||
Mid Cap Growth | 30.12 | 5.45 | N/A | 0.75 | 7/24/2000 | ||||||||||||||||||
Money Market | 0.01 | 2.51 | N/A | 2.20 | 7/24/2000 |
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please contact the issuing insurance company or speak with your Financial Advisor. Investment return and principal value will fluctuate. When you sell Portfolio shares, they may be worth less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance for Class Y shares will vary from the performance of Class X shares due to differences in expenses.
(1) Performance assumes reinvestment of all distributions for the underlying Portfolio 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 Select Dimensions Investment Series
Expense Example n June 30, 2010 (unaudited)
As a shareholder of the Portfolio, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Portfolio expenses. This example is 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.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 01/01/10 – 06/30/10.
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 accoun t 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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Morgan Stanley Select Dimensions Investment Series
Expense Example n June 30, 2010 (unaudited) continued
Money Market
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (0.00% return) | $ | 1,000.00 | $ | 1,000.00 | $ | 1.19 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.60 | $ | 1.20 | |||||||||
Class Y | |||||||||||||||
Actual (0.00% return) | $ | 1,000.00 | $ | 1,000.00 | $ | 1.19 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.60 | $ | 1.20 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.24% and 0.24% 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 0.58% and 0.83% for Class X and Class Y shares, respectively.
Flexible Income
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (3.46% return) | $ | 1,000.00 | $ | 1,034.60 | $ | 4.19 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.68 | $ | 4.16 | |||||||||
Class Y | |||||||||||||||
Actual (3.38% return) | $ | 1,000.00 | $ | 1,033.80 | $ | 5.45 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.44 | $ | 5.41 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.83% and 1.08% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Global Infrastructure
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (-12.20% return) | $ | 1,000.00 | $ | 878.00 | $ | 4.80 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.69 | $ | 5.16 | |||||||||
Class Y | |||||||||||||||
Actual (-12.31% return) | $ | 1,000.00 | $ | 876.90 | $ | 5.96 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,018.45 | $ | 6.41 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 1.03% and 1.28% 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).
13
Morgan Stanley Select Dimensions Investment Series
Expense Example n June 30, 2010 (unaudited) continued
Capital Growth
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (-5.30% return) | $ | 1,000.00 | $ | 947.00 | $ | 4.06 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.63 | $ | 4.21 | |||||||||
Class Y | |||||||||||||||
Actual (-5.45% return) | $ | 1,000.00 | $ | 945.50 | $ | 5.26 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.39 | $ | 5.46 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.84% and 1.09% 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).
Focus Growth
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (-5.52% return) | $ | 1,000.00 | $ | 944.80 | $ | 3.62 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.08 | $ | 3.76 | |||||||||
Class Y | |||||||||||||||
Actual (-5.63% return) | $ | 1,000.00 | $ | 943.70 | $ | 4.82 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.84 | $ | 5.01 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.75% and 1.00% 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).
Capital Opportunities
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (-8.13% return) | $ | 1,000.00 | $ | 918.70 | $ | 4.76 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.84 | $ | 5.01 | |||||||||
Class Y | |||||||||||||||
Actual (-8.25% return) | $ | 1,000.00 | $ | 917.50 | $ | 5.94 | |||||||||
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).
14
Morgan Stanley Select Dimensions Investment Series
Expense Example n June 30, 2010 (unaudited) continued
Mid Cap Growth
Beginning Account Value | Ending Account Value | Expenses Paid During Period@ | |||||||||||||
01/01/10 | 06/30/10 | 01/01/10 – 06/30/10 | |||||||||||||
Class X | |||||||||||||||
Actual (1.23% return) | $ | 1,000.00 | $ | 1,012.30 | $ | 3.89 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.93 | $ | 3.91 | |||||||||
Class Y | |||||||||||||||
Actual (1.11% return) | $ | 1,000.00 | $ | 1,011.10 | $ | 5.14 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.69 | $ | 5.16 |
@ Expenses are equal to the Portfolio's annualized expense ratios of 0.78% and 1.03% 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).
15
Morgan Stanley Select Dimensions Investment Series
Investment Advisory Agreement Approval n June 30, 2010
Nature, Extent and Quality of Services
The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser (as defined herein) under the advisory agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board reviewed similar information and factors regarding the Sub-Advisers (as defined herein), to the extent applicable. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Administrator (as defined herein) under the administration agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser's expense. (The Investment Adviser, Sub-Advisers and Administrator together are referred to as the "Adviser" and the advisory, sub-advisory and administration agreements tog ether 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, 2009, 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 Money Market Portfolio was below its peer group average for the one-, three- and five-year periods.
16
Morgan Stanley Select Dimensions Investment Series
Investment Advisory Agreement Approval n June 30, 2010 continued
The Board noted that the performance of the Capital Growth, Capital Opportunities, Focus Growth and Mid 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 Flexible Income Portfolio was better than its peer group average for the one-year period but below its peer group average for the three-and five-year periods.
The Board noted that the performance of the Global Infrastructure Portfolio was better than its peer group average for the three- and five-year periods but below its peer group average for the one-year period.
Performance Conclusions
With respect to the Flexible Income and Money Market Portfolios, after discussion, the Board concluded that performance was acceptable.
With respect to the Capital Growth, Capital Opportunities, Focus Growth, Global Infrastructure and Mid 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 advised by the Adviser and 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 fee and total expense ratio for the Capital Opportunities Portfolio were higher than its peer group average.
The Board noted that the management fees and total expense ratios for the Focus Growth and Mid Cap Growth Portfolios were lower than the peer group averages.
The Board noted for the Money Market Portfolio that while the management fee was higher than its peer group average, the total expense ratio was lower than its peer group average.
The Board noted for the Global Infrastructure Portfolio that while the management fee was lower than its peer group average, the total expense ratio was higher than its peer group average.
The Board noted that the management fee and total expense ratio for the Capital Growth Portfolio were higher but close to its peer group average.
17
Morgan Stanley Select Dimensions Investment Series
Investment Advisory Agreement Approval n June 30, 2010 continued
The Board noted for the Flexible Income Portfolio that while the 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 Money Market Portfolio, after discussion, the Board concluded that (i) the management fee, although higher than its peer group average, was acceptable given the quality and nature of services provided, and (ii) the total expense ratio was competitive with its peer group average.
With respect to the Capital Growth, Flexible Income, Focus Growth and Mid Cap Growth Portfolios, after discussion, the Board concluded that the management fees and total expense ratios were competitive with the peer group averages.
With respect to the Global Infrastructure Portfolio, after discussion, the Board concluded that (i) the management fee was competitive with its peer group average, and (ii) the total expense ratio, although higher than its peer group average, was acceptable since the high total expense ratio is due to significantly higher non-management fees from third party service providers due to the Portfolio's relatively small size.
With respect to the Capital Opportunities Portfolio, after discussion, the Board concluded that the management fee and total expense ratio were acceptable given the quality and nature of services provided.
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 Flexible Income, include one or more breakpoints). In conjunction with its review of the Adviser's profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Portfolios and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of each Portfolio supports its decision to approve the Management Agreement.
Profitability of the Adviser and Affiliates
The Board considered information concerning the costs incurred and profits realized by the Adviser and its affiliates during the last year from their relationship with the Portfolios and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. The Board has determined that its review of the analysis of the Adviser's expenses and profitability supports its decision to approve the Management Agreement.
18
Morgan Stanley Select Dimensions Investment Series
Investment Advisory Agreement Approval n June 30, 2010 continued
Other Benefits of the Relationship
The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Portfolios and other funds advised by the Adviser. These benefits may include, among other things, "float" benefits derived from handling of checks for purchases and sales, research received by the Adviser generated from commission dollars spent on funds' portfolio trading and fees for distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of the Adviser's costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.
Resources of the Adviser and Historical Relationship Between the Portfolios and the Adviser
The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board also reviewed and considered the historical relationship between the Portfolios and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Portfolios' operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Portfolios to continue their relationship with the Adviser.
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.
19
Money Market
Portfolio of Investments n June 30, 2010 (unaudited)
PRINCIPAL AMOUNT IN THOUSANDS | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
Repurchase Agreements (34.1%) | |||||||||||||||||||
$ | 15,000 | Bank of America Securities (dated 06/30/10; proceeds $15,000,004; fully collateralized by U.S. Treasury Note 3.13% due 04/30/13; valued at $15,300,044) | 0.01 | % | 07/01/10 | $ | 15,000,000 | ||||||||||||
10,978 | Barclays Capital LLC (dated 06/30/10; proceeds $10,978,006; fully collateralized by Government National Mortgage Assoc. 4.50% - 5.00% due 09/20/38 - 03/20/40; valued at $11,307,340) | 0.02 | 07/01/10 | 10,978,000 | |||||||||||||||
15,000 | BNP Paribas Securities (dated 06/30/10; proceeds $15,000,013; fully collateralized by Federal Home Loan Mortgage Corp. 2.61% due 10/01/36; Federal National Mortgage Assoc. 5.30% due 02/01/38; valued at $15,450,000) | 0.03 | 07/01/10 | 15,000,000 | |||||||||||||||
Total Repurchase Agreements (Cost $40,978,000) | 40,978,000 | ||||||||||||||||||
Commercial Paper (33.6%) | |||||||||||||||||||
International Banks | |||||||||||||||||||
5,000 | Atlantis One Funding (a) | 0.35 | 07/15/10 | 4,999,319 | |||||||||||||||
5,000 | Bank of Nova Scotia | 0.14 | 07/02/10 | 4,999,981 | |||||||||||||||
5,500 | BPCE SA (a) | 0.52 - 0.60 | 09/13/10 - 10/18/10 | 5,491,832 | |||||||||||||||
5,000 | Credit Agricole CIB N.A. | 0.04 | 07/01/10 | 5,000,000 | |||||||||||||||
5,000 | European Investment Bank | 0.18 | 07/01/10 | 5,000,000 | |||||||||||||||
5,000 | Lloyds TSB Bank PLC | 0.17 | 07/02/10 | 4,999,976 | |||||||||||||||
5,000 | NRW Bank | 0.34 | 07/16/10 | 4,999,297 | |||||||||||||||
5,000 | UBS Finance (Delaware) LLC | 0.48 | 08/10/10 | 4,997,333 | |||||||||||||||
Total Commercial Paper (Cost $40,487,738) | 40,487,738 | ||||||||||||||||||
Floating Rate Notes (19.9%) | |||||||||||||||||||
International Banks (12.4%) | |||||||||||||||||||
5,000 | Barclays Bank PLC - NY | 0.47 - 0.51 | (b) | 07/08/10 - 07/15/10(c) | 5,000,000 | ||||||||||||||
5,000 | BNP Paribas | 0.54 | (b) | 09/23/10(c) | 5,000,000 | ||||||||||||||
5,000 | Societe Generale | 1.05 | (b) | 08/05/10(c) | 5,000,000 | ||||||||||||||
15,000,000 |
See Notes to Financial Statements
20
Money Market
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | ANNUALIZED YIELD ON DATE OF PURCHASE | MATURITY DATE | VALUE | ||||||||||||||||
U.S. Government Agency (7.5%) | |||||||||||||||||||
$ | 9,000 | Federal Home Loan Banks | 0.24 | (b)% | 08/08/10(c) | $ | 8,998,627 | ||||||||||||
Total Floating Rate Notes (Cost $23,998,627) | 23,998,627 | ||||||||||||||||||
Certificates of Deposit (12.5%) | |||||||||||||||||||
International Banks | |||||||||||||||||||
5,000 | Credit Industriel et Commercial | 0.32 | 07/01/10 | 5,000,000 | |||||||||||||||
5,000 | Royal Bank of Scotland PLC | 0.39 | 08/02/10 | 5,000,000 | |||||||||||||||
5,000 | Skandinaviska Enskilda Banken AB | 0.40 | 07/06/10 | 5,000,000 | |||||||||||||||
Total Certificates of Deposit (Cost $15,000,000) | 15,000,000 | ||||||||||||||||||
Total Investments (Cost $120,464,365) (d) | 100.1 | % | 120,464,365 | ||||||||||||||||
Liabilities in Excess of Other Assets | (0.1 | ) | (152,079 | ) | |||||||||||||||
Net Assets | 100.0 | % | $ | 120,312,286 |
(a) Resale is restricted to qualified institutional investors.
(b) Rate shown is the rate in effect at June 30, 2010.
(c) Date of next interest rate reset.
(d) Cost is the same for federal income tax purposes.
MATURITY SCHEDULE†
1 - 30 Days | 71 | % | |||||
31 - 60 Days | 20 | ||||||
61 - 90 Days | 6 | ||||||
91 - 120 Days | 3 | ||||||
100 | % |
† As a percentage of total investments.
See Notes to Financial Statements
21
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited)
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Foreign Government & Corporate Bonds (20.4%) | |||||||||||||||||||
Argentina (0.3%) | |||||||||||||||||||
Foreign Government Obligations | |||||||||||||||||||
$ | 202 | Argentina Bonos | 0.389 | (a)% | 08/03/12 | $ | 68,175 | ||||||||||||
21 | Argentina Government International Bond | 8.28 | 12/31/33 | 14,159 | |||||||||||||||
Total Argentina | 82,334 | ||||||||||||||||||
Australia (1.2%) | |||||||||||||||||||
Brewery (0.1%) | |||||||||||||||||||
35 | FBG Finance Ltd. (144A) (b) | 5.125 | 06/15/15 | 37,560 | |||||||||||||||
Commercial Banks (0.3%) | |||||||||||||||||||
100 | National Australia Bank Ltd. (144A) (b) | 3.75 | 03/02/15 | 102,489 | |||||||||||||||
Commercial Banks - Non-U.S. Government Guaranteed (0.4%) | |||||||||||||||||||
100 | National Australia Bank Ltd. (144A) (b) | 3.375 | 07/08/14 | 104,716 | |||||||||||||||
Diversified Minerals (0.4%) | |||||||||||||||||||
80 | Rio Tinto Finance USA Ltd. | 9.00 | 05/01/19 | 105,152 | |||||||||||||||
Total Australia | 349,917 | ||||||||||||||||||
Bermuda (0.9%) | |||||||||||||||||||
Multi-line Insurance (0.4%) | |||||||||||||||||||
150 | Catlin Insurance Co. Ltd. (144A) (b) | 7.249 | (a) | 01/19/17(c) | 121,125 | ||||||||||||||
Satellite Telecommunication (0.5%) | |||||||||||||||||||
21 | Intelsat Bermuda Ltd. | 11.50 | (d) | 02/04/17 | 21,303 | ||||||||||||||
95 | Intelsat Jackson Holdings Ltd. | 9.50 | 06/15/16 | 100,225 | |||||||||||||||
121,528 | |||||||||||||||||||
Total Bermuda | 242,653 | ||||||||||||||||||
Brazil (1.7%) | |||||||||||||||||||
Foreign Government Obligations | |||||||||||||||||||
200 | Banco Nacional de Desenvolvimento Economico e Social (144A) (b) | 6.369 | 06/16/18 | 213,750 | |||||||||||||||
BRL | 127 | Brazil Notas do Tesouro Nacional Serie F | 10.00 | 01/01/17 | 63,590 | ||||||||||||||
$ | 150 | Brazilian Government International Bond | 5.875 | 01/15/19 | 165,375 | ||||||||||||||
10 | Brazilian Government International Bond | 7.125 | 01/20/37 | 11,850 | |||||||||||||||
30 | Brazilian Government International Bond | 11.00 | 08/17/40 | 40,320 | |||||||||||||||
Total Brazil | 494,885 | ||||||||||||||||||
Canada (0.9%) | |||||||||||||||||||
Diversified Minerals (0.4%) | |||||||||||||||||||
105 | Teck Resources Ltd. | 10.25 | 05/15/16 | 124,040 |
See Notes to Financial Statements
22
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Pipelines (0.4%) | |||||||||||||||||||
$ | 120 | Kinder Morgan Finance Co. ULC | 5.70 | % | 01/05/16 | $ | 115,200 | ||||||||||||
Real Estate Operation/Development (0.1%) | |||||||||||||||||||
30 | Brookfield Asset Management, Inc. | 5.80 | 04/25/17 | 30,355 | |||||||||||||||
Total Canada | 269,595 | ||||||||||||||||||
Cayman Islands (0.6%) | |||||||||||||||||||
Aerospace/Defense (0.2%) | |||||||||||||||||||
47 | Systems 2001 Asset Trust (144A) (b) | 6.664 | 09/15/13 | 49,921 | |||||||||||||||
Diversified Minerals (0.2%) | |||||||||||||||||||
50 | Vale Overseas Ltd. | 5.625 | 09/15/19 | 53,005 | |||||||||||||||
10 | Vale Overseas Ltd. | 6.875 | 11/10/39 | 10,497 | |||||||||||||||
63,502 | |||||||||||||||||||
Oil Company - Integrated (0.2%) | |||||||||||||||||||
55 | Petrobras International Finance Co. | 5.75 | 01/20/20 | 55,663 | |||||||||||||||
Total Cayman Islands | 169,086 | ||||||||||||||||||
Dominican Republic (0.0%) | |||||||||||||||||||
Foreign Government Obligation | |||||||||||||||||||
5 | Dominican Republic International Bond | 9.04 | 01/23/18 | 6,093 | |||||||||||||||
France (0.7%) | |||||||||||||||||||
Commercial Banks (0.3%) | |||||||||||||||||||
100 | Credit Agricole SA (144A) (b) | 3.50 | 04/13/15 | 97,972 | |||||||||||||||
Electric - Integrated (0.1%) | |||||||||||||||||||
35 | EDF SA (144A) (b) | 4.60 | 01/27/20 | 36,014 | |||||||||||||||
Multimedia (0.2%) | |||||||||||||||||||
40 | Vivendi SA (144A) (b) | 6.625 | 04/04/18 | 44,649 | |||||||||||||||
Telephone - Integrated (0.1%) | |||||||||||||||||||
15 | France Telecom SA | 8.50 | 03/01/31 | 20,700 | |||||||||||||||
Total France | 199,335 | ||||||||||||||||||
Ghana (0.4%) | |||||||||||||||||||
Foreign Government Obligation | |||||||||||||||||||
100 | Republic of Ghana (144A) (b) | 8.50 | 10/04/17 | 105,750 | |||||||||||||||
Indonesia (1.0%) | |||||||||||||||||||
Foreign Government Obligations (0.9%) | |||||||||||||||||||
100 | Indonesia Government International Bond | 7.75 | 01/17/38 | 119,000 | |||||||||||||||
100 | Indonesia Government International Bond (144A) (b) | 11.625 | 03/04/19 | 144,250 | |||||||||||||||
263,250 |
See Notes to Financial Statements
23
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Paper & Related Products (0.1%) | |||||||||||||||||||
$ | 264 | Tjiwi Kimia Finance BV | 0.00 | % | 04/29/27 | $ | 5,272 | ||||||||||||
19 | Tjiwi Kimia Finance BV | 3.05 | (a) | 04/29/15 | 4,302 | ||||||||||||||
107 | Tjiwi Kimia Finance BV | 3.094 | (a) | 04/29/18 | 21,078 | ||||||||||||||
30,652 | |||||||||||||||||||
Total Indonesia | 293,902 | ||||||||||||||||||
Ireland (0.3%) | |||||||||||||||||||
Electric - Integrated | |||||||||||||||||||
75 | Iberdrola Finance Ireland Ltd. (144A) (b) | 5.00 | 09/11/19 | 73,600 | |||||||||||||||
Luxembourg (2.2%) | |||||||||||||||||||
Diversified Manufactured Operation (0.6%) | |||||||||||||||||||
155 | Tyco Electronics Group SA | 5.95 | 01/15/14 | 171,554 | |||||||||||||||
Electric - Integrated (0.3%) | |||||||||||||||||||
100 | Enel Finance International SA (144A) (b) | 5.125 | 10/07/19 | 100,629 | |||||||||||||||
Steel - Producers (0.2%) | |||||||||||||||||||
40 | ArcelorMittal | 9.85 | 06/01/19 | 50,064 | |||||||||||||||
Telecommunication Services (0.7%) | |||||||||||||||||||
180 | Wind Acquisition Finance SA (144A) (b) | 12.00 | 12/01/15 | 187,200 | |||||||||||||||
Telephone - Integrated (0.4%) | |||||||||||||||||||
80 | Telecom Italia Capital SA | 6.999 | 06/04/18 | 85,343 | |||||||||||||||
30 | Telecom Italia Capital SA | 7.175 | 06/18/19 | 32,352 | |||||||||||||||
117,695 | |||||||||||||||||||
Total Luxembourg | 627,142 | ||||||||||||||||||
Mexico (1.3%) | |||||||||||||||||||
Food - Baking (0.3%) | |||||||||||||||||||
100 | Grupo Bimbo SAB de CV (144A) (b) | 4.875 | 06/30/20 | 101,302 | |||||||||||||||
Foreign Government Obligations (0.9%) | |||||||||||||||||||
MXN | 729 | Mexican Bonos (Series M 20) | 8.50 | 05/31/29 | 62,274 | ||||||||||||||
$ | 100 | Mexico Government International Bond (Series A) | 6.75 | 09/27/34 | 115,750 | ||||||||||||||
20 | United Mexican States | 6.05 | 01/11/40 | 21,200 | |||||||||||||||
44 | United Mexican States (Series E) | 5.95 | 03/19/19 | 49,060 | |||||||||||||||
248,284 | |||||||||||||||||||
Oil Company - Integrated (0.1%) | |||||||||||||||||||
15 | Petroleos Mexicanos | 8.00 | 05/03/19 | 17,925 | |||||||||||||||
Total Mexico | 367,511 |
See Notes to Financial Statements
24
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Netherlands (1.8%) | |||||||||||||||||||
Electric - Generation (0.4%) | |||||||||||||||||||
$ | 130 | Intergen N.V. (144A) (b) | 9.00 | % | 06/30/17 | $ | 130,000 | ||||||||||||
Multi-line Insurance (0.3%) | |||||||||||||||||||
75 | Aegon N.V. | 4.625 | 12/01/15 | 76,793 | |||||||||||||||
Oil Company - Exploration & Production (0.8%) | |||||||||||||||||||
200 | KazMunaiGaz Finance Sub BV (144A) (b) | 9.125 | 07/02/18 | 230,500 | |||||||||||||||
Telephone - Integrated (0.3%) | |||||||||||||||||||
25 | Deutsche Telekom International Finance BV | 8.75 | 06/15/30 | 32,378 | |||||||||||||||
45 | Telefonica Europe BV | 8.25 | 09/15/30 | 55,602 | |||||||||||||||
87,980 | |||||||||||||||||||
Total Netherlands | 525,273 | ||||||||||||||||||
Peru (0.7%) | |||||||||||||||||||
Foreign Government Obligations | |||||||||||||||||||
40 | Peruvian Government International Bond | 7.125 | 03/30/19 | 47,500 | |||||||||||||||
10 | Peruvian Government International Bond | 7.35 | 07/21/25 | 12,025 | |||||||||||||||
96 | Peruvian Government International Bond | 8.75 | 11/21/33 | 130,560 | |||||||||||||||
Total Peru | 190,085 | ||||||||||||||||||
Philippines (0.4%) | |||||||||||||||||||
Foreign Government Obligation | |||||||||||||||||||
87 | Philippine Government International Bond | 8.875 | 03/17/15 | 107,445 | |||||||||||||||
Russia (1.1%) | |||||||||||||||||||
Foreign Government Obligations | |||||||||||||||||||
151 | Russian Foreign Bond - Eurobond | 7.50 | 03/31/30 | 171,060 | |||||||||||||||
90 | Russian Foreign Bond - Eurobond | 12.75 | 06/24/28 | 151,425 | |||||||||||||||
Total Russia | 322,485 | ||||||||||||||||||
Switzerland (0.6%) | |||||||||||||||||||
Commercial Banks (0.5%) | |||||||||||||||||||
110 | Credit Suisse | 5.30 | 08/13/19 | 116,817 | |||||||||||||||
5 | Credit Suisse | 6.00 | 02/15/18 | 5,225 | |||||||||||||||
20 | Credit Suisse AG | 5.40 | 01/14/20 | 19,922 | |||||||||||||||
141,964 | |||||||||||||||||||
Oil - Field Services (0.1%) | |||||||||||||||||||
20 | Weatherford International Ltd. | 9.625 | 03/01/19 | 24,121 | |||||||||||||||
Total Switzerland | 166,085 |
See Notes to Financial Statements
25
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Turkey (0.8%) | |||||||||||||||||||
Foreign Government Obligations | |||||||||||||||||||
TRY | 42 | Turkey Government Bond | 10.50 | % | 01/15/20 | $ | 27,985 | ||||||||||||
39 | Turkey Government Bond | 16.00 | 03/07/12 | 27,402 | |||||||||||||||
$ | 100 | Turkey Government International Bond | 6.75 | 04/03/18 | 110,000 | ||||||||||||||
17 | Turkey Government International Bond | 6.875 | 03/17/36 | 17,638 | |||||||||||||||
15 | Turkey Government International Bond | 8.00 | 02/14/34 | 17,606 | |||||||||||||||
19 | Turkey Government International Bond | 11.875 | 01/15/30 | 30,875 | |||||||||||||||
Total Turkey | 231,506 | ||||||||||||||||||
Ukraine (0.3%) | |||||||||||||||||||
Foreign Government Obligation | |||||||||||||||||||
100 | Ukraine Government International Bond | 6.75 | 11/14/17 | 93,010 | |||||||||||||||
United Kingdom (2.3%) | |||||||||||||||||||
Advertising Services (0.4%) | |||||||||||||||||||
100 | WPP Finance | 8.00 | 09/15/14 | 117,352 | |||||||||||||||
Commercial Banks (1.0%) | |||||||||||||||||||
65 | Barclays Bank PLC | 6.75 | 05/22/19 | 72,431 | |||||||||||||||
100 | Royal Bank of Scotland PLC (The) | 4.875 | 03/16/15 | 99,599 | |||||||||||||||
100 | Standard Chartered PLC (144A) (b) | 3.85 | 04/27/15 | 101,003 | |||||||||||||||
273,033 | |||||||||||||||||||
Diversified Minerals (0.4%) | |||||||||||||||||||
100 | Anglo American Capital PLC (144A) (b) | 9.375 | 04/08/19 | 128,824 | |||||||||||||||
Telephone - Integrated (0.4%) | |||||||||||||||||||
100 | Virgin Media Finance PLC | 9.125 | 08/15/16 | 104,000 | |||||||||||||||
Tobacco (0.1%) | |||||||||||||||||||
30 | BAT International Finance PLC (144A) (b) | 9.50 | 11/15/18 | 39,373 | |||||||||||||||
Total United Kingdom | 662,582 | ||||||||||||||||||
Uruguay (0.0%) | |||||||||||||||||||
Foreign Government Obligation | |||||||||||||||||||
10 | Uruguay Government International Bond | 8.00 | 11/18/22 | 12,100 |
See Notes to Financial Statements
26
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Venezuela (0.9%) | |||||||||||||||||||
Foreign Government Obligations | |||||||||||||||||||
$ | 20 | Venezuela Government International Bond | 6.00 | % | 12/09/20 | $ | 10,650 | ||||||||||||
150 | Venezuela Government International Bond | 7.65 | 04/21/25 | 81,375 | |||||||||||||||
50 | Venezuela Government International Bond | 8.50 | 10/08/14 | 38,625 | |||||||||||||||
10 | Venezuela Government International Bond | 9.00 | 05/07/23 | 6,250 | |||||||||||||||
50 | Venezuela Government International Bond | 9.25 | 09/15/27 | 33,875 | |||||||||||||||
30 | Venezuela Government International Bond | 9.25 | 05/07/28 | 18,450 | |||||||||||||||
80 | Venezuela Government International Bond | 10.75 | 09/19/13 | 70,000 | |||||||||||||||
Total Venezuela | 259,225 | ||||||||||||||||||
Total Foreign Government & Corporate Bonds (Cost $5,686,907) | 5,851,599 | ||||||||||||||||||
Domestic Corporate Bonds (46.7%) | |||||||||||||||||||
Advanced Materials/Products (0.1%) | |||||||||||||||||||
40 | Hexcel Corp. | 6.75 | 02/01/15 | 39,400 | |||||||||||||||
Aerospace/Defense - Equipment (0.3%) | |||||||||||||||||||
75 | Transdigm, Inc. (144A) (b) | 7.75 | 07/15/14 | 75,375 | |||||||||||||||
Agricultural Chemicals (0.3%) | |||||||||||||||||||
80 | Mosaic Co. (The) (144A) (b) | 7.625 | 12/01/16 | 86,432 | |||||||||||||||
Agricultural Operations (0.1%) | |||||||||||||||||||
35 | Bunge Ltd. Finance Corp. | 8.50 | 06/15/19 | 41,864 | |||||||||||||||
Apparel Manufacturers (0.3%) | |||||||||||||||||||
100 | Levi Strauss & Co. (144A) (b) | 7.625 | 05/15/20 | 98,500 | |||||||||||||||
Auto - Cars/Light Trucks (0.1%) | |||||||||||||||||||
30 | Daimler Finance North America LLC | 7.30 | 01/15/12 | 32,349 | |||||||||||||||
Auto Parts: Original Equipment Manufacturer (0.5%) | |||||||||||||||||||
80 | Tenneco, Inc. | 8.125 | 11/15/15 | 80,800 | |||||||||||||||
70 | TRW Automotive, Inc. (144A) (b) | 8.875 | 12/01/17 | 72,450 | |||||||||||||||
153,250 | |||||||||||||||||||
Beverages (0.2%) | |||||||||||||||||||
45 | Anheuser-Busch InBev Worldwide, Inc. (144A) (b) | 5.375 | 11/15/14 | 49,247 | |||||||||||||||
Beverages - Wine/Spirits (0.6%) | |||||||||||||||||||
155 | Constellation Brands, Inc. | 7.25 | 05/15/17 | 157,906 | |||||||||||||||
Broadcast Service/Program (0.2%) | |||||||||||||||||||
45 | Discovery Communications LLC | 5.05 | 06/01/20 | 46,867 | |||||||||||||||
Building Product - Cement/Aggregation (0.2%) | |||||||||||||||||||
20 | CRH America, Inc. | 6.00 | 09/30/16 | 22,325 | |||||||||||||||
25 | Holcim US Finance Sarl & Cie SCS (144A) (b) | 6.00 | 12/30/19 | 26,718 | |||||||||||||||
49,043 |
See Notes to Financial Statements
27
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Building Societies (0.4%) | |||||||||||||||||||
$ | 120 | Nationwide Building Society (144A) (b) | 6.25 | % | 02/25/20 | $ | 126,855 | ||||||||||||
Cable/Satellite TV (2.6%) | |||||||||||||||||||
130 | Charter Communications Operating LLC/Charter Communications Operating Capital (144A) (b) | 10.875 | 09/15/14 | 144,950 | |||||||||||||||
65 | Comcast Corp. | 5.70 | 05/15/18 | 71,565 | |||||||||||||||
305 | CSC Holdings LLC | 8.625 | 02/15/19 | 322,156 | |||||||||||||||
40 | DirecTV Holdings LLC/Financing Co., Inc. | 7.625 | 05/15/16 | 43,502 | |||||||||||||||
65 | DISH DBS Corp. | 6.625 | 10/01/14 | 65,163 | |||||||||||||||
90 | DISH DBS Corp. | 7.00 | 10/01/13 | 93,150 | |||||||||||||||
740,486 | |||||||||||||||||||
Casino Gaming (1.3%) | |||||||||||||||||||
90 | Las Vegas Sands Corp. | 6.375 | 02/15/15 | 86,850 | |||||||||||||||
195 | MGM Mirage | 6.75 | 04/01/13 | 175,012 | |||||||||||||||
105 | Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | 6.625 | 12/01/14 | 105,788 | |||||||||||||||
367,650 | |||||||||||||||||||
Casino Hotels (0.4%) | |||||||||||||||||||
110 | Harrah's Operating Co., Inc. | 11.25 | 06/01/17 | 116,325 | |||||||||||||||
Cellular Telecommunications (0.2%) | |||||||||||||||||||
50 | Nextel Communications, Inc. (Series E) | 6.875 | 10/31/13 | 48,688 | |||||||||||||||
Chemicals - Diversified (1.6%) | |||||||||||||||||||
240 | Innophos, Inc. | 8.875 | 08/15/14 | 248,400 | |||||||||||||||
135 | LBI Escrow Corp. (144A) (b) | 8.00 | 11/01/17 | 139,387 | |||||||||||||||
80 | Westlake Chemical Corp. | 6.625 | 01/15/16 | 77,200 | |||||||||||||||
464,987 | |||||||||||||||||||
Chemicals - Plastics (0.0%) | |||||||||||||||||||
10 | Hexion US Finance Corp./Hexion Nova Scotia Finance ULC | 8.875 | 02/01/18 | 9,075 | |||||||||||||||
Chemicals - Specialty (0.3%) | |||||||||||||||||||
65 | Ashland, Inc. | 9.125 | 06/01/17 | 71,500 | |||||||||||||||
Coal (0.4%) | |||||||||||||||||||
35 | Foundation PA Coal Co. LLC | 7.25 | 08/01/14 | 35,788 | |||||||||||||||
90 | Massey Energy Co. | 6.875 | 12/15/13 | 88,312 | |||||||||||||||
124,100 | |||||||||||||||||||
Commercial Banks (0.3%) | |||||||||||||||||||
75 | Regions Financial Corp. | 5.75 | 06/15/15 | 74,605 |
See Notes to Financial Statements
28
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Commercial Services (0.3%) | |||||||||||||||||||
$ | 80 | Ticketmaster Entertainment, Inc. | 10.75 | % | 08/01/16 | $ | 86,600 | ||||||||||||
Computer Services (0.5%) | |||||||||||||||||||
105 | SunGard Data Systems, Inc. | 9.125 | 08/15/13 | 107,231 | |||||||||||||||
30 | SunGard Data Systems, Inc. | 10.625 | 05/15/15 | 32,213 | |||||||||||||||
139,444 | |||||||||||||||||||
Containers - Paper/Plastic (0.9%) | |||||||||||||||||||
150 | Graphic Packaging International, Inc. | 9.50 | 08/15/13 | 153,375 | |||||||||||||||
125 | Solo Cup Co. | 8.50 | 02/15/14 | 112,812 | |||||||||||||||
266,187 | |||||||||||||||||||
Data Processing Services (0.2%) | |||||||||||||||||||
75 | First Data Corp. | 9.875 | 09/24/15 | 57,375 | |||||||||||||||
Decision Support Software (0.3%) | |||||||||||||||||||
100 | Vangent, Inc. | 9.625 | 02/15/15 | 96,125 | |||||||||||||||
Diversified Financial Services (2.3%) | |||||||||||||||||||
25 | Citigroup, Inc. (See Note 6) | 8.125 | 07/15/39 | 29,917 | |||||||||||||||
160 | Citigroup, Inc. (See Note 6) | 8.50 | 05/22/19 | 191,048 | |||||||||||||||
5 | General Electric Capital Corp. | 5.625 | 05/01/18 | 5,322 | |||||||||||||||
210 | General Electric Capital Corp. (Series G) | 6.00 | 08/07/19 | 227,741 | |||||||||||||||
70 | GMAC, Inc. | 6.875 | 09/15/11 | 71,313 | |||||||||||||||
135 | Goldman Sachs Group, Inc. (The) | 6.15 | 04/01/18 | 141,632 | |||||||||||||||
666,973 | |||||||||||||||||||
Diversified Manufactured Operation (0.2%) | |||||||||||||||||||
45 | Cooper US, Inc. | 5.25 | 11/15/12 | 48,575 | |||||||||||||||
Diversified Operation/Commercial Service (0.8%) | |||||||||||||||||||
145 | ARAMARK Corp. | 8.50 | 02/01/15 | 147,175 | |||||||||||||||
80 | Susser Holdings LLC/Susser Finance Corp. (144A) (b) | 8.50 | 05/15/16 | 80,400 | |||||||||||||||
227,575 | |||||||||||||||||||
Diversified Telecommunication Services (0.1%) | |||||||||||||||||||
15 | CenturyTel, Inc. (Series Q) | 6.15 | 09/15/19 | 14,712 | |||||||||||||||
E-Commerce/Services (0.5%) | |||||||||||||||||||
140 | Expedia, Inc. | 8.50 | 07/01/16 | 151,200 |
See Notes to Financial Statements
29
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Electric - Generation (1.2%) | |||||||||||||||||||
$ | 80 | AES Corp. (The) | 7.75 | % | 03/01/14 | $ | 81,800 | ||||||||||||
85 | AES Corp. (The) | 8.00 | 06/01/20 | 85,850 | |||||||||||||||
20 | Edison Mission Energy | 7.00 | 05/15/17 | 12,900 | |||||||||||||||
70 | Homer City Funding LLC | 8.137 | 10/01/19 | 65,362 | |||||||||||||||
95 | Midwest Generation LLC (Series B) | 8.56 | 01/02/16 | 94,010 | |||||||||||||||
339,922 | |||||||||||||||||||
Electric - Integrated (1.9%) | |||||||||||||||||||
90 | CMS Energy Corp. | 6.25 | 02/01/20 | 86,076 | |||||||||||||||
40 | FirstEnergy Solutions Corp. | 6.05 | 08/15/21 | 40,880 | |||||||||||||||
30 | Ipalco Enterprises, Inc. | 8.625 | 11/14/11 | 31,350 | |||||||||||||||
245 | Mirant Americas Generation LLC | 8.50 | 10/01/21 | 229,075 | |||||||||||||||
30 | NiSource Finance Corp. | 6.80 | 01/15/19 | 33,453 | |||||||||||||||
60 | PPL Energy Supply LLC | 6.50 | 05/01/18 | 66,464 | |||||||||||||||
45 | Progress Energy, Inc. | 7.05 | 03/15/19 | 53,253 | |||||||||||||||
15 | Public Service Co. of Colorado | 5.125 | 06/01/19 | 16,635 | |||||||||||||||
557,186 | |||||||||||||||||||
Electronic Equipment, Instruments & Components (0.1%) | |||||||||||||||||||
10 | Corning, Inc. | 6.625 | 05/15/19 | 11,717 | |||||||||||||||
15 | Corning, Inc. | 7.25 | 08/15/36 | 16,844 | |||||||||||||||
28,561 | |||||||||||||||||||
Electronic Measuring Instrument (0.1%) | |||||||||||||||||||
15 | Agilent Technologies, Inc. | 5.50 | 09/14/15 | 16,164 | |||||||||||||||
Electronics - Military (0.5%) | |||||||||||||||||||
145 | L-3 Communications Corp. | 5.875 | 01/15/15 | 143,912 | |||||||||||||||
Filtration/Separation Products (0.1%) | |||||||||||||||||||
30 | Pall Corp. | 5.00 | 06/15/20 | 31,179 | |||||||||||||||
Finance - Auto Loans (0.8%) | |||||||||||||||||||
210 | Ford Motor Credit Co. LLC | 7.00 | 04/15/15 | 207,933 | |||||||||||||||
25 | Nissan Motor Acceptance Corp. (144A) (b) | 4.50 | 01/30/15 | 25,822 | |||||||||||||||
233,755 | |||||||||||||||||||
Finance - Consumer Loans (0.2%) | |||||||||||||||||||
60 | SLM Corp. (MTN) | 8.00 | 03/25/20 | 52,776 | |||||||||||||||
Finance - Credit Card (0.6%) | |||||||||||||||||||
130 | American Express Co. | 8.125 | 05/20/19 | 161,674 |
See Notes to Financial Statements
30
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Finance - Investment Banker/Broker (0.7%) | |||||||||||||||||||
$ | 25 | Bear Stearns Cos. LLC (The) | 7.25 | % | 02/01/18 | $ | 29,236 | ||||||||||||
100 | Merrill Lynch & Co., Inc. | 6.11 | 01/29/37 | 91,100 | |||||||||||||||
80 | TD Ameritrade Holding Corp. | 5.60 | 12/01/19 | 84,433 | |||||||||||||||
204,769 | |||||||||||||||||||
Finance - Other Services (0.2%) | |||||||||||||||||||
60 | NASDAQ OMX Group, Inc. (The) | 5.55 | 01/15/20 | 61,344 | |||||||||||||||
Food - Meat Products (0.6%) | |||||||||||||||||||
75 | JBS USA LLC/JBS USA Finance, Inc. | 11.625 | 05/01/14 | 84,469 | |||||||||||||||
85 | Smithfield Foods, Inc. | 7.00 | 08/01/11 | 86,806 | |||||||||||||||
171,275 | |||||||||||||||||||
Food - Miscellaneous/Diversified (0.2%) | |||||||||||||||||||
25 | ConAgra Foods, Inc. | 7.00 | 10/01/28 | 29,488 | |||||||||||||||
20 | ConAgra Foods, Inc. | 8.25 | 09/15/30 | 25,825 | |||||||||||||||
55,313 | |||||||||||||||||||
Food - Retail (0.1%) | |||||||||||||||||||
24 | Delhaize America, Inc. | 9.00 | 04/15/31 | 32,892 | |||||||||||||||
Food Products (0.2%) | |||||||||||||||||||
50 | Kraft Foods, Inc. | 5.375 | 02/10/20 | 53,679 | |||||||||||||||
Health Care Providers & Services (0.3%) | |||||||||||||||||||
75 | Healthsouth Corp. | 10.75 | 06/15/16 | 81,375 | |||||||||||||||
Hotels & Motels (0.1%) | |||||||||||||||||||
30 | Hyatt Hotels Corp. (144A) (b) | 6.875 | 08/15/19 | 32,310 | |||||||||||||||
Independent Power Producer (0.4%) | |||||||||||||||||||
115 | NRG Energy, Inc. | 8.50 | 06/15/19 | 117,444 | |||||||||||||||
Life/Health Insurance (0.3%) | |||||||||||||||||||
30 | Principal Financial Group, Inc. | 8.875 | 05/15/19 | 36,844 | |||||||||||||||
35 | Prudential Financial, Inc. (MTN) | 6.625 | 12/01/37 | 36,827 | |||||||||||||||
73,671 | |||||||||||||||||||
Media (0.9%) | |||||||||||||||||||
65 | News America, Inc. | 7.85 | 03/01/39 | 80,461 | |||||||||||||||
40 | Time Warner Cable, Inc. | 6.75 | 07/01/18 | 45,987 | |||||||||||||||
5 | Time Warner Cable, Inc. | 8.25 | 04/01/19 | 6,159 | |||||||||||||||
35 | Time Warner Cable, Inc. | 8.75 | 02/14/19 | 44,231 | |||||||||||||||
15 | Time Warner, Inc. | 4.875 | 03/15/20 | 15,499 | |||||||||||||||
30 | Time Warner, Inc. | 5.875 | 11/15/16 | 33,865 | |||||||||||||||
35 | Viacom, Inc. | 6.875 | 04/30/36 | 39,750 | |||||||||||||||
265,952 |
See Notes to Financial Statements
31
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Medical - Biomedical/Genetics (0.3%) | |||||||||||||||||||
$ | 45 | Genzyme Corp. (144A) (b) | 3.625 | % | 06/15/15 | $ | 45,569 | ||||||||||||
40 | Life Technologies Corp. | 6.00 | 03/01/20 | 43,396 | |||||||||||||||
88,965 | |||||||||||||||||||
Medical - Drugs (0.1%) | |||||||||||||||||||
40 | Axcan Intermediate Holdings, Inc. | 12.75 | 03/01/16 | 40,700 | |||||||||||||||
Medical - Hospitals (1.9%) | |||||||||||||||||||
85 | Capella Healthcare, Inc. (144A) (b) | 9.25 | 07/01/17 | 86,063 | |||||||||||||||
45 | CHS/Community Health Systems, Inc. | 8.875 | 07/15/15 | 46,519 | |||||||||||||||
95 | HCA, Inc. | 5.75 | 03/15/14 | 88,825 | |||||||||||||||
125 | HCA, Inc. | 6.25 | 02/15/13 | 123,437 | |||||||||||||||
125 | HCA, Inc. | 7.69 | 06/15/25 | 112,500 | |||||||||||||||
90 | Tenet Healthcare Corp. (144A) (b) | 10.00 | 05/01/18 | 99,900 | |||||||||||||||
557,244 | |||||||||||||||||||
Medical - Nursing Homes (0.5%) | |||||||||||||||||||
135 | Sun Healthcare Group, Inc. | 9.125 | 04/15/15 | 142,088 | |||||||||||||||
Medical - Outpatient/Home Medical (0.2%) | |||||||||||||||||||
35 | Select Medical Corp. | 6.143 | (a) | 09/15/15 | 30,450 | ||||||||||||||
15 | Select Medical Corp. | 7.625 | 02/01/15 | 14,175 | |||||||||||||||
44,625 | |||||||||||||||||||
Medical Instruments (0.3%) | |||||||||||||||||||
90 | Boston Scientific Corp. | 6.00 | 01/15/20 | 89,515 | |||||||||||||||
Medical Products (0.3%) | |||||||||||||||||||
91 | Fresenius Medical Care Capital Trust IV | 7.875 | 06/15/11 | 94,526 | |||||||||||||||
Metal - Copper (0.2%) | |||||||||||||||||||
20 | Freeport-McMoRan Copper & Gold, Inc. | 8.375 | 04/01/17 | 22,028 | |||||||||||||||
15 | Southern Copper Corp. | 5.375 | 04/16/20 | 15,110 | |||||||||||||||
25 | Southern Copper Corp. | 6.75 | 04/16/40 | 24,837 | |||||||||||||||
61,975 | |||||||||||||||||||
Multi-line Insurance (0.6%) | |||||||||||||||||||
40 | Allstate Corp. (The) | 7.45 | 05/16/19 | 47,221 | |||||||||||||||
60 | Hartford Financial Services Group, Inc. (See Note 6) | 5.50 | 03/30/20 | 58,344 | |||||||||||||||
65 | MetLife, Inc. | 7.717 | 02/15/19 | 77,490 | |||||||||||||||
183,055 | |||||||||||||||||||
Multimedia (0.2%) | |||||||||||||||||||
50 | NBC Universal, Inc. (144A) (b) | 5.15 | 04/30/20 | 52,250 |
See Notes to Financial Statements
32
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Office Automation & Equipment (0.1%) | |||||||||||||||||||
$ | 10 | Xerox Corp. | 5.625 | % | 12/15/19 | $ | 10,661 | ||||||||||||
20 | Xerox Corp. | 6.35 | 05/15/18 | 22,343 | |||||||||||||||
33,004 | |||||||||||||||||||
Oil Companies - Exploration & Production (2.9%) | |||||||||||||||||||
55 | Anadarko Petroleum Corp. | 6.95 | 06/15/19 | 48,093 | |||||||||||||||
100 | Atlas Energy Operating Co. LLC/Atlas Energy Finance Corp. | 10.75 | 02/01/18 | 107,125 | |||||||||||||||
155 | Denbury Resources, Inc. | 9.75 | 03/01/16 | 168,175 | |||||||||||||||
25 | EQT Corp. | 8.125 | 06/01/19 | 29,457 | |||||||||||||||
95 | Hilcorp Energy I LP/Hilcorp Finance Co. (144A) (b) | 7.75 | 11/01/15 | 94,050 | |||||||||||||||
33 | Pemex Project Funding Master Trust | 6.625 | 06/15/35 | 34,107 | |||||||||||||||
25 | Pemex Project Funding Master Trust | 6.625 | 06/15/38 | 25,632 | |||||||||||||||
55 | Plains Exploration & Production Co. | 7.75 | 06/15/15 | 54,725 | |||||||||||||||
110 | Plains Exploration & Production Co. | 10.00 | 03/01/16 | 118,250 | |||||||||||||||
170 | SandRidge Energy, Inc. | 8.625 | (d) | 04/01/15 | 165,963 | ||||||||||||||
845,577 | |||||||||||||||||||
Oil Company - Integrated (0.3%) | |||||||||||||||||||
40 | Cenovus Energy, Inc. | 5.70 | 10/15/19 | 43,769 | |||||||||||||||
50 | Hess Corp. | 6.00 | 01/15/40 | 51,874 | |||||||||||||||
95,643 | |||||||||||||||||||
Oil Refining & Marketing (0.2%) | |||||||||||||||||||
40 | Motiva Enterprises LLC (144A) (b) | 5.75 | 01/15/20 | 44,095 | |||||||||||||||
Paper & Related Products (1.1%) | |||||||||||||||||||
70 | Boise Paper Holdings LLC/Boise Finance Co. (144A) (b) | 9.00 | 11/01/17 | 72,450 | |||||||||||||||
90 | Georgia-Pacific LLC (144A) (b) | 8.25 | 05/01/16 | 96,413 | |||||||||||||||
35 | Glatfelter | 7.125 | 05/01/16 | 34,300 | |||||||||||||||
30 | International Paper Co. | 7.50 | 08/15/21 | 35,195 | |||||||||||||||
100 | NewPage Corp. | 11.375 | 12/31/14 | 91,250 | |||||||||||||||
329,608 | |||||||||||||||||||
Pipelines (1.3%) | |||||||||||||||||||
20 | CenterPoint Energy Resources Corp. | 6.25 | 02/01/37 | 21,242 | |||||||||||||||
10 | CenterPoint Energy Resources Corp. (Series B) | 7.875 | 04/01/13 | 11,466 | |||||||||||||||
50 | Energy Transfer Partners LP | 9.00 | 04/15/19 | 58,893 | |||||||||||||||
25 | Enterprise Products Operating LLC | 5.20 | 09/01/20 | 25,726 | |||||||||||||||
50 | Enterprise Products Operating LLC (Series N) | 6.50 | 01/31/19 | 56,154 | |||||||||||||||
35 | Sonat, Inc. | 7.625 | 07/15/11 | 36,280 | |||||||||||||||
130 | Williams Cos., Inc. (The) | 7.875 | 09/01/21 | 149,277 | |||||||||||||||
359,038 |
See Notes to Financial Statements
33
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Property Trust (0.2%) | |||||||||||||||||||
$ | 60 | WEA Finance LLC/WT Finance Aust Pty Ltd. (144A) (b) | 6.75 | % | 09/02/19 | $ | 66,803 | ||||||||||||
REIT - Apartments (0.2%) | |||||||||||||||||||
50 | AvalonBay Communities, Inc. (MTN) | 6.10 | 03/15/20 | 55,364 | |||||||||||||||
REIT - Diversified (0.6%) | |||||||||||||||||||
80 | Digital Realty Trust LP (144A) (b)(e) | 4.50 | 07/15/15 | 79,757 | |||||||||||||||
55 | Duke Realty LP | 6.75 | 03/15/20 | 57,882 | |||||||||||||||
45 | Vornado Realty LP | 4.25 | 04/01/15 | 44,783 | |||||||||||||||
182,422 | |||||||||||||||||||
REIT - Health Care (0.2%) | |||||||||||||||||||
50 | Health Care, Inc. | 6.125 | 04/15/20 | 51,817 | |||||||||||||||
REIT - Office Property (0.4%) | |||||||||||||||||||
30 | BioMed Realty LP (144A) (b) | 6.125 | 04/15/20 | 31,293 | |||||||||||||||
80 | Boston Properties LP | 5.625 | 11/15/20 | 83,851 | |||||||||||||||
115,144 | |||||||||||||||||||
Resorts/Theme Parks (0.0%) | |||||||||||||||||||
299 | Resort at Summerlin LP (Series B) (f)(g)(h)(i) | 13.00 | (d) | 12/15/07 | 0 | ||||||||||||||
Retail - Automobile (0.1%) | |||||||||||||||||||
30 | AutoNation, Inc. | 6.75 | 04/15/18 | 29,700 | |||||||||||||||
Retail - Building Products (0.2%) | |||||||||||||||||||
65 | Home Depot, Inc. | 5.875 | 12/16/36 | 66,857 | |||||||||||||||
Retail - Discount (0.5%) | |||||||||||||||||||
100 | Dollar General Corp. | 10.625 | 07/15/15 | 109,875 | |||||||||||||||
35 | Wal-Mart Stores, Inc. | 5.25 | 09/01/35 | 36,993 | |||||||||||||||
146,868 | |||||||||||||||||||
Retail - Drug Store (0.6%) | |||||||||||||||||||
78 | CVS Pass-Through Trust | 6.036 | 12/10/28 | 79,740 | |||||||||||||||
125 | Rite Aid Corp. | 8.625 | 03/01/15 | 102,500 | |||||||||||||||
182,240 | |||||||||||||||||||
Retail - Mail Order (0.2%) | |||||||||||||||||||
50 | QVC, Inc. (144A) (b) | 7.125 | 04/15/17 | 49,250 | |||||||||||||||
Retail - Major Department Store (0.1%) | |||||||||||||||||||
15 | JC Penney Co., Inc. | 5.65 | 06/01/20 | 14,738 | |||||||||||||||
Retail - Perfume & Cosmetics (0.5%) | |||||||||||||||||||
140 | Sally Holdings LLC/Sally Capital, Inc. | 9.25 | 11/15/14 | 145,950 |
See Notes to Financial Statements
34
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Retail - Regional Department Store (0.4%) | |||||||||||||||||||
$ | 36 | JC Penney Corp., Inc. | 6.375 | % | 10/15/36 | $ | 34,200 | ||||||||||||
70 | Macy's Retail Holdings, Inc. | 5.90 | 12/01/16 | 70,525 | |||||||||||||||
104,725 | |||||||||||||||||||
Retail - Restaurants (0.1%) | |||||||||||||||||||
30 | Yum! Brands, Inc. | 6.875 | 11/15/37 | 34,553 | |||||||||||||||
Satellite Telecommunication (0.4%) | |||||||||||||||||||
120 | Intelsat Corp. | 9.25 | 06/15/16 | 126,600 | |||||||||||||||
Schools (0.2%) | |||||||||||||||||||
55 | Duke University | 5.15 | 04/01/19 | 61,188 | |||||||||||||||
Semiconductor Equipment (0.1%) | |||||||||||||||||||
35 | KLA-Tencor Corp. | 6.90 | 05/01/18 | 39,214 | |||||||||||||||
Special Purpose Entity (1.3%) | |||||||||||||||||||
160 | AIG SunAmerica Global Financing VI (144A) (b) | 6.30 | 05/10/11 | 162,400 | |||||||||||||||
20 | CA FM Lease Trust (144A) (b) | 8.50 | 07/15/17 | 20,284 | |||||||||||||||
50 | Harley-Davidson Funding Corp. (144A) (b) | 6.80 | 06/15/18 | 52,728 | |||||||||||||||
150 | NSG Holdings LLC/NSG Holdings, Inc. (144A) (b) | 7.75 | 12/15/25 | 132,750 | |||||||||||||||
368,162 | |||||||||||||||||||
Super-Regional Banks - U.S. (0.7%) | |||||||||||||||||||
70 | KeyCorp (MTN) | 6.50 | 05/14/13 | 76,621 | |||||||||||||||
70 | PNC Funding Corp. | 5.125 | 02/08/20 | 72,925 | |||||||||||||||
35 | PNC Funding Corp. | 6.70 | 06/10/19 | 40,179 | |||||||||||||||
189,725 | |||||||||||||||||||
Telecommunication Services (1.0%) | |||||||||||||||||||
90 | PAETEC Holding Corp. | 8.875 | 06/30/17 | 90,450 | |||||||||||||||
75 | Qwest Corp. | 8.375 | 05/01/16 | 82,312 | |||||||||||||||
100 | Sable International Finance Ltd. (144A) (b) | 7.75 | 02/15/17 | 101,000 | |||||||||||||||
273,762 | |||||||||||||||||||
Telephone - Integrated (1.7%) | |||||||||||||||||||
45 | AT&T Corp. | 8.00 | 11/15/31 | 58,091 | |||||||||||||||
10 | AT&T, Inc. | 6.15 | 09/15/34 | 10,533 | |||||||||||||||
180 | Frontier Communications Corp. | 9.00 | 08/15/31 | 167,850 | |||||||||||||||
70 | Sprint Capital Corp. | 6.90 | 05/01/19 | 63,700 | |||||||||||||||
65 | Verizon Communications, Inc. | 6.35 | 04/01/19 | 75,343 | |||||||||||||||
100 | Windstream Corp. | 7.875 | 11/01/17 | 98,125 | |||||||||||||||
473,642 |
See Notes to Financial Statements
35
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Television (0.1%) | |||||||||||||||||||
$ | 30 | CBS Corp. | 8.875 | ?% | 05/15/19 | $ | 37,805 | ||||||||||||
Tobacco (0.1%) | |||||||||||||||||||
20 | Altria Group, Inc. | 9.25 | 08/06/19 | 25,003 | |||||||||||||||
Transport - Rail (0.2%) | |||||||||||||||||||
15 | CSX Corp. | 6.15 | 05/01/37 | 16,458 | |||||||||||||||
30 | Union Pacific Corp. | 6.125 | 02/15/20 | 34,874 | |||||||||||||||
51,332 | |||||||||||||||||||
Transport - Services (0.1%) | |||||||||||||||||||
25 | Ryder System, Inc. (MTN) | 7.20 | 09/01/15 | 29,027 | |||||||||||||||
Total Domestic Corporate Bonds (Cost $12,907,311) | 13,428,222 | ||||||||||||||||||
Asset-Backed Securities (0.9%) | |||||||||||||||||||
100 | Ally Master Owner Trust 2010-3 A (144A) (b) | 2.88 | 04/15/15 | 101,478 | |||||||||||||||
125 | Ford Credit Floorplan Master Owner Trust 2010-3 A2 (144A) (b) | 2.05 | (a) | 02/15/17 | 128,146 | ||||||||||||||
20 | Specialty Underwriting & Residential Finance 2004-BC2 A2 | 0.617 | (a) | 05/25/35 | 15,791 | ||||||||||||||
Total Asset-Backed Securities (Cost $244,524) | 245,415 | ||||||||||||||||||
U.S. Government Agencies & Obligations (22.1%) | |||||||||||||||||||
U.S. Government Agencies (3.5%) | |||||||||||||||||||
Federal Home Loan Mortgage Corp. | |||||||||||||||||||
200 | 2.875 | 02/09/15 | 208,569 | ||||||||||||||||
150 | 3.00 | 07/28/14 | 158,081 | ||||||||||||||||
200 | 6.75 | 03/15/31 | 265,555 | ||||||||||||||||
Federal National Mortgage Assoc. | |||||||||||||||||||
100 | 4.375 | 10/15/15 | 110,731 | ||||||||||||||||
200 | 5.00 | 05/11/17 | 228,517 | ||||||||||||||||
62 | 356 25 (IO) | 7.00 | 12/01/34 | 8,649 | |||||||||||||||
106 | 356 30 (IO) | 8.00 | 06/01/35 | 22,245 | |||||||||||||||
57 | 356 47 (IO) | 6.50 | 12/01/29 | 6,449 | |||||||||||||||
55 | 356 49 (IO) | 7.00 | 11/01/19 | 6,597 | |||||||||||||||
1,015,393 | |||||||||||||||||||
U.S. Government Obligations (18.6%) | |||||||||||||||||||
U.S. Treasury Bonds | |||||||||||||||||||
300 | 4.25 | 05/15/39 | 317,250 | ||||||||||||||||
725 | 5.375 | 02/15/31 | 892,090 | ||||||||||||||||
910 | 7.50 | 11/15/24 | 1,320,211 |
See Notes to Financial Statements
36
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
U.S. Treasury Notes | |||||||||||||||||||
$ | 175 | 2.75 | % | 02/15/19 | $ | 174,371 | |||||||||||||
480 | 3.00 | 08/31/16 | 501,000 | ||||||||||||||||
1,700 | 3.125 | 04/30/17 | 1,777,297 | ||||||||||||||||
300 | 3.625 | 08/15/19 | 317,273 | ||||||||||||||||
44 | 4.75 | 08/15/17 | 50,879 | ||||||||||||||||
5,350,371 | |||||||||||||||||||
Total U.S. Government Agencies & Obligations (Cost $5,979,190) | 6,365,764 | ||||||||||||||||||
U.S. Government Agencies - Mortgage-Backed Securities (0.8%) | |||||||||||||||||||
Federal National Mortgage Assoc. (0.8%) | |||||||||||||||||||
53 | 6.50 | 07/01/29 | 58,733 | ||||||||||||||||
16 | 6.50 | 05/01/31 | 18,316 | ||||||||||||||||
94 | 6.50 | 03/01/32 | 104,407 | ||||||||||||||||
9 | 6.50 | 11/01/33 | 10,239 | ||||||||||||||||
34 | 7.00 | 02/01/33 | 38,398 | ||||||||||||||||
6 | 8.00 | 02/01/12 | 6,623 | ||||||||||||||||
236,716 | |||||||||||||||||||
Government National Mortgage Assoc. (0.0%) | |||||||||||||||||||
1 | 8.00 | 06/15/26 | 805 | ||||||||||||||||
Total U.S. Government Agencies - Mortgage-Backed Securities (Cost $222,146) | 237,521 | ||||||||||||||||||
Municipal Bonds (1.0%) | |||||||||||||||||||
35 | Chicago Transit Authority (Series B) | 6.20 | 12/01/40 | 36,879 | |||||||||||||||
15 | City of Chicago O'Hare Int'l Airport (Series B) | 6.395 | 01/01/40 | 16,321 | |||||||||||||||
30 | City of New York (Series G1) | 5.968 | 03/01/36 | 31,681 | |||||||||||||||
75 | Illinois State Toll Highway Authority (The) 2009 (Series A) | 6.184 | 01/01/34 | 78,374 | |||||||||||||||
15 | Municipal Electric Authority of Georgia Plant Vogtle Units 3 & 4 (Series 2010 J) | 6.637 | 04/01/57 | 14,857 | |||||||||||||||
20 | Municipal Electric Authority of Georgia Plant Vogtle | 6.655 | 04/01/57 | 19,858 | |||||||||||||||
30 | New York City Transitional Finance Authority | 5.267 | 05/01/27 | 31,604 | |||||||||||||||
40 | State of California - Various Purpose | 5.95 | 04/01/16 | 42,741 | |||||||||||||||
25 | State of California - Various Purpose | 6.65 | 03/01/22 | 26,606 | |||||||||||||||
Total Municipal Bonds (Cost $286,627) | 298,921 |
See Notes to Financial Statements
37
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE |
Collateralized Mortgage Obligations (5.4%) | |||||||||||||||||||
Private Issues | |||||||||||||||||||
$ | 63 | American Home Mortgage Assets 2006-4 1A3 | 0.657 | (a)% | 10/25/46 | $ | 2,669 | ||||||||||||
186 | Banc of America Mortgage Securities | 1.247 | (a) | 01/25/36 | 146,586 | ||||||||||||||
104 | Countrywide Alternative Loan Trust 2006-8T1 1A3 | 6.00 | 04/25/36 | 80,013 | |||||||||||||||
190 | Countrywide Home Loan Mortgage Pass-Through Trust 2007-13 A10 | 6.00 | 08/25/37 | 161,646 | |||||||||||||||
First Horizon Alternative Mortgage Securities | |||||||||||||||||||
99 | 2005-FA8 2A1 | 5.00 | 11/25/20 | 92,230 | |||||||||||||||
94 | 2006-FA5 A3 | 6.25 | 08/25/36 | 73,820 | |||||||||||||||
275 | GMAC Mortgage Corp. Loan Trust 2010-1 A (144A) (b) | 4.25 | 07/25/40 | 274,312 | |||||||||||||||
100 | JP Morgan Mortgage Trust 2006-A3 3A4 | 5.739 | (a) | 05/25/36 | 83,682 | ||||||||||||||
100 | Lehman Mortgage Trust 2006-1 3A5 | 5.50 | 02/25/36 | 81,739 | |||||||||||||||
96 | Mastr Adjustable Rate Mortgages Trust 2006-OA1 3A3 | 1.361 | (a) | 04/25/46 | 4,924 | ||||||||||||||
125 | Residential Accredit Loans, Inc. 2006-QS4 A4 | 6.00 | 04/25/36 | 81,947 | |||||||||||||||
115 | Residential Asset Securitization Trust 2006-A8 1A1 | 6.00 | 08/25/36 | 76,180 | |||||||||||||||
Structured Adjustable Rate Mortgage Loan Trust | |||||||||||||||||||
193 | 2004-10 1A1 | 2.745 | (a) | 08/25/34 | 172,738 | ||||||||||||||
225 | 2007-3 4A2 | 5.577 | (a) | 04/25/47 | 135,234 | ||||||||||||||
100 | WaMu Mortgage Pass-Through Certificates 2005-AR10 1A3 | 4.735 | (a) | 09/25/35 | 82,565 | ||||||||||||||
Total Collateralized Mortgage Obligations (Cost $1,637,691) | 1,550,285 |
NUMBER OF SHARES | |||||||||||
Preferred Stock (0.2%) | |||||||||||
Diversified Financial Services | |||||||||||
82 | Ally Financial, Inc. $70.00 (144A) (b) (Cost $34,389) (b) | 63,737 | |||||||||
Common Stocks (0.0%) | |||||||||||
Communications Equipment (0.0%) | |||||||||||
1,171 | Birch Telecom, Inc. (h)(i)(j)(k) | 12 | |||||||||
563 | Orbcomm, Inc. (j) | 1,025 | |||||||||
1,037 |
See Notes to Financial Statements
38
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Diversified Telecommunication Services (0.0%) | |||||||||||
109 | XO Holdings, Inc. (h)(j)(l) | $ | 73 | ||||||||
Electric Utilities (0.0%) | |||||||||||
13 | PNM Resources, Inc. (h) | 145 | |||||||||
Textile - Apparel (0.0%) | |||||||||||
11,192 | U.S. Leather, Inc. (h)(i)(j) | 0 | |||||||||
Wireless Telecommunication Services (0.0%) | |||||||||||
46 | USA Mobility, Inc. (h)(l) | 594 | |||||||||
Total Common Stocks (Cost $704,614) | 1,849 |
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | |||||||||||||||||
Short-Term Investments (2.6%) | |||||||||||||||||||
U.S. Government Obligations (m)(n) (0.8%) | |||||||||||||||||||
$ | 230 | U.S. Treasury Bills (Cost $229,848) | 0.18 - 0.20 | % | 10/28/10 | 229,927 |
NUMBER OF SHARES (000) | |||||||||||
Investment Company (1.8%) | |||||||||||
524 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $523,583) | 523,583 |
Total Short-Term Investments (Cost $753,431) | 753,510 | ||||||||||
Total Investments (Cost $28,456,830) (o)(p) | 100.1 | % | 28,796,823 | ||||||||
Liabilities in Excess of Other Assets | (0.1 | ) | (29,667 | ) | |||||||
Net Assets | 100.0 | % | $ | 28,767,156 |
IO Interest Only Security.
MTN Medium Term Note.
REIT Real Estate Investment Trust.
(a) Floating rate security. Rate shown is the rate in effect at June 30, 2010.
(b) Resale is restricted to qualified institutional investors.
(c) Security issued with perpetual maturity.
(d) Payment-in-kind security.
See Notes to Financial Statements
39
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
(e) Security purchased on a when-issued basis.
(f) Non-income producing security; bond in default.
(g) Issuer in bankruptcy.
(h) Acquired through exchange offer.
(i) At June 30, 2010, the Portfolio held $12 of fair valued securities, representing 0.0% 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.
(j) Non-income producing security.
(k) Resale is restricted, acquired (between 06/18/98 and 08/15/99) at a cost basis of $573,998.
(l) Illiquid security.
(m) A portion of this security has been physically segregated in connection with open futures and swap contracts.
(n) Purchased on a discount basis. The interest rates shown have been adjusted to reflect a money market equivalent yield.
(o) Securities have been designated as collateral in connection with securities purchased on a when-issued basis, open futures, forward foreign currency and swap contracts.
(p) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $1,818,412 and the aggregate gross unrealized depreciation is $1,478,419 resulting in net unrealized appreciation of $339,993.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 2010:
CONTRACTS TO DELIVER | IN EXCHANGE FOR | DELIVERY DATE | UNREALIZED DEPRECIATION | ||||||||||||
$ | 78,998 | IDR | 717,300,000 | 07/20/10 | $ | (139 | ) | ||||||||
$ | 28,749 | RUB | 890,000 | 07/26/10 | (334 | ) | |||||||||
Total Unrealized Depreciation | $ | (473 | ) |
Currency Abbreviations:
BRL Brazilian Real.
CAD Canadian Dollar.
IDR Indonesian Rupiah.
MXN Mexican New Peso.
RUB Russian Ruble.
TRY Turkish Lira.
See Notes to Financial Statements
40
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
FUTURES CONTRACTS OPEN AT JUNE 30, 2010:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
60 | Long | U.S. Treasury Notes 5 Year, September 2010 | $ | 7,101,094 | $ | 109,437 | |||||||||||||
10 | Short | U.S. Treasury Bonds 30 year, September 2010 | (1,275,000 | ) | (28,560 | ) | |||||||||||||
36 | Short | U.S. Treasury Notes 10 Year, September 2010 | (4,411,688 | ) | (73,834 | ) | |||||||||||||
31 | Short | U.S. Treasury Notes 2 Year, September 2010 | (6,783,672 | ) | (27,635 | ) | |||||||||||||
Net Unrealized Depreciation | $ | (20,592 | ) |
CREDIT DEFAULT SWAP CONTRACT OPEN AT JUNE 30, 2010:
SWAP COUNTERPARTY & REFERENCE OBLIGATION | BUY/SELL PROTECTION | NOTIONAL AMOUNT (000'S) | INTEREST RATE | TERMINATION DATE | UNREALIZED DEPRECIATION | UPFRONT PAYMENTS | VALUE | CREDIT RATING OF REFERENCE OBLIGATION+ | |||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||
Bank of America, N.A. Tyco Electronics Ltd. | Buy | $ | 125 | 5.00 | % | June 20, 2014 | $ | (15,220 | ) | $ | (5,251 | ) | $ | (20,471 | ) | BBB- |
+ Credit rating as issued by Standard and Poor's.
INTEREST RATE SWAP CONTRACTS OPEN AT JUNE 30, 2010:
NOTIONAL SWAP COUNTERPARTY | AMOUNT (000) | FLOATING RATE INDEX | PAY/RECEIVE FLOATING RATE | FIXED RATE | TERMINATION DATE | UNREALIZED DEPRECIATION | |||||||||||||||||||||
Bank of America, N.A.*** | CAD | 1,400 | 3 Month LIBOR | Pay | 5.45 | % | May 05, 2025 | $ | (2,863 | ) | |||||||||||||||||
Bank of America, N.A.*** | $ | 1,350 | 3 Month LIBOR | Receive | 4.915 | May 07, 2025 | (16,146 | ) | |||||||||||||||||||
Credit Suisse Group | 3,140 | 3 Month LIBOR | Receive | 2.625 | March 11, 2015 | (94,294 | ) | ||||||||||||||||||||
Total Unrealized Depreciation | $ | (113,303 | ) |
*** Forward interest rate swap. Periodic payments on specified notional amount with future effective date, unless terminated earlier.
See Notes to Financial Statements
41
Flexible Income
Portfolio of Investments n June 30, 2010 (unaudited) continued
ZERO COUPON SWAP CONTRACTS OPEN AT JUNE 30, 2010:
SWAP COUNTERPARTY | NOTIONAL AMOUNT (000) | FLOATING RATE INDEX | PAY/RECEIVE FLOATING RATE | TERMINATION DATE | UNREALIZED APPRECIATION (DEPRECIATION) | ||||||||||||||||||
Barclays Bank^ | $ | 920 | 3 Month LIBOR | Receive | November 15, 2021 | $ | (116,601 | ) | |||||||||||||||
Deutsche Bank AG^ | 750 | 3 Month LIBOR | Receive | November 15, 2021 | (82,394 | ) | |||||||||||||||||
Deutsche Bank AG^^ | 750 | 3 Month LIBOR | Pay | November 15, 2021 | 14,908 | ||||||||||||||||||
JPMorgan Chase Group^ | 535 | 3 Month LIBOR | Receive | November 15, 2019 | (64,691 | ) | |||||||||||||||||
UBS AG^ | 255 | 3 Month LIBOR | Receive | November 15, 2019 | (29,320 | ) | |||||||||||||||||
Net Unrealized Depreciation | $ | (278,098 | ) |
LIBOR London Interbank Offered Rate.
^ Portfolio will make payments of $412,031, $323,462, $203,364 and $95,443 respectively on termination date.
^^ Portfolio will receive payment of $250,453 on termination date.
SUMMARY OF INVESTMENTS
PORTFOLIO COMPOSITION | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Domestic Corporate Bonds | $ | 13,428,222 | 46.6 | % | |||||||
U.S. Government Agencies & Obligations | 6,365,764 | 22.1 | |||||||||
Foreign Government & Corporate Bonds | 5,851,599 | 20.3 | |||||||||
Collateralized Mortgage Obligations | 1,550,285 | 5.4 | |||||||||
Short-Term Investments | 753,510 | 2.6 | |||||||||
Municipal Bonds | 298,921 | 1.1 | |||||||||
Asset-Backed Securities | 245,415 | 0.9 | |||||||||
U.S. Government Agencies - Mortgage-Backed Securities | 237,521 | 0.8 | |||||||||
Preferred Stock | 63,737 | 0.2 | |||||||||
Common Stocks | 1,849 | 0.0 | |||||||||
$ | 28,796,823 | ^ | 100.0 | % |
^ Does not include open forward foreign currency contracts with total unrealized depreciation of $473. Does not include open long/short futures contracts with an underlying face amount of $19,571,454 and net unrealized depreciation of $20,592. Also does not include open swap contracts with net unrealized depreciation of $406,621.
See Notes to Financial Statements
42
Global Infrastructure
Portfolio of Investments n June 30, 2010 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (98.6%) Australia (2.8%) | |||||||||||
Airports | |||||||||||
54,269 | Australian Infrastructure Fund (Stapled Securities) (a)(b) | $ | 76,857 | ||||||||
78,748 | MAP Group (Stapled Securities) (a)(b) | 176,785 | |||||||||
253,642 | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
43,100 | APA Group (Stapled Securities) (a)(b) | 129,733 | |||||||||
Toll Roads | |||||||||||
340,700 | Intoll Group (Stapled Securities) (a)(b) | 296,277 | |||||||||
Transmission & Distribution | |||||||||||
96,489 | Spark Infrastructure Group | 92,518 | |||||||||
Total Australia | 772,170 | ||||||||||
Brazil (0.5%) | |||||||||||
Water | |||||||||||
3,200 | Cia de Saneamento Basico do Estado de Sao Paulo (ADR) | 132,288 | |||||||||
Canada (15.1%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
32,840 | Enbridge, Inc. | 1,529,479 | |||||||||
67,190 | TransCanada Corp. | 2,247,556 | |||||||||
3,777,035 | |||||||||||
Ports | |||||||||||
4,160 | Westshore Terminals Income Fund (Units) (a) | 67,643 | |||||||||
Transmission & Distribution | |||||||||||
14,720 | Fortis, Inc. | 375,830 | |||||||||
Total Canada | 4,220,508 |
NUMBER OF SHARES | VALUE | ||||||||||
China (5.7%) | |||||||||||
Airports | |||||||||||
150,000 | Beijing Capital International Airport Co., Ltd. (H Shares) (c) | $ | 88,016 | ||||||||
Oil & Gas Storage & Transportation | |||||||||||
71,000 | Beijing Enterprises Holdings Ltd. (c) | 461,223 | |||||||||
189,000 | Xinao Gas Holdings Ltd. (H Shares) (c) | 411,030 | |||||||||
872,253 | |||||||||||
Ports | |||||||||||
105,000 | China Merchants Holdings International Co., Ltd. (c) | 349,042 | |||||||||
Toll Roads | |||||||||||
331,000 | Jiangsu Expressway Co., Ltd. (H Shares) (c) | 299,651 | |||||||||
Total China | 1,608,962 | ||||||||||
France (7.0%) | |||||||||||
Airports | |||||||||||
2,300 | Aeroports de Paris (ADP) | 146,577 | |||||||||
Communications | |||||||||||
9,637 | Eutelsat Communications | 321,960 | |||||||||
44,385 | SES SA | 921,932 | |||||||||
1,243,892 | |||||||||||
Toll Roads | |||||||||||
82,490 | Groupe Eurotunnel SA | 557,499 | |||||||||
Total France | 1,947,968 | ||||||||||
Germany (0.5%) | |||||||||||
Airports | |||||||||||
3,666 | Fraport AG Frankfurt Airport Services Worldwide | 155,812 | |||||||||
Hong Kong (3.9%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
435,600 | Hong Kong & China Gas Co., Ltd. | 1,076,660 |
See Notes to Financial Statements
43
Global Infrastructure
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Italy (4.8%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
91,489 | Snam Rete Gas SpA | $ | 363,712 | ||||||||
Toll Roads | |||||||||||
37,605 | Atlantia SpA | 666,686 | |||||||||
Transmission & Distribution | |||||||||||
88,400 | Terna Rete Elettrica Nazionale SpA | 318,365 | |||||||||
Total Italy | 1,348,763 | ||||||||||
Japan (0.4%) | |||||||||||
Airports | |||||||||||
7,400 | Japan Airport Terminal Co., Ltd. | 109,703 | |||||||||
Mexico (1.3%) | |||||||||||
Airports | |||||||||||
7,100 | Grupo Aeroportuario del Pacifico SAB de CV (ADR) | 206,255 | |||||||||
3,600 | Grupo Aeroportuario del Sureste SAB de CV (ADR) | 163,944 | |||||||||
Total Mexico | 370,199 | ||||||||||
Netherlands (0.4%) | |||||||||||
Oil & Gas Storage & Transportation | |||||||||||
2,800 | Koninklijke Vopak N.V. | 102,757 | |||||||||
New Zealand (0.7%) | |||||||||||
Airports | |||||||||||
156,961 | Auckland International Airport Ltd. | 200,628 | |||||||||
Spain (9.6%) | |||||||||||
Diversified | |||||||||||
83,543 | Ferrovial SA | 539,719 | |||||||||
Oil & Gas Storage & Transportation | |||||||||||
38,250 | Enagas | 574,844 | |||||||||
Toll Roads | |||||||||||
81,327 | Abertis Infraestructuras SA | 1,171,842 |
NUMBER OF SHARES | VALUE | ||||||||||
Transmission & Distribution | |||||||||||
11,250 | Red Electrica Corp. SA | $ | 402,149 | ||||||||
Total Spain | 2,688,554 | ||||||||||
Switzerland (0.4%) | |||||||||||
Airports | |||||||||||
384 | Flughafen Zuerich AG | 113,769 | |||||||||
United Kingdom (10.5%) | |||||||||||
Transmission & Distribution | |||||||||||
253,400 | National Grid PLC | 1,866,663 | |||||||||
Water | |||||||||||
20,400 | Northumbrian Water Group PLC | 92,411 | |||||||||
26,800 | Pennon Group PLC | 219,618 | |||||||||
15,500 | Severn Trent PLC | 282,807 | |||||||||
60,500 | United Utilities Group PLC | 471,447 | |||||||||
1,066,283 | |||||||||||
Total United Kingdom | 2,932,946 | ||||||||||
United States (35.0%) | |||||||||||
Communications | |||||||||||
44,220 | American Tower Corp. (Class A) (d) | 1,967,790 | |||||||||
28,520 | Crown Castle International Corp. (d) | 1,062,655 | |||||||||
14,170 | SBA Communications Corp. (Class A) (d) | 481,922 | |||||||||
3,512,367 | |||||||||||
Diversified | |||||||||||
66,290 | Centerpoint Energy, Inc. | 872,376 | |||||||||
Oil & Gas Storage & Transportation | |||||||||||
5,710 | AGL Resources, Inc. | 204,532 | |||||||||
6,970 | Atmos Energy Corp. | 188,469 | |||||||||
7,532 | Kinder Morgan Management LLC (d) | 426,236 | |||||||||
2,080 | New Jersey Resources Corp. | 73,216 | |||||||||
23,280 | NiSource, Inc. | 337,560 | |||||||||
9,570 | Oneok, Inc. | 413,902 | |||||||||
11,250 | Southern Union Co. | 245,925 |
See Notes to Financial Statements
44
Global Infrastructure
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
2,720 | Southwest Gas Corp. | $ | 80,240 | ||||||||
62,265 | Spectra Energy Corp. | 1,249,659 | |||||||||
3,219,739 | |||||||||||
Transmission & Distribution | |||||||||||
20,050 | Consolidated Edison, Inc. | 864,155 | |||||||||
4,840 | ITC Holdings Corp. | 256,084 | |||||||||
14,830 | Northeast Utilities | 377,869 | |||||||||
3,980 | NorthWestern Corp. | 104,276 | |||||||||
8,670 | NSTAR | 303,450 | |||||||||
1,905,834 | |||||||||||
Water | |||||||||||
5,190 | American Water Works Co., Inc. | 106,914 | |||||||||
9,260 | Aqua America, Inc. | 163,717 | |||||||||
270,631 | |||||||||||
Total United States | 9,780,947 | ||||||||||
Total Common Stocks (Cost $29,758,550) | 27,562,634 | ||||||||||
NUMBER OF SHARES (000) | |||||||||||
Short-Term Investment (0.9%) | |||||||||||
Investment Company | |||||||||||
247 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $246,699) | 246,699 | |||||||||
Total Investments (Cost $30,005,249) (e)(f) | 99.5% | 27,809,333 | |||||||||
Other Assets in Excess of Liabilities | 0.5 | 139,200 | |||||||||
Net Assets | 100.0% | $ | 27,948,533 |
ADR American Depositary Receipt.
(a) Consists of one or more class of securities traded together as a unit; stocks with attached warrants.
(b) Comprised of securities in separate entities that are traded as a single stapled security.
(c) Security trades on the Hong Kong exchange.
(d) Non-income producing security.
(e) The market value and percentage of total investments, $13,058,692 and 47.0%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A to the financial statements.
(f) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $711,672 and the aggregate gross unrealized depreciation is $2,907,588 resulting in net unrealized depreciation of $2,195,916.
See Notes to Financial Statements
45
Global Infrastructure
Summary of Investments n June 30, 2010 (unaudited)
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Oil & Gas Storage & Transportation | $ | 10,116,733 | 36.4 | % | |||||||
Transmission & Distribution | 4,961,359 | 17.8 | |||||||||
Communications | 4,756,259 | 17.1 | |||||||||
Toll Roads | 2,991,955 | 10.7 | |||||||||
Water | 1,469,202 | 5.3 | |||||||||
Airports | 1,438,346 | 5.2 | |||||||||
Diversified | 1,412,095 | 5.1 | |||||||||
Ports | 416,685 | 1.5 | |||||||||
Investment Company | 246,699 | 0.9 | |||||||||
$ | 27,809,333 | 100.0 | % |
See Notes to Financial Statements
46
Capital Growth
Portfolio of Investments n June 30, 2010 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (93.6%) | |||||||||||
Air Freight & Logistics (3.0%) | |||||||||||
5,606 | C.H. Robinson Worldwide, Inc. | $ | 312,030 | ||||||||
12,597 | Expeditors International of Washington, Inc. | 434,722 | |||||||||
746,752 | |||||||||||
Capital Markets (1.1%) | |||||||||||
19,214 | Charles Schwab Corp. (The) | 272,455 | |||||||||
Chemicals (2.4%) | |||||||||||
12,654 | Monsanto Co. | 584,868 | |||||||||
Communications Equipment (2.5%) | |||||||||||
13,991 | Cisco Systems, Inc. (a) | 298,148 | |||||||||
6,668 | Research In Motion Ltd. (Canada) (a) | 328,466 | |||||||||
626,614 | |||||||||||
Computers & Peripherals (9.7%) | |||||||||||
7,041 | Apple, Inc. (a) | 1,771,023 | |||||||||
20,676 | Teradata Corp. (a) | 630,204 | |||||||||
2,401,227 | |||||||||||
Construction Materials (2.0%) | |||||||||||
20,145 | Cemex SAB de CV (ADR) (Mexico) (a) | 194,802 | |||||||||
3,424 | Martin Marietta Materials, Inc. | 290,390 | |||||||||
485,192 | |||||||||||
Consumer Finance (2.0%) | |||||||||||
12,795 | American Express Co. | 507,961 | |||||||||
Distributors (2.9%) | |||||||||||
158,000 | Li & Fung Ltd. (Bermuda) (b) | 707,291 | |||||||||
Diversified Financial Services (5.1%) | |||||||||||
73,232 | BM&F Bovespa SA (Brazil) | 472,255 | |||||||||
1,325 | CME Group, Inc. | 373,054 | |||||||||
21,381 | Leucadia National Corp. (a) | 417,143 | |||||||||
1,262,452 | |||||||||||
Electrical Equipment (0.5%) | |||||||||||
992 | First Solar, Inc. (a) | 112,919 |
NUMBER OF SHARES | VALUE | ||||||||||
Food Products (2.7%) | |||||||||||
13,133 | Mead Johnson Nutrition Co. | $ | 658,226 | ||||||||
Health Care Equipment & Supplies (3.6%) | |||||||||||
2,658 | Alcon, Inc. (Switzerland) | 393,889 | |||||||||
3,087 | Gen-Probe, Inc. (a) | 140,212 | |||||||||
1,157 | Intuitive Surgical, Inc. (a) | 365,172 | |||||||||
899,273 | |||||||||||
Hotels, Restaurants & Leisure (8.4%) | |||||||||||
7,458 | Accor SA (France) | 342,501 | |||||||||
27,884 | Las Vegas Sands Corp. (a) | 617,352 | |||||||||
16,745 | Starbucks Corp. | 406,903 | |||||||||
9,352 | Wynn Resorts Ltd. | 713,277 | |||||||||
2,080,033 | |||||||||||
Information Technology Services (5.4%) | |||||||||||
32,545 | Redecard SA (Brazil) | 452,925 | |||||||||
12,337 | Visa, Inc. (Class A) | 872,843 | |||||||||
1,325,768 | |||||||||||
Insurance (3.4%) | |||||||||||
6,428 | Berkshire Hathaway, Inc. (Class B) (a) | 512,247 | |||||||||
9,779 | Loews Corp. | 325,739 | |||||||||
837,986 | |||||||||||
Internet & Catalog Retail (5.8%) | |||||||||||
13,059 | Amazon.com, Inc. (a) | 1,426,826 | |||||||||
Internet Software & Services (12.8%) | |||||||||||
10,567 | Baidu, Inc. (ADR) (Cayman Islands) (a) | 719,402 | |||||||||
23,415 | eBay, Inc. (a) | 459,168 | |||||||||
2,902 | Google, Inc. (Class A) (a) | 1,291,245 | |||||||||
42,700 | Tencent Holdings Ltd. (Cayman Islands) (b) | 704,140 | |||||||||
3,173,955 |
See Notes to Financial Statements
47
Capital Growth
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Life Sciences Tools & Services (2.5%) | |||||||||||
14,032 | Illumina, Inc. (a) | $ | 610,813 | ||||||||
Multiline Retail (0.7%) | |||||||||||
2,745 | Sears Holdings Corp. (a) | 177,464 | |||||||||
Oil, Gas & Consumable Fuels (4.4%) | |||||||||||
6,361 | Range Resources Corp. | 255,394 | |||||||||
18,776 | Ultra Petroleum Corp. (Canada) (a) | 830,838 | |||||||||
1,086,232 | |||||||||||
Pharmaceuticals (1.2%) | |||||||||||
5,076 | Allergan, Inc. | 295,728 | |||||||||
Professional Services (2.0%) | |||||||||||
6,207 | Corporate Executive Board Co. (The) | 163,058 | |||||||||
254 | SGS SA (Registered Shares) (Switzerland) | 341,979 | |||||||||
505,037 | |||||||||||
Real Estate Management & Development (3.4%) | |||||||||||
37,737 | Brookfield Asset Management, Inc. (Class A) (Canada) | 853,611 | |||||||||
Software (4.6%) | |||||||||||
9,587 | Adobe Systems, Inc. (a) | 253,384 | |||||||||
7,207 | Salesforce.com, Inc. (a) | 618,505 | |||||||||
4,478 | VMware, Inc. (Class A) (a) | 280,278 | |||||||||
1,152,167 | |||||||||||
Wireless Telecommunication Services (1.5%) | |||||||||||
7,831 | America Movil SAB de CV (Series L) (ADR) (Mexico) | 371,973 | |||||||||
Total Common Stocks (Cost $22,368,335) | 23,162,823 | ||||||||||
Convertible Preferred Stock (0.6%) | |||||||||||
Alternative Energy | |||||||||||
54,420 | Better Place, LLC (Cost $163,260) (c)(d) | 163,260 |
NUMBER OF SHARES (000) | VALUE | ||||||||||
Short-Term Investment (5.9%) | |||||||||||
Investment Company | |||||||||||
1,455 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $1,454,645) | $ | 1,454,645 | ||||||||
Total Investments (Cost $23,986,240) (e)(f) | 100.1% | 24,780,728 | |||||||||
Liabilities in Excess of Other Assets | (0.1) | (26,801 | ) | ||||||||
Net Assets | 100.0% | $ | 24,753,927 |
ADR American Depositary Receipt.
(a) Non-income producing security.
(b) Security trades on the Hong Kong exchange.
(c) Illiquid security. Resale is restricted to qualified institutional investors.
(d) At June 30,2010, the Portfolio held $163,260 of fair valued securities, representing 0.7% 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.
(e) The market value and percentage of total investments, $2,095,911 and 8.5%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
(f) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $4,125,501 and the aggregate gross unrealized depreciation is $3,331,013 resulting in net unrealized appreciation of $794,488.
See Notes to Financial Statements
48
Capital Growth
Summary of Investments n June 30, 2010 (unaudited)
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Internet Software & Services | $ | 3,173,955 | 12.8 | % | |||||||
Computers & Peripherals | 2,401,227 | 9.7 | |||||||||
Hotels, Restaurants & Leisure | 2,080,033 | 8.4 | |||||||||
Investment Company | 1,454,645 | 5.9 | |||||||||
Internet & Catalog Retail | 1,426,826 | 5.8 | |||||||||
Information Technology Services | 1,325,768 | 5.3 | |||||||||
Diversified Financial Services | 1,262,452 | 5.1 | |||||||||
Software | 1,152,167 | 4.6 | |||||||||
Oil, Gas & Consumable Fuels | 1,086,232 | 4.4 | |||||||||
Health Care Equipment & Supplies | 899,273 | 3.6 | |||||||||
Real Estate Management & Development | 853,611 | 3.4 | |||||||||
Insurance | 837,986 | 3.4 | |||||||||
Air Freight & Logistics | 746,752 | 3.0 |
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Distributors | $ | 707,291 | 2.8 | % | |||||||
Food Products | 658,226 | 2.7 | |||||||||
Communications Equipment | 626,614 | 2.5 | |||||||||
Life Sciences Tools & Services | 610,813 | 2.5 | |||||||||
Chemicals | 584,868 | 2.4 | |||||||||
Consumer Finance | 507,961 | 2.0 | |||||||||
Professional Services | 505,037 | 2.0 | |||||||||
Construction Materials | 485,192 | 2.0 | |||||||||
Wireless Telecommunication Services | 371,973 | 1.5 | |||||||||
Pharmaceuticals | 295,728 | 1.2 | |||||||||
Capital Markets | 272,455 | 1.1 | |||||||||
Multiline Retail | 177,464 | 0.7 | |||||||||
Alternative Energy | 163,260 | 0.7 | |||||||||
Electrical Equipment | 112,919 | 0.5 | |||||||||
$ | 24,780,728 | 100.0 | % |
See Notes to Financial Statements
49
Focus Growth
Portfolio of Investments n June 30, 2010 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (93.6%) | |||||||||||
Air Freight & Logistics (2.3%) | |||||||||||
50,891 | Expeditors International of Washington, Inc. | $ | 1,756,248 | ||||||||
Chemicals (3.0%) | |||||||||||
51,339 | Monsanto Co. | 2,372,889 | |||||||||
Communications Equipment (1.7%) | |||||||||||
27,117 | Research In Motion Ltd. (Canada) (a) | 1,335,784 | |||||||||
Computers & Peripherals (12.3%) | |||||||||||
28,636 | Apple, Inc. (a) | 7,202,813 | |||||||||
78,274 | Teradata Corp. (a) | 2,385,792 | |||||||||
9,588,605 | |||||||||||
Consumer Finance (2.7%) | |||||||||||
51,999 | American Express Co. | 2,064,360 | |||||||||
Distributors (3.7%) | |||||||||||
638,000 | Li & Fung Ltd. (Bermuda) (b) | 2,856,023 | |||||||||
Diversified Financial Services (9.1%) | |||||||||||
598,206 | BM&F Bovespa SA (Brazil) | 3,857,683 | |||||||||
5,412 | CME Group, Inc. | 1,523,749 | |||||||||
86,744 | Leucadia National Corp. (a) | 1,692,375 | |||||||||
7,073,807 | |||||||||||
Food Products (3.2%) | |||||||||||
49,703 | Mead Johnson Nutrition Co. | 2,491,114 | |||||||||
Hotels, Restaurants & Leisure (8.4%) | |||||||||||
28,162 | Accor SA (France) | 1,293,310 | |||||||||
105,559 | Las Vegas Sands Corp. (a) | 2,337,076 | |||||||||
38,029 | Wynn Resorts Ltd. | 2,900,472 | |||||||||
6,530,858 | |||||||||||
Information Technology Services (4.3%) | |||||||||||
46,796 | Visa, Inc. (Class A) | 3,310,817 |
NUMBER OF SHARES | VALUE | ||||||||||
Insurance (2.7%) | |||||||||||
26,157 | Berkshire Hathaway, Inc. (Class B) (a) | $ | 2,084,451 | ||||||||
Internet & Catalog Retail (7.4%) | |||||||||||
53,042 | Amazon.com, Inc. (a) | 5,795,369 | |||||||||
Internet Software & Services (16.3%) | |||||||||||
41,966 | Baidu, Inc. (ADR) (Cayman Islands) (a) | 2,857,045 | |||||||||
88,355 | eBay, Inc. (a) | 1,732,642 | |||||||||
11,792 | Google, Inc. (Class A) (a) | 5,246,850 | |||||||||
173,300 | Tencent Holdings Ltd. (Cayman Islands) (b) | 2,857,787 | |||||||||
12,694,324 | |||||||||||
Life Sciences Tools & Services (3.2%) | |||||||||||
57,011 | Illumina, Inc. (a) | 2,481,689 | |||||||||
Oil, Gas & Consumable Fuels (5.8%) | |||||||||||
102,059 | Ultra Petroleum Corp. (Canada) (a) | 4,516,111 | |||||||||
Real Estate Management & Development (4.5%) | |||||||||||
153,427 | Brookfield Asset Management, Inc. (Class A) (Canada) | 3,470,519 | |||||||||
Software (3.0%) | |||||||||||
27,284 | Salesforce.com, Inc. (a) | 2,341,513 | |||||||||
Total Common Stocks (Cost $71,815,903) | 72,764,481 | ||||||||||
Convertible Preferred Stock (0.7%) | |||||||||||
Alternative Energy | |||||||||||
166,815 | Better Place, LLC (Cost $500,445) (c)(d) | 500,445 |
See Notes to Financial Statements
50
Focus Growth
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES (000) | VALUE | ||||||||||
Short-Term Investment (5.8%) | |||||||||||
Investment Company | |||||||||||
4,532 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $4,532,455) | $ | 4,532,455 | ||||||||
Total Investments (Cost $76,848,803) (e)(f) | 100.1% | 77,797,381 | |||||||||
Liabilities in Excess of Other Assets | (0.1) | (59,426 | ) | ||||||||
Net Assets | 100.0% | $ | 77,737,955 |
ADR American Depositary Receipt.
(a) Non-income producing security.
(b) Security trades on the Hong Kong exchange.
(c) Illiquid security. Resale is restricted to qualified institutional investors.
(d) At June 30, 2010, the Portfolio held $500,445 of fair valued securities, representing 0.6% 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.
(e) The market value and percentage of total investments, $7,007,120 and 9.0%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
(f) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $12,098,346 and the aggregate gross unrealized depreciation is $11,149,768 resulting in net unrealized appreciation of $948,578.
SUMMARY OF INVESTMENTS INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Internet Software & Services | $ | 12,694,324 | 16.3 | % | |||||||
Computers & Peripherals | 9,588,605 | 12.3 | |||||||||
Diversified Financial Services | 7,073,807 | 9.1 | |||||||||
Hotels, Restaurants & Leisure | 6,530,858 | 8.4 | |||||||||
Internet & Catalog Retail | 5,795,369 | 7.4 | |||||||||
Investment Company | 4,532,455 | 5.8 | |||||||||
Oil, Gas & Consumable Fuels | 4,516,111 | 5.8 | |||||||||
Real Estate Management & Development | 3,470,519 | 4.5 | |||||||||
Information Technology Services | 3,310,817 | 4.3 | |||||||||
Distributors | 2,856,023 | 3.7 | |||||||||
Food Products | 2,491,114 | 3.2 | |||||||||
Life Sciences Tools & Services | 2,481,689 | 3.2 | |||||||||
Chemicals | 2,372,889 | 3.0 | |||||||||
Software | 2,341,513 | 3.0 | |||||||||
Insurance | 2,084,451 | 2.7 | |||||||||
Consumer Finance | 2,064,360 | 2.7 | |||||||||
Air Freight & Logistics | 1,756,248 | 2.3 | |||||||||
Communications Equipment | 1,335,784 | 1.7 | |||||||||
Alternative Energy | 500,445 | 0.6 | |||||||||
$ | 77,797,381 | 100.0 | % |
See Notes to Financial Statements
51
Capital Opportunities
Portfolio of Investments n June 30, 2010 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (97.0%) | |||||||||||
Air Freight & Logistics (2.4%) | |||||||||||
12,726 | Expeditors International of Washington, Inc. | $ | 439,174 | ||||||||
Capital Markets (3.2%) | |||||||||||
9,803 | Greenhill & Co., Inc. | 599,257 | |||||||||
Chemicals (2.7%) | |||||||||||
10,681 | Monsanto Co. | 493,676 | |||||||||
Computers & Peripherals (11.2%) | |||||||||||
5,872 | Apple, Inc. (a) | 1,476,984 | |||||||||
20,103 | Teradata Corp. (a) | 612,740 | |||||||||
2,089,724 | |||||||||||
Distributors (4.0%) | |||||||||||
166,974 | Li & Fung Ltd. (Bermuda) (b) | 747,463 | |||||||||
Diversified Financial Services (6.8%) | |||||||||||
62,503 | BM&F Bovespa SA (Brazil) | 403,066 | |||||||||
18,578 | Leucadia National Corp. (a) | 362,457 | |||||||||
18,440 | MSCI, Inc. (Class A) (a) | 505,256 | |||||||||
1,270,779 | |||||||||||
Food Products (2.7%) | |||||||||||
10,182 | Mead Johnson Nutrition Co. | 510,322 | |||||||||
Health Care Technology (2.0%) | |||||||||||
14,055 | athenahealth, Inc. (a) | 367,257 | |||||||||
Hotels, Restaurants & Leisure (10.5%) | |||||||||||
5,756 | Accor SA (France) | 264,338 | |||||||||
16,276 | Ctrip.com International Ltd. (ADR) (Cayman Islands) (a) | 611,327 | |||||||||
21,628 | Las Vegas Sands Corp. (a) | 478,844 | |||||||||
7,800 | Wynn Resorts Ltd. | 594,906 | |||||||||
1,949,415 | |||||||||||
Information Technology Services (5.6%) | |||||||||||
27,814 | Redecard SA (Brazil) | 387,085 | |||||||||
9,159 | Visa, Inc. (Class A) | 647,999 | |||||||||
1,035,084 |
NUMBER OF SHARES | VALUE | ||||||||||
Internet & Catalog Retail (6.5%) | |||||||||||
11,062 | Amazon.com, Inc. (a) | $ | 1,208,634 | ||||||||
Internet Software & Services (12.4%) | |||||||||||
7,971 | Baidu, Inc. (ADR) (Cayman Islands) (a) | 542,666 | |||||||||
2,535 | Google, Inc. (Class A) (a) | 1,127,948 | |||||||||
38,200 | Tencent Holdings Ltd. (Cayman Islands) (b) | 629,933 | |||||||||
2,300,547 | |||||||||||
Life Sciences Tools & Services (6.1%) | |||||||||||
14,973 | Illumina, Inc. (a) | 651,775 | |||||||||
8,457 | Techne Corp. | 485,854 | |||||||||
1,137,629 | |||||||||||
Oil, Gas & Consumable Fuels (6.2%) | |||||||||||
10,553 | Range Resources Corp. | 423,703 | |||||||||
16,531 | Ultra Petroleum Corp. (Canada) (a) | 731,497 | |||||||||
1,155,200 | |||||||||||
Professional Services (5.8%) | |||||||||||
12,211 | CoStar Group, Inc. (a) | 473,787 | |||||||||
20,407 | Verisk Analytics, Inc. (Class A) (a) | 610,169 | |||||||||
1,083,956 | |||||||||||
Real Estate Management & Development (3.9%) | |||||||||||
32,356 | Brookfield Asset Management, Inc. (Class A) (Canada) | 731,893 | |||||||||
Semiconductors & Semiconductor Equipment (1.9%) | |||||||||||
21,693 | Tessera Technologies, Inc. (a) | 348,173 | |||||||||
Software (3.1%) | |||||||||||
6,708 | Salesforce.com, Inc. (a) | 575,680 | |||||||||
Total Common Stocks (Cost $16,537,540) | 18,043,863 |
See Notes to Financial Statements
52
Capital Opportunities
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Convertible Preferred Stock (0.6%) | |||||||||||
Alternative Energy | |||||||||||
40,264 | Better Place, LLC (Cost $120,792) (c)(d) | $ | 120,792 | ||||||||
NUMBER OF SHARES (000) | |||||||||||
Short-Term Investment (1.5%) | |||||||||||
Investment Company | |||||||||||
275 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $274,917) | 274,917 | |||||||||
Total Investments (Cost $16,933,249) (e)(f) | 99.1% | 18,439,572 | |||||||||
Other Assets in Excess of Liabilities | 0.9 | 159,495 | |||||||||
Net Assets | 100.0% | $ | 18,599,067 |
ADR American Depositary Receipt.
(a) Non-income producing security.
(b) Security trades on the Hong Kong exchange.
(c) At June 30, 2010, the Portfolio held $120,792 of fair valued securities, representing 0.6% 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) Illiquid security. Resale is restricted to qualified institutional investors.
(e) The market value and percentage of total investments, $1,641,734 and 8.9%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
(f) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $3,551,960 and the aggregate gross unrealized depreciation is $2,045,637 resulting in net unrealized appreciation of $1,506,323.
SUMMARY OF INVESTMENTS INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Internet Software & Services | $ | 2,300,547 | 12.5 | % | |||||||
Computers & Peripherals | 2,089,724 | 11.3 | |||||||||
Hotels, Restaurants & Leisure | 1,949,415 | 10.6 | |||||||||
Diversified Financial Services | 1,270,779 | 6.9 | |||||||||
Internet & Catalog Retail | 1,208,634 | 6.5 | |||||||||
Oil, Gas & Consumable Fuels | 1,155,200 | 6.3 | |||||||||
Life Sciences Tools & Services | 1,137,629 | 6.2 | |||||||||
Professional Services | 1,083,956 | 5.9 | |||||||||
Information Technology Services | 1,035,084 | 5.6 | |||||||||
Distributors | 747,463 | 4.0 | |||||||||
Real Estate Management & Development | 731,893 | 4.0 | |||||||||
Capital Markets | 599,257 | 3.2 | |||||||||
Software | 575,680 | 3.1 | |||||||||
Food Products | 510,322 | 2.8 | |||||||||
Chemicals | 493,676 | 2.7 | |||||||||
Air Freight & Logistics | 439,174 | 2.4 | |||||||||
Health Care Technology | 367,257 | 2.0 | |||||||||
Semiconductors & Semiconductor Equipment | 348,173 | 1.9 | |||||||||
Investment Company | 274,917 | 1.5 | |||||||||
Alternative Energy | 120,792 | 0.6 | |||||||||
$ | 18,439,572 | 100.0 | % |
See Notes to Financial Statements
53
Mid Cap Growth
Portfolio of Investments n June 30, 2010 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (93.6%) | |||||||||||
Air Freight & Logistics (3.3%) | |||||||||||
7,247 | C.H. Robinson Worldwide, Inc. | $ | 403,368 | ||||||||
15,034 | Expeditors International of Washington, Inc. | 518,823 | |||||||||
922,191 | |||||||||||
Beverages (1.1%) | |||||||||||
11,370 | Coca-Cola Enterprises, Inc. | 294,028 | |||||||||
Biotechnology (1.1%) | |||||||||||
12,673 | Ironwood Pharmaceuticals, Inc. (144A) (a)(b)(c) | 145,993 | |||||||||
14,664 | Ironwood Pharmaceuticals, Inc. (144A) (a)(b)(c)(d) | 168,929 | |||||||||
314,922 | |||||||||||
Capital Markets (3.0%) | |||||||||||
13,548 | Calamos Asset Management, Inc. (Class A) | 125,725 | |||||||||
6,612 | Greenhill & Co., Inc. | 404,192 | |||||||||
6,627 | T. Rowe Price Group, Inc. | 294,173 | |||||||||
824,090 | |||||||||||
Chemicals (3.1%) | |||||||||||
10,012 | Intrepid Potash, Inc. (a) | 195,935 | |||||||||
17,795 | Nalco Holding Co. | 364,086 | |||||||||
12,670 | Rockwood Holdings, Inc. (a) | 287,482 | |||||||||
847,503 | |||||||||||
Commercial Services & Supplies (3.5%) | |||||||||||
29,312 | Covanta Holding Corp. (a) | 486,286 | |||||||||
7,402 | Stericycle, Inc. (a) | 485,423 | |||||||||
971,709 | |||||||||||
Computers & Peripherals (2.6%) | |||||||||||
23,756 | Teradata Corp. (a) | 724,083 | |||||||||
Construction Materials (2.0%) | |||||||||||
5,473 | Martin Marietta Materials, Inc. | 464,165 | |||||||||
3,425 | Texas Industries, Inc. | 101,175 | |||||||||
565,340 |
NUMBER OF SHARES | VALUE | ||||||||||
Distributors (3.2%) | |||||||||||
196,185 | Li & Fung Ltd. (Bermuda) (e) | $ | 878,227 | ||||||||
Diversified Consumer Services (2.9%) | |||||||||||
4,958 | New Oriental Education & Technology Group (ADR) (Cayman Islands) (a) | 462,036 | |||||||||
1,653 | Strayer Education, Inc. | 343,642 | |||||||||
805,678 | |||||||||||
Diversified Financial Services (6.4%) | |||||||||||
7,506 | CIT Group, Inc. (a) | 254,153 | |||||||||
3,481 | IntercontinentalExchange, Inc. (a) | 393,457 | |||||||||
20,828 | Leucadia National Corp. (a) | 406,354 | |||||||||
5,652 | Moody's Corp. | 112,588 | |||||||||
22,222 | MSCI, Inc. (Class A) (a) | 608,883 | |||||||||
1,775,435 | |||||||||||
Food Products (2.7%) | |||||||||||
14,678 | Mead Johnson Nutrition Co. | 735,661 | |||||||||
Health Care Equipment & Supplies (4.7%) | |||||||||||
11,626 | Gen-Probe, Inc. (a) | 528,053 | |||||||||
7,007 | IDEXX Laboratories, Inc. (a) | 426,726 | |||||||||
1,121 | Intuitive Surgical, Inc. (a) | 353,810 | |||||||||
1,308,589 | |||||||||||
Hotels, Restaurants & Leisure (10.0%) | |||||||||||
8,343 | Accor SA (France) | 383,144 | |||||||||
23,401 | Ctrip.com International Ltd. (ADR) (Cayman Islands) (a) | 878,942 | |||||||||
31,132 | Las Vegas Sands Corp. (a) | 689,262 | |||||||||
10,463 | Wynn Resorts Ltd. | 798,013 | |||||||||
2,749,361 | |||||||||||
Household Durables (2.1%) | |||||||||||
20,160 | Gafisa SA (ADR) (Brazil) | 244,138 | |||||||||
513 | NVR, Inc. (a) | 336,030 | |||||||||
580,168 |
See Notes to Financial Statements
54
Mid Cap Growth
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Information Technology Services (1.6%) | |||||||||||
31,036 | Redecard SA (Brazil) | $ | 431,925 | ||||||||
Internet & Catalog Retail (3.6%) | |||||||||||
3,933 | NetFlix, Inc. (a) | 427,321 | |||||||||
3,156 | Priceline.com, Inc. (a) | 557,160 | |||||||||
984,481 | |||||||||||
Internet Software & Services (4.2%) | |||||||||||
13,153 | Akamai Technologies, Inc. (a) | 533,617 | |||||||||
194,000 | Alibaba.com Ltd. (Cayman Islands) (e) | 382,879 | |||||||||
2,818 | Equinix, Inc. (a) | 228,878 | |||||||||
1,145,374 | |||||||||||
Life Sciences Tools & Services (4.4%) | |||||||||||
18,107 | Illumina, Inc. (a) | 788,198 | |||||||||
7,281 | Techne Corp. | 418,293 | |||||||||
1,206,491 | |||||||||||
Machinery (1.0%) | |||||||||||
3,136 | Schindler Holding AG (Switzerland) | 263,689 | |||||||||
Media (3.3%) | |||||||||||
9,131 | Discovery Communications, Inc. Ser C (a) | 282,422 | |||||||||
26,887 | Groupe Aeroplan, Inc. (Canada) | 223,774 | |||||||||
9,499 | Morningstar, Inc. (a) | 403,898 | |||||||||
910,094 | |||||||||||
Multiline Retail (0.6%) | |||||||||||
2,676 | Sears Holdings Corp. (a) | 173,003 | |||||||||
Oil, Gas & Consumable Fuels (5.2%) | |||||||||||
7,146 | Petrohawk Energy Corp. (a) | 121,268 | |||||||||
12,614 | Range Resources Corp. | 506,452 | |||||||||
18,348 | Ultra Petroleum Corp. (Canada) (a) | 811,899 | |||||||||
1,439,619 |
NUMBER OF SHARES | VALUE | ||||||||||
Professional Services (6.8%) | |||||||||||
7,747 | Corporate Executive Board Co. (The) | $ | 203,513 | ||||||||
6,100 | IHS, Inc. (Class A) (a) | 356,362 | |||||||||
26,434 | Intertek Group PLC (United Kingdom) | 565,357 | |||||||||
25,193 | Verisk Analytics, Inc. (Class A) (a) | 753,271 | |||||||||
1,878,503 | |||||||||||
Software (8.7%) | |||||||||||
12,491 | Autodesk, Inc. (a) | 304,281 | |||||||||
15,170 | Red Hat, Inc. (a) | 439,020 | |||||||||
6,817 | Rovi Corp. (a) | 258,432 | |||||||||
9,656 | Salesforce.com, Inc. (a) | 828,678 | |||||||||
16,004 | Solera Holdings, Inc. | 579,345 | |||||||||
2,409,756 | |||||||||||
Trading Companies & Distributors (1.6%) | |||||||||||
8,764 | Fastenal Co. | 439,865 | |||||||||
Wireless Telecommunication Services (0.9%) | |||||||||||
3,094 | Millicom International Cellular SA (Luxembourg) | 250,831 | |||||||||
Total Common Stocks (Cost $27,695,137) | 25,830,616 | ||||||||||
Convertible Preferred Stock (0.6%) | |||||||||||
Alternative Energy | |||||||||||
56,056 | Better Place, LLC (Cost $168,168) (b)(f) | 168,168 |
See Notes to Financial Statements
55
Mid Cap Growth
Portfolio of Investments n June 30, 2010 (unaudited) continued
NUMBER OF SHARES (000) | VALUE | ||||||||||
Short-Term Investment (4.2%) | |||||||||||
Investment Company | |||||||||||
1,149 | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (See Note 6) (Cost $1,149,316) | $ | 1,149,316 | ||||||||
Total Investments (Cost $29,012,621) (g)(h) | 98.4% | 27,148,100 | |||||||||
Other Assets in Excess of Liabilities | 1.6 | 440,452 | |||||||||
Net Assets | 100.0% | $ | 27,588,552 |
ADR American Depositary Receipt.
(a) Non-income producing security.
(b) At June 30, 2010, the Portfolio held $483,090 of fair valued securities, representing 1.8% of net assets. These securities have been fair valued as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees.
(c) Illiquid security.
(d) Super voting rights at a ratio of 10:1.
(e) Security trades on the Hong Kong exchange.
(f) Illiquid security. Resale is restricted to qualified institutional investors.
(g) The market value and percentage of total investments, $2,473,296 and 9.1%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note 1A within the Notes to the Financial Statements.
(h) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $2,924,896 and the aggregate gross unrealized depreciation is $4,789,417 resulting in net unrealized depreciation of $1,864,521.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 2010:
CONTRACTS TO DELIVER | IN EXCHANGE FOR | DELIVERY DATE | UNREALIZED APPRECIATION (DEPRECIATION) | ||||||||||||
$ | 15,216 | CHF | 16,550 | 07/01/10 | $ | 139 | |||||||||
52,042 | CHF | 56,235 | 07/02/10 | 131 | |||||||||||
17,632 | CHF | 18,993 | 07/02/10 | (11 | ) | ||||||||||
Net Unrealized Appreciation | $ | 259 |
Currency Abbreviations:
CHF Swiss Franc.
See Notes to Financial Statements
56
Mid Cap Growth
Summary of Investments n June 30, 2010 (unaudited) continued
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Hotels, Restaurants & Leisure | $ | 2,749,361 | 10.1 | % | |||||||
Software | 2,409,756 | 8.9 | |||||||||
Professional Services | 1,878,503 | 6.9 | |||||||||
Diversified Financial Services | 1,775,435 | 6.6 | |||||||||
Oil, Gas & Consumable Fuels | 1,439,619 | 5.3 | |||||||||
Health Care Equipment & Supplies | 1,308,589 | 4.8 | |||||||||
Life Sciences Tools & Services | 1,206,491 | 4.5 | |||||||||
Investment Company | 1,149,316 | 4.2 | |||||||||
Internet Software & Services | 1,145,374 | 4.2 | |||||||||
Internet & Catalog Retail | 984,481 | 3.6 | |||||||||
Commercial Services & Supplies | 971,709 | 3.6 | |||||||||
Air Freight & Logistics | 922,191 | 3.4 | |||||||||
Media | 910,094 | 3.4 | |||||||||
Distributors | 878,227 | 3.2 | |||||||||
Chemicals | 847,503 | 3.1 | |||||||||
Capital Markets | 824,090 | 3.0 |
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Diversified Consumer Services | $ | 805,678 | 3.0 | % | |||||||
Food Products | 735,661 | 2.7 | |||||||||
Computers & Peripherals | 724,083 | 2.7 | |||||||||
Household Durables | 580,168 | 2.1 | |||||||||
Construction Materials | 565,340 | 2.1 | |||||||||
Trading Companies & Distributors | 439,865 | 1.6 | |||||||||
Information Technology Services | 431,925 | 1.6 | |||||||||
Biotechnology | 314,922 | 1.2 | |||||||||
Beverages | 294,028 | 1.1 | |||||||||
Machinery | 263,689 | 1.0 | |||||||||
Wireless Telecommunication Services | 250,831 | 0.9 | |||||||||
Multiline Retail | 173,003 | 0.6 | |||||||||
Alternative Energy | 168,168 | 0.6 | |||||||||
$ | 27,148,100 | ^ | 100.0 | % |
^ Does not include open forward foreign currency contracts with net unrealized appreciation of $259.
See Notes to Financial Statements
57
Morgan Stanley Select Dimensions Investment Series
Financial Statements
Statements of Assets and Liabilities
June 30, 2010 (unaudited)
Money Market | Flexible Income | Global Infrastructure | Capital Growth | ||||||||||||||||
Assets: | |||||||||||||||||||
Investments in securities, at value* | $ | 120,464,365 | (1) | $ | 27,993,931 | $ | 27,562,634 | $ | 23,326,083 | ||||||||||
Investment in affiliates, at value** | — | 802,892 | 246,699 | 1,454,645 | |||||||||||||||
Unrealized appreciation on open swap contracts | — | 14,908 | — | — | |||||||||||||||
Unrealized appreciation on open forward foreign currency contracts | — | — | — | — | |||||||||||||||
Cash | 5,394 | 4,553 | (2) | 27,037 | (2) | — | |||||||||||||
Receivable for: | |||||||||||||||||||
Investments sold | — | 307,677 | — | — | |||||||||||||||
Interest | 22,842 | 408,580 | — | — | |||||||||||||||
Dividends | — | — | 177,238 | 11,285 | |||||||||||||||
Shares of beneficial interest sold | 18,188 | 46,569 | — | 4,727 | |||||||||||||||
Foreign withholding taxes reclaimed | — | 427 | 13,577 | 3,373 | |||||||||||||||
Interest and dividends from affiliates | — | 3,359 | 31 | 152 | |||||||||||||||
Periodic interest on open swap contracts | — | 936 | — | — | |||||||||||||||
Swap contracts termination | — | 16,012 | — | — | |||||||||||||||
Prepaid expenses and other assets | 11,224 | 8,819 | 13,289 | 10,455 | |||||||||||||||
Total Assets | 120,522,013 | 29,608,663 | 28,040,505 | 24,810,720 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Unrealized depreciation on open swap contracts | — | 421,529 | — | — | |||||||||||||||
Unrealized depreciation on open forward foreign currency contracts | — | 473 | — | — | |||||||||||||||
Payable for: | |||||||||||||||||||
Investments purchased | — | 308,077 | — | — | |||||||||||||||
Shares of beneficial interest redeemed | 137,173 | 9,850 | 7,342 | 8,730 | |||||||||||||||
Investment advisory fee | 18,722 | 8,217 | 14,705 | 11,852 | |||||||||||||||
Periodic interest on open swap contracts | — | 25,250 | — | — | |||||||||||||||
Administration fee | 5,515 | 2,068 | 2,072 | 1,929 | |||||||||||||||
Distribution fee | — | 3,492 | 1,881 | 3,578 | |||||||||||||||
Variation margin | — | 7,550 | — | — | |||||||||||||||
Premium received on open swap contracts | — | 5,251 | — | — | |||||||||||||||
Transfer agent fee | 250 | 250 | 250 | 250 | |||||||||||||||
Accrued expenses and other payables | 48,067 | 49,500 | 65,722 | 30,454 | |||||||||||||||
Total Liabilities | 209,727 | 841,507 | 91,972 | 56,793 | |||||||||||||||
Net Assets | $ | 120,312,286 | $ | 28,767,156 | $ | 27,948,533 | $ | 24,753,927 | |||||||||||
Composition of Net Assets: | |||||||||||||||||||
Paid-in-capital | $ | 120,308,693 | $ | 57,196,683 | $ | 28,074,755 | $ | 42,630,859 | |||||||||||
Net unrealized appreciation (depreciation) | — | (87,754 | ) | (2,194,768 | ) | 794,417 | |||||||||||||
Accumulated undistributed net investment income (net investment loss) | 3,482 | 323,216 | 226,097 | (38,938 | ) | ||||||||||||||
Accumulated net realized gain (loss) | 111 | (28,664,989 | ) | 1,842,449 | (18,632,411 | ) | |||||||||||||
Net Assets | $ | 120,312,286 | $ | 28,767,156 | $ | 27,948,533 | $ | 24,753,927 | |||||||||||
* Cost | $ | 120,464,365 | $ | 27,684,301 | $ | 29,758,550 | $ | 22,531,595 | |||||||||||
** Affiliated Cost | $ | — | $ | 772,529 | $ | 246,699 | $ | 1,454,645 | |||||||||||
Class X Shares: | |||||||||||||||||||
Net Assets | $ | 37,633,156 | $ | 13,186,169 | $ | 19,789,237 | $ | 10,001,312 | |||||||||||
Shares Outstanding (unlimited shares authorized, $.01 par value) | 37,632,295 | 2,237,781 | 1,075,354 | 560,046 | |||||||||||||||
Net Asset Value Per Share | $ | 1.00 | $ | 5.89 | $ | 18.40 | $ | 17.86 | |||||||||||
Class Y Shares: | |||||||||||||||||||
Net Assets | $ | 82,679,130 | $ | 15,580,987 | $ | 8,159,296 | $ | 14,752,615 | |||||||||||
Shares Outstanding (unlimited shares authorized, $.01 par value) | 82,676,398 | 2,657,531 | 443,726 | 841,400 | |||||||||||||||
Net Asset Value Per Share | $ | 1.00 | $ | 5.86 | $ | 18.39 | $ | 17.53 |
(1) Including repurchase agreements of $40,978,000.
(2) Including foreign currency valued at $4,271, $27,037 and $2,942, respectively with a cost of $4,291, $27,002 and $2,684, respectively.
See Notes to Financial Statements
58
Focus Growth | Capital Opportunities | Mid Cap Growth | |||||||||||||
Assets: | |||||||||||||||
Investments in securities, at value* | $ | 73,264,926 | $ | 18,164,655 | $ | 25,998,784 | |||||||||
Investment in affiliates, at value** | 4,532,455 | 274,917 | 1,149,316 | ||||||||||||
Unrealized appreciation on open swap contracts | — | — | — | ||||||||||||
Unrealized appreciation on open forward foreign currency contracts | — | — | 270 | ||||||||||||
Cash | — | — | 1,982 | (2) | |||||||||||
Receivable for: | |||||||||||||||
Investments sold | — | 216,130 | 722,374 | ||||||||||||
Interest | — | — | — | ||||||||||||
Dividends | 27,746 | 2,893 | 9,786 | ||||||||||||
Shares of beneficial interest sold | 297 | 232 | — | ||||||||||||
Foreign withholding taxes reclaimed | — | — | — | ||||||||||||
Interest and dividends from affiliates | 498 | 32 | 180 | ||||||||||||
Periodic interest on open swap contracts | — | — | — | ||||||||||||
Swap contracts termination | — | — | — | ||||||||||||
Prepaid expenses and other assets | 15,649 | 9,773 | 8,213 | ||||||||||||
Total Assets | 77,841,571 | 18,668,632 | 27,890,905 | ||||||||||||
Liabilities: | |||||||||||||||
Unrealized depreciation on open swap contracts | — | — | — | ||||||||||||
Unrealized depreciation on open forward foreign currency contracts | — | — | 11 | ||||||||||||
Payable for: | |||||||||||||||
Investments purchased | — | — | 202,391 | ||||||||||||
Shares of beneficial interest redeemed | 2,408 | 10,171 | 49,977 | ||||||||||||
Investment advisory fee | 40,900 | 12,087 | 10,964 | ||||||||||||
Periodic interest on open swap contracts | — | — | — | ||||||||||||
Administration fee | 6,059 | 1,451 | 2,126 | ||||||||||||
Distribution fee | 4,619 | 2,567 | 1,930 | ||||||||||||
Variation margin | — | — | — | ||||||||||||
Premium received on open swap contracts | — | — | — | ||||||||||||
Transfer agent fee | 250 | 250 | 250 | ||||||||||||
Accrued expenses and other payables | 49,380 | 43,039 | 34,704 | ||||||||||||
Total Liabilities | 103,616 | 69,565 | 302,353 | ||||||||||||
Net Assets | $ | 77,737,955 | $ | 18,599,067 | $ | 27,588,552 | |||||||||
Composition of Net Assets: | |||||||||||||||
Paid-in-capital | $ | 156,479,052 | $ | 75,806,130 | $ | 40,650,365 | |||||||||
Net unrealized appreciation (depreciation) | 948,578 | 1,506,317 | (1,864,977 | ) | |||||||||||
Accumulated undistributed net investment income (net investment loss) | (169,884 | ) | (69,338 | ) | (22,635 | ) | |||||||||
Accumulated net realized gain (loss) | (79,519,791 | ) | (58,644,042 | ) | (11,174,201 | ) | |||||||||
Net Assets | $ | 77,737,955 | $ | 18,599,067 | $ | 27,588,552 | |||||||||
* Cost | $ | 72,316,348 | $ | 16,658,332 | $ | 27,863,305 | |||||||||
** Affiliated Cost | $ | 4,532,455 | $ | 274,917 | $ | 1,149,316 | |||||||||
Class X Shares: | |||||||||||||||
Net Assets | $ | 58,803,409 | $ | 8,064,293 | $ | 19,513,578 | |||||||||
Shares Outstanding (unlimited shares authorized, $.01 par value) | 3,541,101 | 673,233 | 724,400 | ||||||||||||
Net Asset Value Per Share | $ | 16.61 | $ | 11.98 | $ | 26.94 | |||||||||
Class Y Shares: | |||||||||||||||
Net Assets | $ | 18,934,546 | $ | 10,534,774 | $ | 8,074,974 | |||||||||
Shares Outstanding (unlimited shares authorized, $.01 par value) | 1,153,465 | 902,015 | 305,378 | ||||||||||||
Net Asset Value Per Share | $ | 16.42 | $ | 11.68 | $ | 26.44 |
59
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Operations
For the six months ended June 30, 2010 (unaudited)
Money Market | Flexible Income | Global Infrastructure | Capital Growth | ||||||||||||||||
Net Investment Income: | |||||||||||||||||||
Income | |||||||||||||||||||
Dividends† | — | $ | 2,890 | $ | 613,236 | $ | 125,988 | ||||||||||||
Interest† | $ | 156,630 | 555,860 | — | — | ||||||||||||||
Interest and dividends from affiliates | — | 8,400 | 316 | 395 | |||||||||||||||
Total Income | 156,630 | 567,150 | 613,552 | 126,383 | |||||||||||||||
†Net of foreign withholding taxes | — | 387 | 39,650 | 5,425 | |||||||||||||||
Expenses | |||||||||||||||||||
Investment advisory fee | 285,352 | 46,802 | 90,434 | 69,926 | |||||||||||||||
Administration fee | 31,706 | 11,700 | 12,692 | 11,188 | |||||||||||||||
Distribution fee (Class Y shares) | 110,722 | 19,718 | 11,568 | 20,839 | |||||||||||||||
Professional fees | 20,917 | 37,380 | 12,135 | 19,731 | |||||||||||||||
Shareholder reports and notices | 16,849 | 3,344 | 8,408 | 5,863 | |||||||||||||||
Custodian fees | 2,836 | 3,859 | 29,892 | 3,666 | |||||||||||||||
Trustees' fees and expenses | 2,157 | 670 | 700 | 630 | |||||||||||||||
Transfer agent fees and expenses | 250 | 250 | 250 | 250 | |||||||||||||||
Other | 7,173 | 17,324 | 9,466 | 6,475 | |||||||||||||||
Total Expenses | 477,962 | 141,047 | 175,545 | 138,568 | |||||||||||||||
Less: amounts waived | (327,671 | ) | — | — | — | ||||||||||||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 6) | — | (322 | ) | (275 | ) | (337 | ) | ||||||||||||
Net Expenses | 150,291 | 140,725 | 175,270 | 138,231 | |||||||||||||||
Net Investment Income (Loss) | 6,339 | 426,425 | 438,282 | (11,848 | ) | ||||||||||||||
Net Realized and Unrealized Gain (Loss): | |||||||||||||||||||
Net Realized Gain (Loss) on: | |||||||||||||||||||
Investments | 111 | (1,154,559 | ) | 2,370,871 | 1,174,454 | ||||||||||||||
Futures contracts | — | (17,990 | ) | — | — | ||||||||||||||
Swap contracts | — | (101,096 | ) | — | — | ||||||||||||||
Options written | — | — | (8,037 | ) | — | ||||||||||||||
Forward foreign currency contracts | — | (3,047 | ) | (43,197 | ) | (600 | ) | ||||||||||||
Foreign currency translation | — | 1,183 | 15,394 | (4,179 | ) | ||||||||||||||
Net Realized Gain (Loss) | 111 | (1,275,509 | ) | 2,335,031 | 1,169,675 | ||||||||||||||
Change in Unrealized Appreciation/Depreciation on: | |||||||||||||||||||
Investments | — | 2,249,189 | (6,854,898 | ) | (2,500,988 | ) | |||||||||||||
Investments in affiliates | — | 9,275 | — | — | |||||||||||||||
Futures contracts | — | (142,793 | ) | — | — | ||||||||||||||
Swap contracts | — | (256,321 | ) | — | — | ||||||||||||||
Options written | — | — | 9,657 | — | |||||||||||||||
Forward foreign currency contracts | — | (1,166 | ) | (23,217 | ) | — | |||||||||||||
Foreign currency translation | — | (61 | ) | (2,908 | ) | (103 | ) | ||||||||||||
Net Change in Unrealized Appreciation/Depreciation | — | 1,858,123 | (6,871,366 | ) | (2,501,091 | ) | |||||||||||||
Net Gain (Loss) | 111 | 582,614 | (4,536,335 | ) | (1,331,416 | ) | |||||||||||||
Net Increase (Decrease) | $ | 6,450 | $ | 1,009,039 | $ | (4,098,053 | ) | $ | (1,343,264 | ) |
See Notes to Financial Statements
60
Focus Growth | Capital Opportunities | Mid Cap Growth | |||||||||||||
Net Investment Income: | |||||||||||||||
Income | |||||||||||||||
Dividends† | $ | 303,032 | $ | 74,709 | $ | 121,183 | |||||||||
Interest† | — | — | — | ||||||||||||
Interest and dividends from affiliates | 818 | 400 | 610 | ||||||||||||
Total Income | 303,850 | 75,109 | 121,793 | ||||||||||||
†Net of foreign withholding taxes | 11,974 | 1,895 | 4,243 | ||||||||||||
Expenses | |||||||||||||||
Investment advisory fee | 235,966 | 69,996 | 62,283 | ||||||||||||
Administration fee | 34,637 | 8,358 | 11,863 | ||||||||||||
Distribution fee (Class Y shares) | 26,463 | 14,800 | 10,672 | ||||||||||||
Professional fees | 21,594 | 16,065 | 19,158 | ||||||||||||
Shareholder reports and notices | 18,939 | 1,724 | 9,085 | ||||||||||||
Custodian fees | 6,015 | 2,611 | 6,504 | ||||||||||||
Trustees' fees and expenses | 1,394 | 543 | 783 | ||||||||||||
Transfer agent fees and expenses | 250 | 250 | 250 | ||||||||||||
Other | 5,708 | 5,566 | 5,868 | ||||||||||||
Total Expenses | 350,966 | 119,913 | 126,466 | ||||||||||||
Less: amounts waived | — | — | — | ||||||||||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 6) | (705 | ) | (396 | ) | (552 | ) | |||||||||
Net Expenses | 350,261 | 119,517 | 125,914 | ||||||||||||
Net Investment Income (Loss) | (46,411 | ) | (44,408 | ) | (4,121 | ) | |||||||||
Net Realized and Unrealized Gain (Loss): | |||||||||||||||
Net Realized Gain (Loss) on: | |||||||||||||||
Investments | 3,767,661 | 1,262,555 | 2,170,700 | ||||||||||||
Futures contracts | — | — | — | ||||||||||||
Swap contracts | — | — | — | ||||||||||||
Options written | — | — | — | ||||||||||||
Forward foreign currency contracts | 3,645 | 964 | 4,650 | ||||||||||||
Foreign currency translation | (27,593 | ) | (1,953 | ) | (8,799 | ) | |||||||||
Net Realized Gain (Loss) | 3,743,713 | 1,261,566 | 2,166,551 | ||||||||||||
Change in Unrealized Appreciation/Depreciation on: | |||||||||||||||
Investments | (8,178,055 | ) | (2,891,268 | ) | (1,680,879 | ) | |||||||||
Investments in affiliates | — | — | — | ||||||||||||
Futures contracts | — | — | — | ||||||||||||
Swap contracts | — | — | — | ||||||||||||
Options written | — | — | — | ||||||||||||
Forward foreign currency contracts | — | — | 259 | ||||||||||||
Foreign currency translation | (68 | ) | (25 | ) | (733 | ) | |||||||||
Net Change in Unrealized Appreciation/Depreciation | (8,178,123 | ) | (2,891,293 | ) | (1,681,353 | ) | |||||||||
Net Gain (Loss) | (4,434,410 | ) | (1,629,727 | ) | 485,198 | ||||||||||
Net Increase (Decrease) | $ | (4,480,821 | ) | $ | (1,674,135 | ) | $ | 481,077 |
61
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Changes in Net Assets
Money Market | Flexible Income | Global Infrastructure | |||||||||||||||||||||||||
For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||||||||||
Operations: | |||||||||||||||||||||||||||
Net investment income (loss) | $ | 6,339 | $ | 31,169 | $ | 426,425 | $ | 1,648,525 | $ | 438,282 | $ | 896,923 | |||||||||||||||
Net realized gain (loss) | 111 | 3,679 | (1,275,509 | ) | (2,725,228 | ) | 2,335,031 | 1,937,269 | |||||||||||||||||||
Net change in unrealized appreciation/depreciation | — | — | 1,858,123 | 6,510,732 | (6,871,366 | ) | 2,606,306 | ||||||||||||||||||||
Net Increase (Decrease) | 6,450 | 34,848 | 1,009,039 | 5,434,029 | (4,098,053 | ) | 5,440,498 | ||||||||||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||||||||||
Net investment income | |||||||||||||||||||||||||||
Class X shares | (1,913 | ) | (10,917 | ) | (837,953 | ) | (1,003,665 | ) | (542,665 | ) | (820,899 | ) | |||||||||||||||
Class Y shares | (4,440 | ) | (20,411 | ) | (947,382 | ) | (1,132,621 | ) | (198,117 | ) | (310,320 | ) | |||||||||||||||
Net realized gain | |||||||||||||||||||||||||||
Class X shares | — | — | — | — | (992,834 | ) | — | ||||||||||||||||||||
Class Y shares | — | — | — | — | (407,171 | ) | — | ||||||||||||||||||||
Total Dividends and Distributions | (6,353 | ) | (31,328 | ) | (1,785,335 | ) | (2,136,286 | ) | (2,140,787 | ) | (1,131,219 | ) | |||||||||||||||
Net decrease from transactions in shares of beneficial interest | (21,474,014 | ) | (74,002,763 | ) | (737,330 | ) | (3,417,770 | ) | (1,098,073 | ) | (6,206,557 | ) | |||||||||||||||
Net Increase (Decrease) | (21,473,917 | ) | (73,999,243 | ) | (1,513,626 | ) | (120,027 | ) | (7,336,913 | ) | (1,897,278 | ) | |||||||||||||||
Net Assets: | |||||||||||||||||||||||||||
Beginning of period | 141,786,203 | 215,785,446 | 30,280,782 | 30,400,809 | 35,285,446 | 37,182,724 | |||||||||||||||||||||
End of Period | $ | 120,312,286 | $ | 141,786,203 | $ | 28,767,156 | $ | 30,280,782 | $ | 27,948,533 | $ | 35,285,446 | |||||||||||||||
Accumulated Undistributed Net Investment Income (Net Investment Loss) | $ | 3,482 | $ | 3,496 | $ | 323,216 | $ | 1,682,126 | $ | 226,097 | $ | 528,597 |
See Notes to Financial Statements
62
Capital Growth | Focus Growth | ||||||||||||||||||
For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||
Operations: | |||||||||||||||||||
Net investment income (loss) | $ | (11,848 | ) | $ | (10,641 | ) | $ | (46,411 | ) | $ | 37,227 | ||||||||
Net realized gain (loss) | 1,169,675 | 581,297 | 3,743,713 | (623,054 | ) | ||||||||||||||
Net change in unrealized appreciation/depreciation | (2,501,091 | ) | 12,096,576 | (8,178,123 | ) | 41,344,950 | |||||||||||||
Net Increase (Decrease) | (1,343,264 | ) | 12,667,232 | (4,480,821 | ) | 40,759,123 | |||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||
Net investment income | |||||||||||||||||||
Class X shares | — | — | (32,428 | ) | (70,533 | ) | |||||||||||||
Class Y shares | — | — | — | — | |||||||||||||||
Net realized gain | |||||||||||||||||||
Class X shares | — | — | — | — | |||||||||||||||
Class Y shares | — | — | — | — | |||||||||||||||
Total Dividends and Distributions | — | — | (32,428 | ) | (70,533 | ) | |||||||||||||
Net decrease from transactions in shares of beneficial interest | (3,514,386 | ) | (4,628,983 | ) | (7,728,292 | ) | (13,636,540 | ) | |||||||||||
Net Increase (Decrease) | (4,857,650 | ) | 8,038,249 | (12,241,541 | ) | 27,052,050 | |||||||||||||
Net Assets: | |||||||||||||||||||
Beginning of period | 29,611,577 | 21,573,328 | 89,979,496 | 62,927,446 | |||||||||||||||
End of Period | $ | 24,753,927 | $ | 29,611,577 | $ | 77,737,955 | $ | 89,979,496 | |||||||||||
Accumulated Undistributed Net Investment Income (Net Investment Loss) | $ | (38,938 | ) | $ | (27,090 | ) | $ | (169,884 | ) | $ | (91,045 | ) |
63
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Capital Opportunities | Mid Cap Growth | ||||||||||||||||||
For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Increase (Decrease) in Net Assets: | |||||||||||||||||||
Operations: | |||||||||||||||||||
Net investment income (loss) | $ | (44,408 | ) | $ | (69,602 | ) | $ | (4,121 | ) | $ | 13,617 | ||||||||
Net realized gain (loss) | 1,261,566 | (69,171 | ) | 2,166,551 | (192,181 | ) | |||||||||||||
Net change in unrealized appreciation/depreciation | (2,891,293 | ) | 9,763,648 | (1,681,353 | ) | 11,842,434 | |||||||||||||
Net Increase (Decrease) | (1,674,135 | ) | 9,624,875 | 481,077 | 11,663,870 | ||||||||||||||
Dividends and Distributions to Shareholders from: | |||||||||||||||||||
Net investment income | |||||||||||||||||||
Class X shares | — | — | (29,522 | ) | — | ||||||||||||||
Class Y shares | — | — | — | — | |||||||||||||||
Net realized gain | |||||||||||||||||||
Class X shares | — | — | — | — | |||||||||||||||
Class Y shares | — | — | — | — | |||||||||||||||
Total Dividends and Distributions | — | — | (29,522 | ) | — | ||||||||||||||
Net decrease from transactions in shares of beneficial interest | (1,782,626 | ) | (2,884,300 | ) | (2,440,005 | ) | (3,578,703 | ) | |||||||||||
Net Increase (Decrease) | (3,456,761 | ) | 6,740,575 | (1,988,450 | ) | 8,085,167 | |||||||||||||
Net Assets: | |||||||||||||||||||
Beginning of period | 22,055,828 | 15,315,253 | 29,577,002 | 21,491,835 | |||||||||||||||
End of Period | $ | 18,599,067 | $ | 22,055,828 | $ | 27,588,552 | $ | 29,577,002 | |||||||||||
Accumulated Undistributed Net Investment Income (Net Investment Loss) | $ | (69,338 | ) | $ | (24,930 | ) | $ | (22,635 | ) | $ | 11,008 |
See Notes to Financial Statements
64
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Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Summary of Transactions in Shares of Beneficial Interest
Money Market | Flexible Income | Global Infrastructure | |||||||||||||||||||||||||
For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Class X Shares | |||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||
Sold | 4,017,416 | 23,532,252 | 38,184 | 122,598 | 10,384 | 40,541 | |||||||||||||||||||||
Reinvestment of dividends and distributions | 1,913 | 10,917 | 144,226 | 181,167 | 83,678 | 42,358 | |||||||||||||||||||||
Redeemed | (7,157,339 | ) | (24,962,965 | ) | (235,321 | ) | (713,172 | ) | (118,799 | ) | (308,662 | ) | |||||||||||||||
Net Decrease - Class X | (3,138,010 | ) | (1,419,796 | ) | (52,911 | ) | (409,407 | ) | (24,737 | ) | (225,763 | ) | |||||||||||||||
Amount | |||||||||||||||||||||||||||
Sold | $ | 4,017,416 | $ | 23,532,252 | $ | 234,749 | $ | 702,112 | $ | 228,198 | $ | 802,001 | |||||||||||||||
Reinvestment of dividends and distributions | 1,913 | 10,917 | 837,953 | 1,003,665 | 1,535,499 | 820,899 | |||||||||||||||||||||
Redeemed | (7,157,339 | ) | (24,962,965 | ) | (1,446,858 | ) | (4,093,617 | ) | (2,500,288 | ) | (6,042,158 | ) | |||||||||||||||
Net Decrease - Class X | $ | (3,138,010 | ) | $ | (1,419,796 | ) | $ | (374,156 | ) | $ | (2,387,840 | ) | $ | (736,591 | ) | $ | (4,419,258 | ) | |||||||||
Class Y Shares | |||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||
Sold | 10,821,498 | 21,918,415 | 92,377 | 281,684 | 9,732 | 27,618 | |||||||||||||||||||||
Reinvestment of dividends and distributions | 4,440 | 20,411 | 163,907 | 205,557 | 33,004 | 16,029 | |||||||||||||||||||||
Redeemed | (29,161,942 | ) | (94,521,793 | ) | (306,193 | ) | (662,492 | ) | (55,652 | ) | (137,348 | ) | |||||||||||||||
Net Decrease - Class Y | (18,336,004 | ) | (72,582,967 | ) | (49,909 | ) | (175,251 | ) | (12,916 | ) | (93,701 | ) | |||||||||||||||
Amount | |||||||||||||||||||||||||||
Sold | $ | 10,821,498 | $ | 21,918,415 | $ | 562,950 | $ | 1,600,793 | $ | 217,077 | $ | 544,472 | |||||||||||||||
Reinvestment of dividends and distributions | 4,440 | 20,411 | 947,382 | 1,132,621 | 605,288 | 310,320 | |||||||||||||||||||||
Redeemed | (29,161,942 | ) | (94,521,793 | ) | (1,873,506 | ) | (3,763,344 | ) | (1,183,847 | ) | (2,642,091 | ) | |||||||||||||||
Net Decrease - Class Y | $ | (18,336,004 | ) | $ | (72,582,967 | ) | $ | (363,174 | ) | $ | (1,029,930 | ) | $ | (361,482 | ) | $ | (1,787,299 | ) |
See Notes to Financial Statements
66
Capital Growth | Focus Growth | ||||||||||||||||||
For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Class X Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 2,153 | 31,329 | 3,532 | 46,132 | |||||||||||||||
Reinvestment of dividends and distributions | — | — | 1,816 | 5,295 | |||||||||||||||
Redeemed | (64,917 | ) | (167,913 | ) | (325,610 | ) | (943,893 | ) | |||||||||||
Net Decrease - Class X | (62,764 | ) | (136,584 | ) | (320,262 | ) | (892,466 | ) | |||||||||||
Amount | |||||||||||||||||||
Sold | $ | 41,933 | $ | 474,904 | $ | 62,744 | $ | 680,683 | |||||||||||
Reinvestment of dividends and distributions | — | — | 32,428 | 70,533 | |||||||||||||||
Redeemed | (1,246,593 | ) | (2,353,678 | ) | (5,842,262 | ) | (12,485,193 | ) | |||||||||||
Net Decrease - Class X | $ | (1,204,660 | ) | $ | (1,878,774 | ) | $ | (5,747,090 | ) | $ | (11,733,977 | ) | |||||||
Class Y Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 16,585 | 105,217 | 13,871 | 125,006 | |||||||||||||||
Reinvestment of dividends and distributions | — | — | — | — | |||||||||||||||
Redeemed | (138,570 | ) | (299,590 | ) | (127,226 | ) | (257,529 | ) | |||||||||||
Net Decrease - Class Y | (121,985 | ) | (194,373 | ) | (113,355 | ) | (132,523 | ) | |||||||||||
Amount | |||||||||||||||||||
Sold | $ | 303,562 | $ | 1,488,379 | $ | 241,625 | $ | 1,546,171 | |||||||||||
Reinvestment of dividends and distributions | — | — | — | — | |||||||||||||||
Redeemed | (2,613,288 | ) | (4,238,588 | ) | (2,222,827 | ) | (3,448,734 | ) | |||||||||||
Net Decrease - Class Y | $ | (2,309,726 | ) | $ | (2,750,209 | ) | $ | (1,981,202 | ) | $ | (1,902,563 | ) |
67
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Summary of Transactions in Shares of Beneficial Interest
Capital Opportunities | Mid Cap Growth | ||||||||||||||||||
For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | For The Six Months Ended June 30, 2010 | For The Year Ended December 31, 2009 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Class X Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 3,883 | 41,405 | 2,562 | 12,864 | |||||||||||||||
Reinvestment of dividends and distributions | — | — | 1,037 | — | |||||||||||||||
Redeemed | (66,863 | ) | (183,294 | ) | (78,893 | ) | (177,705 | ) | |||||||||||
Net Decrease - Class X | (62,980 | ) | (141,889 | ) | (75,294 | ) | (164,841 | ) | |||||||||||
Amount | |||||||||||||||||||
Sold | $ | 51,329 | $ | 465,679 | $ | 70,798 | $ | 271,252 | |||||||||||
Reinvestment of dividends and distributions | — | — | 29,522 | — | |||||||||||||||
Redeemed | (868,408 | ) | (1,852,397 | ) | (2,220,570 | ) | (3,567,865 | ) | |||||||||||
Net Decrease - Class X | $ | (817,079 | ) | $ | (1,386,718 | ) | $ | (2,120,250 | ) | $ | (3,296,613 | ) | |||||||
Class Y Shares | |||||||||||||||||||
Shares | |||||||||||||||||||
Sold | 29,147 | 144,491 | 24,271 | 51,866 | |||||||||||||||
Reinvestment of dividends and distributions | — | — | — | — | |||||||||||||||
Redeemed | (105,441 | ) | (306,112 | ) | (34,971 | ) | (70,409 | ) | |||||||||||
Net Decrease - Class Y | (76,294 | ) | (161,621 | ) | (10,700 | ) | (18,543 | ) | |||||||||||
Amount | |||||||||||||||||||
Sold | $ | 365,728 | $ | 1,449,714 | $ | 654,462 | $ | 1,151,962 | |||||||||||
Reinvestment of dividends and distributions | — | — | — | — | |||||||||||||||
Redeemed | (1,331,275 | ) | (2,947,296 | ) | (974,217 | ) | (1,434,052 | ) | |||||||||||
Net Decrease - Class Y | $ | (965,547 | ) | $ | (1,497,582 | ) | $ | (319,755 | ) | $ | (282,090 | ) |
See Notes to Financial Statements
68
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Select Dimensions Investment Series (the "Fund") is registered under the Investment Company Act of 1940 as amended (the "Act"), as a diversified (except Focus Growth is non-diversified, effective August 8, 2007), 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, which consists of 7 separate portfolios ("Portfolios"), was organized on June 2, 1994, as a Massachusetts business trust and commenced operations on November 9, 1994, with the exception of Capital Opportunities which commenced operations on January 21, 1997.
On July 24, 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 July 24, 2000.
The investment objectives of each Portfolio are as follows:
PORTFOLIO | INVESTMENT OBJECTIVE | ||||||
Money Market | Seeks high current income, preservation of capital and liquidity. | ||||||
Flexible Income | Seeks, as a primary objective, to earn a high level of current income and, as a secondary objective, to maximize total return, but only to the extent consistent with its primary objective. | ||||||
Global Infrastructure | Seeks both capital appreciation and current income. | ||||||
Capital Growth | Seeks long-term capital growth. | ||||||
Focus Growth | Seeks long-term capital growth. | ||||||
Capital Opportunities | Seeks long-term capital growth. | ||||||
Mid Cap Growth | Seeks long-term capital growth. | ||||||
On June 1, 2010, Invesco Ltd., a leading independent global investment management company, completed its purchase of substantially all of the retail asset management business of Morgan Stanley Investment Management (the "Transaction"). In contemplation of the Transaction, the Trustees of the Fund approved an Agreement and Plan of Reorganization (the "Reorganization") with respect to the Balanced, Dividend Growth and Equally-Weighted S&P 500 Portfolios (each a "affected Portfolio"), pursuant to which substantially all of the assets of each affected Portfolio would be combined with those of a newly organized mutual fund advised by an affiliate of Invesco Ltd. (the "New Fund"). On May 11, 2010, the Reorganization was approved by the shareholders of each affected Portfolio at a special m eeting of
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Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
shareholders. On June 1, 2010, the Reorganization was completed and shareholders of each affected Portfolio received shares of the New Fund in exchange for their shares of each affected Portfolio. Accordingly, the financial statements of each affected Portfolio are no longer contained in this report but may be found in the report of their corresponding New Funds.
The following is a summary of significant accounting policies:
A. Valuation of Investments — Money Market: Portfolio securities are valued at amortized cost, which approximates market value, in accordance with Rule 2a-7 under the Act. All remaining Portfolios: (1) an equity portfolio security listed or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and ask price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and ask price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valu ed at the mean between the last reported bid and ask price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) futures are valued at the latest price published by the commodities exchange on which they trade; (6) swaps are marked-to-market daily based upon quotations from market makers; (7) listed options are valued at the latest sale price on the exchange on which they are listed unless no sales of such options have taken place that day, in which case they are valued at the mean between their latest bid and ask price; (8) when market quotations are not readily available including circumstances under which Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") or Morgan Stanley Investment Management Limited or Morgan Stanley Investment Management C ompany (each, a "Sub-Adviser"), each a wholly owned subsidiary of Morgan Stanley, determines that the latest sale price, the bid price or the mean between the last reported bid and ask price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's 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 Fund's Trustees or by the Investment Adviser using a pricing service and/or proce dures approved by the Trustees of the Fund; (9) certain portfolio securities may be valued by an outside
70
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
pricing service approved by the Fund's Trustees; (10) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (11) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost, which approximates market value.
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 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. Interest income is accrued daily as earned.
C. Repurchase Agreements — The Fund may invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily, to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization.
D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.
E. Futures — A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker: cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
F. Swaps — Certain Portfolios may enter into credit default swap contracts, a type of credit derivative, for hedging purposes or to gain exposure to a credit or index of credits of underlying issue in which the
71
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Portfolio may otherwise invest. A credit default swap is an agreement between two parties to exchange the credit risk of an issuer or index of issuers. A buyer of a credit default swap is said to buy protection by paying periodic fees in return for a contingent payment from the seller if the issuer has a credit event such as bankruptcy, a failure to pay outstanding obligations or deteriorating credit while the swap is outstanding. A seller of a credit default swap is said to sell protection and thus collects the periodic fees and profits if the credit of the issuer remains stable or improves while the swap is outstanding. The seller in a credit default swap contract would be required to pay an agreed-upon amount to the buyer in the event of an adverse credit event of the issuer. This agreed-upon amount approximates the notional amount of the swap as disclosed in the table following the Portfolio of Investments and is estimated t o be the maximum potential future payment that the seller could be required to make under the credit default swap contract. In the event of an adverse credit event, the seller generally does not have any contractual remedies against the issuer or any other third party. However, if a physical settlement is elected, the seller would receive the defaulted credit and, as a result, become a creditor of the issuer.
The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as 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.
The Portfolio accrues for the periodic fees on credit default swaps on a daily basis as earned with the net amount accrued recorded within realized gains/losses on swap contracts on the Statements of Operations. Net unrealized gains are recorded as an asset or net unrealized losses are reported as a liability on the Statements of Assets and Liabilities. The change in value of the swap contracts is reported as unrealized gains or losses on the Statements of Operations. Payments received or made upon entering into a credit default swap contract, if any, are recorded as realized gains or losses on the Statements of Operations upon termination or maturity of the swap. Credit default swaps may involve greater risks than if a Portfolio had invested in the issuer directly. Credit default swaps are subject to general market risk, counterparty risk and credit risk.
Certain Portfolios may also enter into interest rate swaps and asset swaps (where parties combine the purchase or sale of a bond/note with an interest rate swap) primarily to preserve a return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date. These are contractual
72
Morgan Stanley Select Dimensions Investment Series
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agreements to exchange periodic interest payment streams calculated on a predetermined notional principal amount. They generally involve one party paying a fixed interest rate and the other party paying a variable rate. The Portfolio will usually enter into them on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or date specified in the instrument, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments. The Portfolio accrues the net amount with respect to each swap on a daily basis. This net amount is recorded within realized gains/losses on swap contracts on the Statements of Operations. Risk may arise as a result of the potential inability of the counterparties to meet the terms of the contracts.
Swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. Therefore, swaps are subject to the risk of default or non-performance by the counterparty. If there is a default by the counterparty to a swap agreement, the Portfolio will have contractual remedies pursuant to the agreements related to the transaction. Counterparties are required to pledge collateral daily (based on the valuation of each swap) on behalf of the Portfolio with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Portfolio has an unrealized loss on a swap contract, 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. For cash collateral received, the Portfolio pays a monthly fee to the counterparty based on the effective rate for Federal Funds.
G. Options — When the Fund writes a call or put option, an amount equal to the premium received is included in the Fund's Statements of Assets and Liabilities as a liability which is subsequently marked-to-market to reflect the current market value of the option written. If a written option either expires or the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss without regard to any unrealized gain or loss on the underlying security or currency and the liability related to such option is extinguished. If a written call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security or currency and the proceeds from such sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the secu rity, which the Fund purchases upon exercise of the option. By writing a covered call option, the Fund, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price, should the market price of the underlying security increase. By writing a put option, the Fund, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current market price.
73
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
When the Fund purchases a call or put option, the premium paid is recorded as an investment which is subsequently marked-to-market to reflect the current market value. If a purchased option expires, the Fund will realize a loss to the extent of the premium paid. If the Fund enters into a closing sale transaction, a gain or loss is realized for the difference between the proceeds from the sale and the cost of the option. If a put option is exercised, the cost of the security or currency sold upon exercise will be increased by the premium originally paid. If a call option is exercised, the cost of the security purchased upon exercise will be increased by the premium originally paid. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option.
H. Treasury Inflation-Protected Securities — Certain Portfolios may invest in Treasury Inflation-Protected Securities ("TIPS"), including structured bonds in which the principal amount is adjusted daily to keep pace with inflation, as measured by the U.S. Consumer Pricing Index for Urban Consumers. The adjustments to principal due to inflation/deflation are reflected as increases/decreases to interest income with a corresponding adjustment to cost. Such adjustments may have a significant impact on the Portfolio's distributions and may result in a return of capital to shareholders. The repayment of the original bond principal upon maturity is guaranteed by the full faith and credit of the U.S. Government.
I. Foreign Currency Translation and Forward Foreign Currency Contracts — The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gains/losses on forward contracts and foreign currency translations. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gains/losses are included in or are a reduction of ordinary income f or federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities held. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency translation gains or losses. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery.
J. Federal Income Tax Policy — It is the Fund's policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. The
74
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund recognizes the tax effects of a tax position taken or expected to be taken in a tax return only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of the benefit. The difference between the tax benefit recognized in the financial statements for a tax position taken and the tax benefit claimed in the income tax return is referred to as an unrecognized tax benefit. There are no unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Operations. Each of the tax years filed in the four- year period ended December 31, 2009 remains subject to examination by taxing authorities.
K. Dividends and Distributions to Shareholders — The Fund records dividends and distributions to its shareholders on the ex-dividend date.
L. 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.
M. 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.
N. Subsequent Events — The Fund considers events or transactions that occur after the date of the Statements of Assets and Liabilities but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
O. 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 Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820) (formerly known as FAS 157), defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between
75
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
(1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's investments. The inputs are summarized in the three broad levels listed below.
• Level 1 — unadjusted quoted prices in active markets for identical investments
• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
• Level 3 — significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is the summary of the inputs used as of June 30, 2010 in valuing the Fund's investments carried at fair value:
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices In Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Money Market | |||||||||||||||||||
Short-Term Investments | |||||||||||||||||||
Repurchase Agreements | $ | 40,978,000 | — | $ | 40,978,000 | — | |||||||||||||
Commercial Paper | 40,487,738 | — | 40,487,738 | — | |||||||||||||||
Floating Rate Notes — Corporate | 15,000,000 | — | 15,000,000 | — |
76
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices In Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Floating Rate Notes — U.S. Government Agency | $ | 8,998,627 | — | $ | 8,998,627 | — | |||||||||||||
Certificates of Deposit | 15,000,000 | — | 15,000,000 | — | |||||||||||||||
Total | $ | 120,464,365 | — | $ | 120,464,365 | — | |||||||||||||
Flexible Income | |||||||||||||||||||
Assets | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Communications Equipment | $ | 1,037 | $ | 1,025 | — | $ | 12 | ||||||||||||
Diversified Telecommunication Services | 73 | — | $ | 73 | — | ||||||||||||||
Electric Utilities | 145 | 145 | — | — | |||||||||||||||
Textile — Apparel | 0 | — | — | 0 | |||||||||||||||
Wireless Telecommunication Services | 594 | 594 | — | — | |||||||||||||||
Total Common Stocks | 1,849 | 1,764 | 73 | 12 | |||||||||||||||
Preferred Stock | 63,737 | — | 63,737 | — | |||||||||||||||
Asset-Backed Securities | 245,415 | — | 245,415 | — | |||||||||||||||
Collateralized Mortgage Obligations | 1,550,285 | — | 1,550,285 | — | |||||||||||||||
Corporate Bonds | 13,428,222 | — | 13,428,222 | 0 | |||||||||||||||
Foreign Government & Corporate Bonds | 5,851,599 | — | 5,851,599 | — | |||||||||||||||
U.S. Government Agencies — Mortgage-Backed Securities | 237,521 | — | 237,521 | — | |||||||||||||||
Municipal Bonds | 298,921 | — | 298,921 | — | |||||||||||||||
U.S. Government Agencies & Obligations | 6,365,764 | — | 6,365,764 | — | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
U.S. Government Obligations | 229,927 | — | 229,927 | — | |||||||||||||||
Investment Company | 523,583 | 523,583 | — | — | |||||||||||||||
Total Short-Term Investments | 753,510 | 523,583 | 229,927 | — | |||||||||||||||
Futures | 109,437 | 109,437 | — | — | |||||||||||||||
Zero Coupon Swaps | 14,908 | — | 14,908 | — | |||||||||||||||
Total | $ | 28,921,168 | $ | 634,784 | $ | 28,286,372 | $ | 12 | |||||||||||
Liabilities | |||||||||||||||||||
Credit Default Swaps | $ | (15,220 | ) | — | $ | (15,220 | ) | — | |||||||||||
Forward Foreign Currency Contracts | (473 | ) | — | (473 | ) | — | |||||||||||||
Futures | (130,029 | ) | $ | (130,029 | ) | — | — | ||||||||||||
Interest Rate Swaps | (113,303 | ) | — | (113,303 | ) | — | |||||||||||||
Zero Coupon Swaps | (293,006 | ) | — | (293,006 | ) | — | |||||||||||||
Total | $ | (552,031 | ) | $ | (130,029 | ) | $ | (422,002 | ) | — |
77
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices In Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Global Infrastructure | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Airports | $ | 1,438,346 | $ | 370,199 | $ | 1,068,147 | — | ||||||||||||
Communications | 4,756,259 | 3,512,367 | 1,243,892 | — | |||||||||||||||
Diversified | 1,412,095 | 872,376 | 539,719 | — | |||||||||||||||
Oil & Gas Storage & Transportation | 10,116,733 | 6,996,774 | 3,119,959 | — | |||||||||||||||
Ports | 416,685 | 67,643 | 349,042 | — | |||||||||||||||
Toll Roads | 2,991,955 | — | 2,991,955 | — | |||||||||||||||
Transmission & Distribution | 4,961,359 | 2,281,664 | 2,679,695 | — | |||||||||||||||
Water | 1,469,202 | 402,919 | 1,066,283 | — | |||||||||||||||
Total Common Stocks | 27,562,634 | 14,503,942 | 13,058,692 | — | |||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 246,699 | 246,699 | — | — | |||||||||||||||
Total | $ | 27,809,333 | $ | 14,750,641 | $ | 13,058,692 | — | ||||||||||||
Capital Growth | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Air Freight & Logistics | $ | 746,752 | $ | 746,752 | — | — | |||||||||||||
Capital Markets | 272,455 | 272,455 | — | — | |||||||||||||||
Chemicals | 584,868 | 584,868 | — | — | |||||||||||||||
Communications Equipment | 626,614 | 626,614 | — | — | |||||||||||||||
Computers & Peripherals | 2,401,227 | 2,401,227 | — | — | |||||||||||||||
Construction Materials | 485,192 | 485,192 | — | — | |||||||||||||||
Consumer Finance | 507,961 | 507,961 | — | — | |||||||||||||||
Distributors | 707,291 | — | $ | 707,291 | — | ||||||||||||||
Diversified Financial Services | 1,262,452 | 1,262,452 | — | — | |||||||||||||||
Electrical Equipment | 112,919 | 112,919 | — | — | |||||||||||||||
Food Products | 658,226 | 658,226 | — | — | |||||||||||||||
Health Care Equipment & Supplies | 899,273 | 899,273 | — | — | |||||||||||||||
Hotels, Restaurants & Leisure | 2,080,033 | 1,737,532 | 342,501 | — | |||||||||||||||
Information Technology Services | 1,325,768 | 1,325,768 | — | — | |||||||||||||||
Insurance | 837,986 | 837,986 | — | — | |||||||||||||||
Internet & Catalog Retail | 1,426,826 | 1,426,826 | — | — | |||||||||||||||
Internet Software & Services | 3,173,955 | 2,469,815 | 704,140 | — | |||||||||||||||
Life Sciences Tools & Services | 610,813 | 610,813 | — | — | |||||||||||||||
Multiline Retail | 177,464 | 177,464 | — | — |
78
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices In Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Oil, Gas & Consumable Fuels | $ | 1,086,232 | $ | 1,086,232 | — | — | |||||||||||||
Pharmaceuticals | 295,728 | 295,728 | — | — | |||||||||||||||
Professional Services | 505,037 | 163,058 | $ | 341,979 | — | ||||||||||||||
Real Estate Management & Development | 853,611 | 853,611 | — | — | |||||||||||||||
Software | 1,152,167 | 1,152,167 | — | — | |||||||||||||||
Wireless Telecommunication Services | 371,973 | 371,973 | — | — | |||||||||||||||
Total Common Stocks | 23,162,823 | 21,066,912 | 2,095,911 | — | |||||||||||||||
Convertible Preferred Stock | 163,260 | — | — | $ | 163,260 | ||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 1,454,645 | 1,454,645 | — | — | |||||||||||||||
Total | $ | 24,780,728 | $ | 22,521,557 | $ | 2,095,911 | $ | 163,260 | |||||||||||
Focus Growth | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Air Freight & Logistics | $ | 1,756,248 | $ | 1,756,248 | — | — | |||||||||||||
Chemicals | 2,372,889 | 2,372,889 | — | — | |||||||||||||||
Communications Equipment | 1,335,784 | 1,335,784 | — | — | |||||||||||||||
Computers & Peripherals | 9,588,605 | 9,588,605 | — | — | |||||||||||||||
Consumer Finance | 2,064,360 | 2,064,360 | — | — | |||||||||||||||
Distributors | 2,856,023 | — | $ | 2,856,023 | — | ||||||||||||||
Diversified Financial Services | 7,073,807 | 7,073,807 | — | — | |||||||||||||||
Food Products | 2,491,114 | 2,491,114 | — | — | |||||||||||||||
Hotels, Restaurants & Leisure | 6,530,858 | 5,237,548 | 1,293,310 | — | |||||||||||||||
Information Technology Services | 3,310,817 | 3,310,817 | — | — | |||||||||||||||
Insurance | 2,084,451 | 2,084,451 | — | — | |||||||||||||||
Internet & Catalog Retail | 5,795,369 | 5,795,369 | — | — | |||||||||||||||
Internet Software & Services | 12,694,324 | 9,836,537 | 2,857,787 | — | |||||||||||||||
Life Sciences Tools & Services | 2,481,689 | 2,481,689 | — | — | |||||||||||||||
Oil, Gas & Consumable Fuels | 4,516,111 | 4,516,111 | — | — | |||||||||||||||
Real Estate Management & Development | 3,470,519 | 3,470,519 | — | — | |||||||||||||||
Software | 2,341,513 | 2,341,513 | — | — | |||||||||||||||
Total Common Stocks | 72,764,481 | 65,757,361 | 7,007,120 | — | |||||||||||||||
Convertible Preferred Stock | 500,445 | — | — | $ | 500,445 | ||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 4,532,455 | 4,532,455 | — | — | |||||||||||||||
Total | $ | 77,797,381 | $ | 70,289,816 | $ | 7,007,120 | $ | 500,445 |
79
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices In Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Capital Opportunities | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Air Freight & Logistics | $ | 439,174 | $ | 439,174 | — | — | |||||||||||||
Capital Markets | 599,257 | 599,257 | — | — | |||||||||||||||
Chemicals | 493,676 | 493,676 | — | — | |||||||||||||||
Computers & Peripherals | 2,089,724 | 2,089,724 | — | — | |||||||||||||||
Distributors | 747,463 | — | $ | 747,463 | — | ||||||||||||||
Diversified Financial Services | 1,270,779 | 1,270,779 | — | — | |||||||||||||||
Food Products | 510,322 | 510,322 | — | — | |||||||||||||||
Health Care Technology | 367,257 | 367,257 | — | — | |||||||||||||||
Hotels, Restaurants & Leisure | 1,949,415 | 1,685,077 | 264,338 | — | |||||||||||||||
Information Technology Services | 1,035,084 | 1,035,084 | — | — | |||||||||||||||
Internet & Catalog Retail | 1,208,634 | 1,208,634 | — | — | |||||||||||||||
Internet Software & Services | 2,300,547 | 1,670,614 | 629,933 | — | |||||||||||||||
Life Sciences Tools & Services | 1,137,629 | 1,137,629 | — | — | |||||||||||||||
Oil, Gas & Consumable Fuels | 1,155,200 | 1,155,200 | — | — | |||||||||||||||
Professional Services | 1,083,956 | 1,083,956 | — | — | |||||||||||||||
Real Estate Management & Development | 731,893 | 731,893 | — | — | |||||||||||||||
Semiconductors & Semiconductor Equipment | 348,173 | 348,173 | — | — | |||||||||||||||
Software | 575,680 | 575,680 | — | — | |||||||||||||||
Total Common Stocks | 18,043,863 | 16,402,129 | 1,641,734 | — | |||||||||||||||
Convertible Preferred Stock | 120,792 | — | — | $ | 120,792 | ||||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 274,917 | 274,917 | — | — | |||||||||||||||
Total | $ | 18,439,572 | $ | 16,677,046 | $ | 1,641,734 | $ | 120,792 |
80
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices in Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Mid Cap Growth | |||||||||||||||||||
Assets | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Air Freight & Logistics | $ | 922,191 | $ | 922,191 | — | — | |||||||||||||
Beverages | 294,028 | 294,028 | — | — | |||||||||||||||
Biotechnology | 314,922 | — | — | $ | 314,922 | ||||||||||||||
Capital Markets | 824,090 | 824,090 | — | — | |||||||||||||||
Chemicals | 847,503 | 847,503 | — | — | |||||||||||||||
Commercial Services & Supplies | 971,709 | 971,709 | — | — | |||||||||||||||
Computers & Peripherals | 724,083 | 724,083 | — | — | |||||||||||||||
Construction Materials | 565,340 | 565,340 | — | — | |||||||||||||||
Distributors | 878,227 | — | $ | 878,227 | — | ||||||||||||||
Diversified Consumer Services | 805,678 | 805,678 | — | — | |||||||||||||||
Diversified Financial Services | 1,775,435 | 1,775,435 | — | — | |||||||||||||||
Food Products | 735,661 | 735,661 | — | — | |||||||||||||||
Health Care Equipment & Supplies | 1,308,589 | 1,308,589 | — | — | |||||||||||||||
Hotels, Restaurants & Leisure | 2,749,361 | 2,366,217 | 383,144 | — | |||||||||||||||
Household Durables | 580,168 | 580,168 | — | — | |||||||||||||||
Information Technology Services | 431,925 | 431,925 | — | — | |||||||||||||||
Internet & Catalog Retail | 984,481 | 984,481 | — | — | |||||||||||||||
Internet Software & Services | 1,145,374 | 762,495 | 382,879 | — | |||||||||||||||
Life Sciences Tools & Services | 1,206,491 | 1,206,491 | — | — | |||||||||||||||
Machinery | 263,689 | — | 263,689 | — | |||||||||||||||
Media | 910,094 | 910,094 | — | — | |||||||||||||||
Multiline Retail | 173,003 | 173,003 | — | — | |||||||||||||||
Oil, Gas & Consumable Fuels | 1,439,619 | 1,439,619 | — | — | |||||||||||||||
Professional Services | 1,878,503 | 1,313,146 | 565,357 | — | |||||||||||||||
Software | 2,409,756 | 2,409,756 | — | — | |||||||||||||||
Trading Companies & Distributors | 439,865 | 439,865 | — | — | |||||||||||||||
Wireless Telecommunication Services | 250,831 | 250,831 | — | — | |||||||||||||||
Total Common Stocks | 25,830,616 | 23,042,398 | 2,473,296 | 314,922 |
81
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Fair Value Measurements at June 30, 2010 Using | |||||||||||||||||||
Investment Type | Total | Unadjusted Quoted Prices in Active Market for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Convertible Preferred Stock | $ | 168,168 | — | — | $ | 168,168 | |||||||||||||
Short-Term Investment | |||||||||||||||||||
Investment Company | 1,149,316 | $ | 1,149,316 | — | — | ||||||||||||||
Forward Foreign Currency Contracts | 270 | — | $ | 270 | — | ||||||||||||||
Total | $ | 27,148,370 | $ | 24,191,714 | $ | 2,473,566 | $ | 483,090 | |||||||||||
Liabilities | |||||||||||||||||||
Forward Foreign Currency Contracts | $ | (11 | ) | — | $ | (11 | ) | — |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Portfolios recognize transfers between the levels as of the end of the period. As of June 30, 2010, securities transferred from Level 2 to Level 1. At December 31, 2009, the fair market value of certain securities were adjusted due to developments which occurred between the time of the close of the foreign markets on which they trade and the close of business on the NYSE which resulted in their Level 2 classification. The values of the transfers were as follows:
Capital Growth | Focus Growth | Capital Opportunities | Mid Cap Growth | ||||||||||||
$ | 925,180 | $ | 3,857,683 | $ | 790,151 | $ | 431,925 |
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Flexible Income | Capital Growth | Focus Growth | Capital Opportunities | Mid Cap Growth | |||||||||||||||||||
Beginning Balance | $ | 12 | — | — | — | $ | 322,608 | ||||||||||||||||
Net purchases (sales) | — | $ | 163,260 | $ | 500,445 | $ | 120,792 | 310,739 | |||||||||||||||
Amortization of discount | — | — | — | — | — | ||||||||||||||||||
Transfers in | — | — | — | — | — | ||||||||||||||||||
Transfers out | — | — | — | — | — | ||||||||||||||||||
Change in unrealized appreciation/ depreciation | 1,970,545 | — | — | — | (150,257 | ) | |||||||||||||||||
Realized gains (losses) | (1,970,545 | ) | — | — | — | — | |||||||||||||||||
Ending Balance | $ | 12 | $ | 163,260 | $ | 500,445 | $ | 120,792 | $ | 483,090 | |||||||||||||
Net change in unrealized appreciation/ depreciation from investments still held as of June 30, 2010 | — | — | — | — | $ | (150,257 | ) |
82
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
3. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index.
The Fund may use derivative instruments for a variety of reasons, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or to manage the Fund's foreign currency exposure or to generate potential gain. All of the Fund's portfolio 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 accordingly, except when taking delivery of a security underlying a contract. In these instances, the recognition of gain or loss is postponed until the disposal of the security underlying the contract. Risk may arise as a result of the potential inability of the counterparties to meet the terms of their contracts.
Summarized below are specific types of derivative financial instruments used by certain Portfolios.
Forward Foreign Currency Contracts Certain Portfolios may enter into forward contracts for many purposes, including to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts involve elements of market risk in excess of the amount reflected in the Statements of Assets and Liabilities. The respective Portfolios bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
During the six months ended June 30, 2010, the value of forward foreign currency contracts open and closed were as follows:
PORTFOLIO | OPEN | CLOSE | |||||||||
Flexible Income | $ | 586,794 | $ | 630,237 | |||||||
Global Infrastructure | 35,026,155 | 40,258,889 | |||||||||
Capital Growth | 395,488 | 1,240,181 | |||||||||
Focus Growth | 2,108,340 | 2,776,154 | |||||||||
Capital Opportunities | 297,106 | 757,273 | |||||||||
Mid Cap Growth | 690,030 | 631,182 |
Futures Certain Portfolios may purchase and sell interest rate, Eurodollar and index futures ("futures contracts") to facilitate trading, increase or decrease the Portfolio's market exposure, seek higher investment returns or to seek to protect against a decline in the value of the Portfolio's securities or an increase in prices of securities that may be purchased. These futures involve elements of market risk in excess of the amount
83
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
reflected in the Statements of Assets and Liabilities. The respective Portfolios bear the risk of an unfavorable change in the value of the underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
Transactions in futures contracts for the six months ended June 30, 2010, were as follows:
Flexible Income: | |||||||
NUMBER OF CONTRACTS | |||||||
Futures, outstanding at beginning of the period | 54 | ||||||
Futures opened | 412 | ||||||
Futures closed | (329 | ) | |||||
Futures, outstanding at end of the period | 137 |
Options For hedging and investment purposes, certain Portfolios may engage in transactions in listed and over-the-counter options. Risks may arise from an imperfect correlation between the change in the market value of the securities held by the Portfolio and the price of options relating to the securities purchased or sold by the Portfolio and from the possible lack of a liquid secondary market for an option.
Transactions in options for the six months ended June 30, 2010, were as follows:
Global Infrastructure: | |||||||||||
NUMBER OF CONTRACTS | PREMIUM | ||||||||||
Options written, outstanding at beginning of period | 244 | $ | 12,220 | ||||||||
Options written | 498 | 13,887 | |||||||||
Options expired | (269 | ) | (9,999 | ) | |||||||
Options closed | (473 | ) | (16,108 | ) | |||||||
Options written, outstanding at end of period | — | — |
Swaps Certain Portfolios may enter into interest rate swaps and asset swaps (where parties combine the purchase or sale of a bond/note with an interest rate swap) ("swaps") and may purchase or sell interest rate caps, floors and collars. The Portfolio expects to enter into these transactions primarily to manage interest rate risk, hedge portfolio positions and preserve a return or spread on a particular investment or portion of its portfolio. The Portfolio may also enter into these transactions to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date. Swap transactions are subject to market risk, risk of default by the other party to the transaction, risk of imperfect correlation and manager risk. Such risks may exceed the related amounts shown in the Statement of Assets and Liabilities.
84
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
Certain Portfolios may enter into credit default swaps for hedging purposes, to add leverage to its portfolio or to gain exposure to a credit in which the Portfolio may otherwise invest. Credit default swaps may involve greater risks than if the Portfolio had invested in the issuer directly. Credit default swaps are subject to general market risk, counterparty risk and credit risk. If the Portfolio is a buyer and no credit event occurs, it will lose its investment. In addition, if the Portfolio is a seller and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received may be less than the maximum payout amount it pays to the buyer, resulting in a loss to the Portfolio.
Transactions in swap contracts for the six months ended June 30, 2010, were as follows:
Flexible Income: | |||||||||||||||
NOTIONAL AMOUNT SEK (000'S) | NOTIONAL AMOUNT CAD (000'S) | NOTIONAL AMOUNT (000'S) | |||||||||||||
Swaps, outstanding at beginning of period | — | — | $ | 15,825 | |||||||||||
Swaps opened | 11,500 | 1,400 | 12,897 | ||||||||||||
Swaps closed | (11,500 | ) | — | (20,987 | ) | ||||||||||
Swaps, outstanding at end of period | — | 1,400 | $ | 7,825 |
The following table sets forth the fair value of the Fund's derivative contracts by primary risk exposure as of June 30, 2010.
PORTFOLIO | PRIMARY RISK EXPOSURE | ASSET DERIVATIVE BALANCE SHEET LOCATION | FAIR VALUE | LIABILITIES DERIVATIVE BALANCE SHEET LOCATION | FAIR VALUE | ||||||||||||||||||
Flexible Income | Interest Rate | Variation margin | $ | 109,437 | † | Variation margin | $ | (130,029 | )† | ||||||||||||||
Risk | Unrealized appreciation on open swap contracts | 14,908 | Unrealized depreciation on open swap contracts | (406,309 | ) | ||||||||||||||||||
Credit Risk | Unrealized appreciation on open swap contracts | — | Unrealized depreciation on open swap contracts | (15,220 | ) | ||||||||||||||||||
Foreign Currency Risk | Unrealized appreciation on open forward foreign currency contracts | — | Unrealized depreciation on open forward foreign currency contracts | (473 | ) | ||||||||||||||||||
$ | 124,345 | $ | (552,031 | ) | |||||||||||||||||||
Mid Cap Growth | Foreign Currency Risk | Unrealized appreciation on open forward foreign currency contracts | $ | 270 | Unrealized depreciation on open forward foreign currency contracts | $ | (11 | ) |
† Includes cumulative appreciation/depreciation of futures contracts as reported in the Portfolio of Investments. Only current day's variation margin is reported within the Statements of Assets and Liabilities.
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
The following tables set forth by primary risk exposure the Fund's realized gains (losses) and change in unrealized gains (losses) by type of derivative contract for the six months ended June 30, 2010.
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS
PORTFOLIO | PRIMARY RISK EXPOSURE | FUTURES | SWAPS | OPTIONS WRITTEN | FORWARD FOREIGN CURRENCY | ||||||||||||||||||
Flexible Income | Interest Rate Risk | $ | (17,990 | ) | $ | (86,979 | ) | — | — | ||||||||||||||
Credit Risk | — | (14,117 | ) | — | — | ||||||||||||||||||
Foreign Currency Risk | — | — | — | $ | (3,047 | ) | |||||||||||||||||
Total | $ | (17,990 | ) | $ | (101,096 | ) | — | $ | (3,047 | ) | |||||||||||||
Global Infrastructure | Foreign Currency Risk | — | — | — | $ | (43,197 | ) | ||||||||||||||||
Equity Risk | — | — | $ | (8,037 | ) | — | |||||||||||||||||
Total | — | — | $ | (8,037 | ) | $ | (43,197 | ) | |||||||||||||||
Capital Growth | Foreign Currency Risk | — | — | — | $ | (600 | ) | ||||||||||||||||
Focus Growth | Foreign Currency Risk | — | — | — | $ | 3,645 | |||||||||||||||||
Capital Opportunities | Foreign Currency Risk | — | — | — | $ | 964 | |||||||||||||||||
Mid Cap Growth | Foreign Currency Risk | — | — | — | $ | 4,650 |
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON DERIVATIVE CONTRACTS
PORTFOLIO | PRIMARY RISK EXPOSURE | FUTURES | SWAPS | OPTIONS WRITTEN | FORWARD FOREIGN CURRENCY | ||||||||||||||||||
Flexible Income | Interest Rate Risk | $ | (142,793 | ) | $ | (264,623 | ) | — | — | ||||||||||||||
Credit Risk | — | 8,302 | — | — | |||||||||||||||||||
Foreign Currency Risk | — | — | — | $ | (1,166 | ) | |||||||||||||||||
Total | $ | (142,793 | ) | $ | (256,321 | ) | — | $ | (1,166 | ) | |||||||||||||
Global Infrastructure | Equity Risk | — | — | $ | 9,657 | — | |||||||||||||||||
Foreign Currency Risk | — | — | — | $ | (23,217 | ) | |||||||||||||||||
Total | — | — | $ | 9,657 | $ | (23,217 | ) | ||||||||||||||||
Mid Cap Growth | Foreign Currency Risk | — | — | — | $ | 259 |
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
4. Investment Advisory/Administration and Sub-Advisory Agreements
Pursuant to an Investment Advisory Agreement with the Investment 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.
Flexible Income — 0.32%.
Global Infrastructure — 0.57% to the portion of the daily net assets not exceeding $500 million; 0.47% to the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; 0.445% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.42% to the portion of the daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.395% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of the daily net assets exceeding $3.5 billion but not exceeding $5 billion and 0.345% to the portion of the daily net assets in excess of $5 billion.
Under the Sub-Advisory Agreement between the Investment Adviser and the Sub-Adviser, the Sub-Adviser provides Global Infrastructure with investment advisory services, subject to the overall supervision of the Investment Adviser and the Fund's Officers and Trustees. The Investment Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Investment Adviser receives from the Portfolio.
Capital Growth — 0.50% to the portion of the daily net assets not exceeding $1 billion; 0.45% to the portion of the daily net assets exceeding $1 billion but not exceeding $2 billion; 0.40% to the portion of the daily net assets exceeding $2 billion but not exceeding $3 billion and 0.35% to the portion of the daily net assets in excess of $3 billion.
Focus Growth — 0.545% to the portion of the daily net assets not exceeding $250 million; 0.42% to the portion of the daily net assets exceeding $250 million but not exceeding $2.5 billion; 0.395% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of the daily net assets exceeding $3.5 billion but not exceeding $4.5 billion and 0.345% to the portion of the daily net assets in excess of $4.5 billion.
Capital Opportunities — 0.67% to the portion of the daily net assets not exceeding $500 million; 0.645% to the portion of the daily net assets exceeding $500 million but not exceeding $2 billion; 0.62% to the portion of the daily net assets exceeding $2 billion but not exceeding $3 billion and 0.595% to the portion of the daily net assets in excess of $3 billion.
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
Mid Cap Growth — 0.42% to the portion of the daily net assets not exceeding $500 million and 0.395% to the portion of the daily net assets in excess of $500 million.
Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser and Sub-Adviser, each Portfolio pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% (Money Market 0.05%) to each Portfolio's daily net assets.
Under an agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
5. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment 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, Investment Adviser and Administrator have voluntarily agreed to waive/reimburse all or a portion of the Money Market Portfolio's distribution fee, investment 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, 2010, the Distributor waived $110,722 and the Investment Adviser waived $216,949. The fee waivers and/or expense reimbursements are expected to continue until such time that the Board of Trustees acts to discontinue such waivers and/or reimbursements when it deems such action is appropriate.
6. Security Transactions and Transactions with Affiliates
Each Portfolio (except Money Market) may invest in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class, an open-end management investment company managed by an affiliate of the Investment Adviser. Investment Advisory fees paid by the Portfolio are reduced by an amount equal to the advisory and administrative services fees paid by Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class with respect to assets invested by the Portfolio in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. For the six months ended June 30, 2010, the tables below identify, for each Portfolio that invested in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class, that amount by which that Portfolio's advisory fees were reduced in relation to that Portfolio's investment in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class.
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
In addition, the table also identifies the income distributions earned, if any, by each Portfolio for that Portfolio's investment in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class.
Income distributions are included in "interest and dividends from affiliates" in the Statements of Operations.
PORTFOLIO | INCOME DISTRIBUTION EARNED | ADVISORY FEE REDUCTION | |||||||||
Flexible Income | $ | 328 | $ | 322 | |||||||
Global Infrastructure | 316 | 275 | |||||||||
Capital Growth | 395 | 337 | |||||||||
Focus Growth | 818 | 705 | |||||||||
Capital Opportunities | 400 | 396 | |||||||||
Mid Cap Growth | 610 | 552 |
During the six months ended June 30, 2010, each Portfolio's cost of purchases and proceeds from sales of investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class were as follows:
PORTFOLIO | PURCHASES | SALES | |||||||||
Flexible Income | $ | 7,475,081 | $ | 8,229,953 | |||||||
Global Infrastructure | 7,181,212 | 6,964,577 | |||||||||
Capital Growth | 5,693,687 | 4,384,549 | |||||||||
Focus Growth | 11,402,289 | 8,681,455 | |||||||||
Capital Opportunities | 2,404,233 | 2,673,855 | |||||||||
Mid Cap Growth | 5,345,664 | 4,958,315 |
Purchases and sales/prepayments/maturities of portfolio securities, excluding short-term investments (except Money Market), for the six months ended June 30, 2010 were as follows:
U.S. GOVERNMENT SECURITIES | OTHER | ||||||||||||||||||
PURCHASES | SALES/PREPAYMENTS MATURITIES | PURCHASES | SALES/PREPAYMENTS MATURITIES | ||||||||||||||||
Money Market | — | — | $ | 8,691,847,507 | $ | 8,713,467,222 | |||||||||||||
Flexible Income | $ | 6,480,434 | $ | 9,411,138 | 8,930,642 | 7,771,216 | |||||||||||||
Global Infrastructure | — | — | 43,602,088 | 46,746,313 | |||||||||||||||
Capital Growth | — | — | 3,524,813 | 8,360,027 | |||||||||||||||
Focus Growth | — | — | 15,604,969 | 26,166,193 | |||||||||||||||
Capital Opportunities | — | — | 2,141,995 | 3,916,705 | |||||||||||||||
Mid Cap Growth | — | — | 5,109,523 | 8,416,241 |
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
The following Portfolio had transactions in Hartford Financial Services Group, Inc. common stock, an affiliate of the Fund:
PORTFOLIO | PURCHASES | INCOME | VALUE | ||||||||||||
Flexible Income | $ | 56,962 | $ | 282 | $ | 58,344 |
The following Portfolio had transactions with Citigroup, Inc. an affiliate of the Investment Adviser, Distributor, Sub-Adviser and Administrator:
PORTFOLIO | INCOME | VALUE | |||||||||
Flexible Income | $ | 7,790 | $ | 220,965 |
For the six months ended June 30, 2010, the following Portfolios incurred brokerage commissions with Morgan Stanley & Co., Inc. an affiliate of the Investment Adviser, Distributor, Sub-Adviser and Administrator for portfolio transactions executed on behalf of each Portfolio:
FOCUS GROWTH | MID CAP GROWTH | ||||||
$ | 361 | $ | 606 |
For the six months ended June 30, 2010, the following Portfolios incurred brokerage commission with Citigroup, Inc. an affiliate of the Investment Adviser, Distributor, Sub-Adviser and Administrator, for portfolio transactions executed on behalf of the Portfolio:
GLOBAL INFRASTRUCTURE | CAPITAL GROWTH | FOCUS GROWTH | CAPITAL OPPORTUNITIES | MID CAP GROWTH | |||||||||||||||
$ | 26 | $ | 16 | $ | 57 | $ | 12 | $ | 17 |
Morgan Stanley Services Company Inc., an affiliate of the Investment Adviser, Sub-Adviser and Distributor, is the Fund's transfer agent.
7. Purposes of and Risks Relating to Certain Financial Instruments
Certain Portfolios may invest in mortgage securities, including securities issued by Federal National Mortgage Assoc. ("FNMA") and Federal Home Loan Mortgage Corp. ("FHLMC"). These are fixed income securities that derive their value from or represent interests in a pool of mortgages or mortgage securities. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage backed security and could result in losses to the Portfolio. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer
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Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n June 30, 2010 (unaudited) continued
to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their mortgages. The securities 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 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.
At June 30, 2010, Global Infrastructure's cash balance consisted principally of interest bearing deposits with State Street, the Portfolio's custodian.
8. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from GAAP. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.
As of December 31, 2009, the following Portfolios had a net capital loss carryforward which may be used to offset future capital gains to the extent provided by regulations.
(AMOUNTS IN THOUSANDS) | |||||||||||||||||||||||||||||||||||
AVAILABLE THROUGH DECEMBER 31, | 2010 | 2011 | 2012 | 2013 | 2014 | 2016 | 2017 | TOTAL | |||||||||||||||||||||||||||
Flexible Income | $ | 6,782 | $ | 6,161 | $ | 1,199 | $ | 562 | $ | 939 | $ | 4,961 | $ | 6,610 | $ | 27,214 | |||||||||||||||||||
Capital Growth | 16,400 | 3,145 | 60 | — | — | — | — | 19,605 | |||||||||||||||||||||||||||
Focus Growth | 74,785 | — | — | — | — | 4,859 | 3,619 | 83,263 | |||||||||||||||||||||||||||
Capital Opportunities | 57,567 | — | — | — | — | 1,929 | 367 | 59,863 | |||||||||||||||||||||||||||
Mid Cap Growth | 10,927 | — | — | — | — | — | 2,331 | 13,258 |
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Notes to Financial Statements n June 30, 2010 (unaudited) continued
At December 31, 2009, the primary reason(s) for significant temporary book/tax differences were as follows:
TEMPORARY DIFFERENCES | |||||||||||
POST- OCTOBER LOSSES | LOSS DEFERRALS FROM WASH SALES | ||||||||||
Money Market | |||||||||||
Flexible Income | • | • | |||||||||
Global Infrastructure | • | • | |||||||||
Capital Growth | • | • | |||||||||
Focus Growth | • | ||||||||||
Capital Opportunities | • | • | |||||||||
Mid Cap Growth | • | • |
Additionally, the following Portfolios had other temporary differences: Flexible Income — interest on bonds in default; Flexible Income and Global Infrastructure — gain/loss from the mark-to-market of futures and/or options contracts. Flexible Income — capital loss deferrals on straddles; Global Infrastructure — mark-to-market of passive foreign investment companies ("PFICs"). Flexible Income had temporary and/or permanent differences attributable to book amortization of premiums on debt securities.
9. New Accounting Pronouncement
On January 21, 2010, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2010-06. The ASU amends Accounting Standards Codification 820 to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques in Level 2 and Level 3 fair value measurements. The application of ASU 2010-06 is required for fiscal years and interim periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are required for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.
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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 | |||||||||||||||||||||||||||||||
2005 | $ | 1.00 | $ | 0.030 | — | $ | 0.030 | $ | (0.030 | ) | — | $ | (0.030 | ) | |||||||||||||||||
2006 | 1.00 | 0.040 | — | 0.040 | (0.040 | ) | — | (0.040 | ) | ||||||||||||||||||||||
2007 | 1.00 | 0.050 | — | 0.050 | (0.050 | ) | — | (0.050 | ) | ||||||||||||||||||||||
2008 | 1.00 | 0.020 | — | 0.020 | (0.020 | ) | — | (0.020 | ) | ||||||||||||||||||||||
2009 | 1.00 | 0.000 | (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) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 1.00 | 0.020 | — | 0.020 | (0.020 | ) | — | (0.020 | ) | ||||||||||||||||||||||
2006 | 1.00 | 0.040 | — | 0.040 | (0.040 | ) | — | (0.040 | ) | ||||||||||||||||||||||
2007 | 1.00 | 0.050 | — | 0.050 | (0.050 | ) | — | (0.050 | ) | ||||||||||||||||||||||
2008 | 1.00 | 0.020 | — | 0.020 | (0.020 | ) | — | (0.020 | ) | ||||||||||||||||||||||
2009 | 1.00 | 0.000 | (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) | |||||||||||||||||||
FLEXIBLE INCOME CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | 7.68 | 0.38 | $ | (0.17 | ) | 0.21 | (0.54 | ) | — | (0.54 | ) | ||||||||||||||||||||
2006 | 7.35 | 0.46 | (0.04 | ) | 0.42 | (0.47 | ) | — | (0.47 | ) | |||||||||||||||||||||
2007 | 7.30 | 0.48 | (0.21 | ) | 0.27 | (0.44 | ) | $ | (0.01 | )(g) | (0.45 | ) | |||||||||||||||||||
2008 | 7.12 | 0.41 | (1.93 | ) | (1.52 | ) | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||
2009 | 5.46 | 0.32 | 0.73 | 1.05 | (0.43 | ) | — | (0.43 | ) | ||||||||||||||||||||||
2010 | ^ | 6.08 | 0.09 | 0.11 | 0.20 | (0.39 | ) | — | (0.39 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 7.65 | 0.36 | (0.16 | ) | 0.20 | (0.52 | ) | — | (0.52 | ) | |||||||||||||||||||||
2006 | 7.33 | 0.44 | (0.05 | ) | 0.39 | (0.45 | ) | — | (0.45 | ) | |||||||||||||||||||||
2007 | 7.27 | 0.46 | (0.20 | ) | 0.26 | (0.42 | ) | (0.01 | )(g) | (0.43 | ) | ||||||||||||||||||||
2008 | 7.10 | 0.39 | (1.93 | ) | (1.54 | ) | (0.13 | ) | — | (0.13 | ) | ||||||||||||||||||||
2009 | 5.43 | 0.31 | 0.72 | 1.03 | (0.42 | ) | — | (0.42 | ) | ||||||||||||||||||||||
2010 | ^ | 6.04 | 0.08 | 0.12 | 0.20 | (0.38 | ) | — | (0.38 | ) |
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 | REBATE FROM MORGAN STANLEY AFFILIATE | PORTFOLIO TURNOVER RATE | ||||||||||||||||||||||||
MONEY MARKET CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 1.00 | 2.73 | % | $ | 52,030 | 0.57 | % | 2.68 | % | — | N/A | |||||||||||||||||||
2006 | 1.00 | 4.59 | 46,731 | 0.58 | 4.56 | — | N/A | ||||||||||||||||||||||||
2007 | 1.00 | 4.93 | 38,036 | 0.58 | 4.79 | — | N/A | ||||||||||||||||||||||||
2008 | 1.00 | 2.38 | 42,190 | 0.58 | 2.34 | — | N/A | ||||||||||||||||||||||||
2009 | 1.00 | 0.03 | 40,771 | 0.39 | (e)(f) | 0.03 | (e)(f) | — | N/A | ||||||||||||||||||||||
2010 | ^ | 1.00 | 0.00 | (k) | 37,633 | 0.24 | (f)(l) | 0.01 | (f)(l) | — | N/A | ||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 1.00 | 2.48 | 37,010 | 0.82 | 2.43 | — | N/A | ||||||||||||||||||||||||
2006 | 1.00 | 4.34 | 74,239 | 0.83 | 4.31 | — | N/A | ||||||||||||||||||||||||
2007 | 1.00 | 4.67 | 84,724 | 0.83 | 4.54 | — | N/A | ||||||||||||||||||||||||
2008 | 1.00 | 2.13 | 173,595 | 0.83 | 1.91 | — | N/A | ||||||||||||||||||||||||
2009 | 1.00 | 0.01 | 101,015 | 0.40 | (e)(f) | 0.02 | (e)(f) | — | N/A | ||||||||||||||||||||||
2010 | ^ | 1.00 | 0.00 | (k) | 82,679 | 0.24 | (f)(l) | 0.01 | (f)(l) | — | N/A | ||||||||||||||||||||
FLEXIBLE INCOME CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | 7.35 | 2.88 | 35,755 | 0.60 | 5.11 | — | 83 | % | |||||||||||||||||||||||
2006 | 7.30 | 5.76 | 29,166 | 0.56 | 6.30 | — | 52 | ||||||||||||||||||||||||
2007 | 7.12 | 3.89 | 24,135 | 0.61 | 6.62 | — | 51 | ||||||||||||||||||||||||
2008 | 5.46 | (21.62 | ) | 14,743 | 0.67 | (h) | 6.48 | (h) | 0.01 | % | 73 | ||||||||||||||||||||
2009 | 6.08 | 19.77 | 13,924 | 0.92 | (h) | 5.58 | (h) | 0.01 | 165 | ||||||||||||||||||||||
2010 | ^ | 5.89 | 3.46 | (k) | 13,186 | 0.83 | (h)(l) | 3.05 | (h)(l) | 0.00 | (i)(l) | 54 | (k) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 7.33 | 2.62 | 25,624 | 0.85 | 4.86 | — | 83 | ||||||||||||||||||||||||
2006 | 7.27 | 5.68 | 25,765 | 0.81 | 6.05 | — | 52 | ||||||||||||||||||||||||
2007 | 7.10 | 3.64 | 25,381 | 0.86 | 6.37 | — | 51 | ||||||||||||||||||||||||
2008 | 5.43 | (21.89 | ) | 15,658 | 0.92 | (h) | 6.23 | (h) | 0.01 | 73 | |||||||||||||||||||||
2009 | 6.04 | 19.45 | 16,357 | 1.17 | (h) | 5.33 | (h) | 0.01 | 165 | ||||||||||||||||||||||
2010 | ^ | 5.86 | 3.38 | (k) | 15,581 | 1.08 | (h)(l) | 2.80 | (h)(l) | 0.00 | (i)(l) | 54 | (k) |
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Morgan Stanley Select Dimensions 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 | ||||||||||||||||||||||||
GLOBAL INFRASTRUCTURE CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 18.82 | $ | 0.43 | $ | 2.62 | $ | 3.05 | $ | (0.44 | ) | — | $ | (0.44 | ) | ||||||||||||||||
2006 | 21.43 | 0.46 | 3.88 | 4.34 | (0.48 | ) | — | (0.48 | ) | ||||||||||||||||||||||
2007 | 25.29 | 0.51 | 4.49 | 5.00 | (0.52 | ) | — | (0.52 | ) | ||||||||||||||||||||||
2008 | 29.77 | 0.58 | (10.37 | ) | (9.79 | ) | (0.15 | ) | — | (0.15 | ) | ||||||||||||||||||||
2009 | 19.83 | 0.54 | 3.00 | 3.54 | (0.69 | ) | — | (0.69 | ) | ||||||||||||||||||||||
2010 | ^ | 22.68 | 0.30 | (3.07 | ) | (2.77 | ) | (0.53 | ) | $ | (0.98 | ) | (1.51 | ) | |||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 18.81 | 0.38 | 2.62 | 3.00 | (0.39 | ) | — | (0.39 | ) | ||||||||||||||||||||||
2006 | 21.42 | 0.40 | 3.87 | 4.27 | (0.42 | ) | — | (0.42 | ) | ||||||||||||||||||||||
2007 | 25.27 | 0.45 | 4.48 | 4.93 | (0.45 | ) | — | (0.45 | ) | ||||||||||||||||||||||
2008 | 29.75 | 0.52 | (10.36 | ) | (9.84 | ) | (0.13 | ) | — | (0.13 | ) | ||||||||||||||||||||
2009 | 19.78 | 0.49 | 3.00 | 3.49 | (0.64 | ) | — | (0.64 | ) | ||||||||||||||||||||||
2010 | ^ | 22.63 | 0.27 | (3.06 | ) | (2.79 | ) | (0.47 | ) | (0.98 | ) | (1.45 | ) | ||||||||||||||||||
CAPITAL GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | 15.21 | 0.01 | 2.35 | 2.36 | (0.06 | ) | — | (0.06 | ) | ||||||||||||||||||||||
2006 | 17.51 | (0.01 | ) | 0.70 | 0.69 | — | — | — | |||||||||||||||||||||||
2007 | 18.20 | 0.08 | 3.91 | 3.99 | — | — | — | ||||||||||||||||||||||||
2008 | 22.19 | (0.04 | ) | (10.74 | ) | (10.78 | ) | (0.06 | ) | — | (0.06 | ) | |||||||||||||||||||
2009 | 11.35 | 0.02 | 7.49 | 7.51 | — | — | — | ||||||||||||||||||||||||
2010 | ^ | 18.86 | 0.01 | (1.01 | ) | (1.00 | ) | — | — | — | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 15.08 | (0.03 | ) | 2.32 | 2.29 | (0.04 | ) | — | (0.04 | ) | |||||||||||||||||||||
2006 | 17.33 | (0.05 | ) | 0.69 | 0.64 | — | — | — | |||||||||||||||||||||||
2007 | 17.97 | 0.03 | 3.86 | 3.89 | — | — | — | ||||||||||||||||||||||||
2008 | 21.86 | (0.08 | ) | (10.59 | ) | (10.67 | ) | 0.00 | (j) | — | 0.00 | (j) | |||||||||||||||||||
2009 | 11.19 | (0.02 | ) | 7.37 | 7.35 | — | — | — | |||||||||||||||||||||||
2010 | ^ | 18.54 | (0.02 | ) | (0.99 | ) | (1.01 | ) | — | — | — |
See Notes to Financial Statements
96
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 | ||||||||||||||||||||||||
GLOBAL INFRASTRUCTURE CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 21.43 | 16.28 | % | $ | 59,823 | 0.72 | % | 2.12 | % | — | 38 | % | ||||||||||||||||||
2006 | 25.29 | 20.50 | 52,892 | 0.74 | 2.02 | — | 21 | ||||||||||||||||||||||||
2007 | 29.77 | 19.86 | 48,582 | 0.75 | 1.83 | — | 8 | ||||||||||||||||||||||||
2008 | 19.83 | (33.02 | ) | 26,297 | 0.84 | (h) | 2.28 | (h) | 0.00 | %(i) | 77 | ||||||||||||||||||||
2009 | 22.68 | 18.47 | 24,953 | 1.42 | (h) | 2.75 | (h) | 0.00 | (i) | 279 | |||||||||||||||||||||
2010 | ^ | 18.40 | (12.20 | )(k) | 19,789 | 1.03 | (h)(l) | 2.84 | (h)(l) | 0.00 | (i)(l) | 141 | (k) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 21.42 | 16.00 | 16,267 | 0.97 | 1.87 | — | 38 | ||||||||||||||||||||||||
2006 | 25.27 | 20.17 | 17,495 | 0.99 | 1.77 | — | 21 | ||||||||||||||||||||||||
2007 | 29.75 | 19.59 | 18,763 | 1.00 | 1.58 | — | 8 | ||||||||||||||||||||||||
2008 | 19.78 | (33.19 | ) | 10,886 | 1.09 | (h) | 2.03 | (h) | 0.00 | (i) | 77 | ||||||||||||||||||||
2009 | 22.63 | 18.18 | 10,332 | 1.67 | (h) | 2.50 | (h) | 0.00 | (i) | 279 | |||||||||||||||||||||
2010 | ^ | 18.39 | (12.31 | )(k) | 8,159 | 1.28 | (h)(l) | 2.59 | (h)(l) | 0.00 | (i)(l) | 141 | (k) | ||||||||||||||||||
CAPITAL GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | 17.51 | 15.55 | 31,126 | 0.70 | 0.05 | — | 83 | ||||||||||||||||||||||||
2006 | 18.20 | 3.94 | 23,975 | 0.71 | (0.04 | ) | — | 61 | |||||||||||||||||||||||
2007 | 22.19 | 21.92 | 21,863 | 0.70 | 0.38 | — | 55 | ||||||||||||||||||||||||
2008 | 11.35 | (48.70 | ) | 8,621 | 0.81 | (h) | (0.21 | )(h) | 0.00 | (i) | 42 | ||||||||||||||||||||
2009 | 18.86 | 66.17 | 11,748 | 0.91 | (h) | 0.11 | (h) | 0.00 | (i) | 19 | |||||||||||||||||||||
2010 | ^ | 17.86 | (5.30 | )(k) | 10,001 | 0.84 | (h)(l) | 0.06 | (h)(l) | 0.00 | (i)(l) | 13 | (k) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 17.33 | 15.21 | 21,746 | 0.95 | (0.20 | ) | — | 83 | |||||||||||||||||||||||
2006 | 17.97 | 3.75 | 27,009 | 0.96 | (0.29 | ) | — | 61 | |||||||||||||||||||||||
2007 | 21.86 | 21.58 | 27,644 | 0.95 | 0.13 | — | 55 | ||||||||||||||||||||||||
2008 | 11.19 | (48.81 | ) | 12,953 | 1.06 | (h) | (0.46 | )(h) | 0.00 | (i) | 42 | ||||||||||||||||||||
2009 | 18.54 | 65.68 | 17,864 | 1.16 | (h) | (0.14 | )(h) | 0.00 | (i) | 19 | |||||||||||||||||||||
2010 | ^ | 17.53 | (5.45 | )(k) | 14,753 | 1.09 | (h)(l) | (0.19 | )(h)(l) | 0.00 | (i)(l) | 13 | (k) |
97
Morgan Stanley Select Dimensions 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 | ||||||||||||||||||||||||
FOCUS GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 15.14 | $ | 0.01 | $ | 2.15 | $ | 2.16 | $ | (0.11 | ) | — | $ | (0.11 | ) | ||||||||||||||||
2006 | 17.19 | (0.03 | ) | 0.09 | 0.06 | 0.00 | (j) | — | 0.00 | (j) | |||||||||||||||||||||
2007 | 17.25 | 0.08 | 3.85 | 3.93 | — | — | — | ||||||||||||||||||||||||
2008 | 21.18 | (0.03 | ) | (10.83 | ) | (10.86 | ) | (0.07 | ) | — | (0.07 | ) | |||||||||||||||||||
2009 | 10.25 | 0.01 | 7.35 | 7.36 | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||||||||
2010 | ^ | 17.59 | 0.00 | (0.97 | ) | (0.97 | ) | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 15.05 | (0.03 | ) | 2.15 | 2.12 | (0.07 | ) | — | (0.07 | ) | |||||||||||||||||||||
2006 | 17.10 | (0.07 | ) | 0.09 | 0.02 | — | — | — | |||||||||||||||||||||||
2007 | 17.12 | 0.04 | 3.81 | 3.85 | — | — | — | ||||||||||||||||||||||||
2008 | 20.97 | (0.08 | ) | (10.73 | ) | (10.81 | ) | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||||
2009 | 10.15 | (0.02 | ) | 7.27 | 7.25 | — | — | — | |||||||||||||||||||||||
2010 | ^ | 17.40 | (0.03 | ) | (0.95 | ) | (0.98 | ) | — | — | — | ||||||||||||||||||||
CAPITAL OPPORTUNITIES CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | 9.55 | (0.03 | ) | 2.19 | 2.16 | — | — | — | |||||||||||||||||||||||
2006 | 11.71 | (0.04 | ) | 0.95 | 0.91 | — | — | — | |||||||||||||||||||||||
2007 | 12.62 | 0.04 | 2.41 | 2.45 | — | — | — | ||||||||||||||||||||||||
2008 | 15.07 | (0.05 | ) | (7.34 | ) | (7.39 | ) | — | — | — | |||||||||||||||||||||
2009 | 7.68 | (0.02 | ) | 5.38 | 5.36 | — | — | — | |||||||||||||||||||||||
2010 | ^ | 13.04 | (0.02 | ) | (1.04 | ) | (1.06 | ) | — | — | — | ||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 9.45 | (0.06 | ) | 2.16 | 2.10 | — | — | — | |||||||||||||||||||||||
2006 | 11.55 | (0.07 | ) | 0.94 | 0.87 | — | — | — | |||||||||||||||||||||||
2007 | 12.42 | 0.00 | 2.37 | 2.37 | — | — | — | ||||||||||||||||||||||||
2008 | 14.79 | (0.08 | ) | (7.19 | ) | (7.27 | ) | — | — | — | |||||||||||||||||||||
2009 | 7.52 | (0.05 | ) | 5.26 | 5.21 | — | — | — | |||||||||||||||||||||||
2010 | ^ | 12.73 | (0.03 | ) | (1.02 | ) | (1.05 | ) | — | — | — |
See Notes to Financial Statements
98
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 | ||||||||||||||||||||||||
FOCUS GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 17.19 | 14.39 | % | $ | 186,633 | 0.67 | % | 0.06 | % | — | 73 | % | ||||||||||||||||||
2006 | 17.25 | 0.37 | 137,081 | 0.69 | (0.15 | ) | — | 98 | |||||||||||||||||||||||
2007 | 21.18 | 22.78 | 125,826 | 0.72 | 0.44 | — | 48 | ||||||||||||||||||||||||
2008 | 10.25 | (51.43 | ) | 48,722 | 0.70 | (h) | (0.19 | )(h) | 0.01 | % | 31 | ||||||||||||||||||||
2009 | 17.59 | 71.83 | 67,932 | 0.77 | (h) | 0.10 | (h) | 0.00 | (i) | 11 | |||||||||||||||||||||
2010 | ^ | 16.61 | (5.52 | )(k) | 58,803 | 0.75 | (h)(l) | (0.05 | )(h)(l) | 0.00 | (i)(l) | 18 | (k) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 17.10 | 14.16 | 42,906 | 0.92 | (0.19 | ) | — | 73 | |||||||||||||||||||||||
2006 | 17.12 | 0.12 | 36,895 | 0.94 | (0.40 | ) | — | 98 | |||||||||||||||||||||||
2007 | 20.97 | 22.49 | 38,526 | 0.97 | 0.19 | — | 48 | ||||||||||||||||||||||||
2008 | 10.15 | (51.57 | ) | 14,206 | 0.95 | (h) | (0.44 | )(h) | 0.01 | 31 | |||||||||||||||||||||
2009 | 17.40 | 71.43 | 22,047 | 1.02 | (h) | (0.15 | )(h) | 0.00 | (i) | 11 | |||||||||||||||||||||
2010 | ^ | 16.42 | (5.63 | )(k) | 18,935 | 1.00 | (h)(l) | (0.30 | )(h)(l) | 0.00 | (i)(l) | 18 | (k) | ||||||||||||||||||
CAPITAL OPPORTUNITIES CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | 11.71 | 22.62 | 24,087 | 0.89 | (0.33 | ) | — | 87 | |||||||||||||||||||||||
2006 | 12.62 | 7.86 | 19,112 | 0.90 | (0.32 | ) | — | 59 | |||||||||||||||||||||||
2007 | 15.07 | 19.32 | 17,108 | 0.94 | 0.26 | — | 57 | ||||||||||||||||||||||||
2008 | 7.68 | (49.04 | ) | 6,744 | 1.04 | (h) | (0.37 | )(h) | 0.00 | (i) | 33 | ||||||||||||||||||||
2009 | 13.04 | 69.79 | 9,601 | 1.23 | (h) | (0.24 | )(h) | 0.00 | (i) | 23 | |||||||||||||||||||||
2010 | ^ | 11.98 | (8.13 | )(k) | 8,064 | 1.00 | (h)(l) | (0.28 | )(h)(l) | 0.00 | (i)(l) | 11 | (k) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 11.55 | 22.22 | 15,897 | 1.14 | (0.58 | ) | — | 87 | |||||||||||||||||||||||
2006 | 12.42 | 7.53 | 16,127 | 1.15 | (0.57 | ) | — | 59 | |||||||||||||||||||||||
2007 | 14.79 | 19.08 | 18,362 | 1.19 | 0.01 | — | 57 | ||||||||||||||||||||||||
2008 | 7.52 | (49.15 | ) | 8,571 | 1.29 | (h) | (0.62 | )(h) | 0.00 | (i) | 33 | ||||||||||||||||||||
2009 | 12.73 | 69.28 | 12,455 | 1.48 | (h) | (0.49 | )(h) | 0.00 | (i) | 23 | |||||||||||||||||||||
2010 | ^ | 11.68 | (8.25 | )(k) | 10,535 | 1.25 | (h)(l) | (0.53 | )(h)(l) | 0.00 | (i)(l) | 11 | (k) |
99
Morgan Stanley Select Dimensions 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 | ||||||||||||||||||||||||
MID CAP GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 20.01 | $ | (0.03 | ) | $ | 3.78 | $ | 3.75 | — | — | — | |||||||||||||||||||
2006 | 23.76 | 0.12 | 2.40 | 2.52 | — | — | — | ||||||||||||||||||||||||
2007 | 26.28 | 0.16 | 5.87 | 6.03 | $ | (0.12 | ) | — | $ | (0.12 | ) | ||||||||||||||||||||
2008 | 32.19 | (0.05 | ) | (15.34 | ) | (15.39 | ) | (0.19 | ) | — | (0.19 | ) | |||||||||||||||||||
2009 | 16.61 | 0.03 | 10.01 | 10.04 | — | — | — | ||||||||||||||||||||||||
2010 | ^ | 26.65 | 0.01 | 0.32 | 0.33 | (0.04 | ) | — | (0.04 | ) | |||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 19.79 | (0.08 | ) | 3.72 | 3.64 | — | — | — | |||||||||||||||||||||||
2006 | 23.43 | 0.05 | 2.38 | 2.43 | — | — | — | ||||||||||||||||||||||||
2007 | 25.86 | 0.09 | 5.76 | 5.85 | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||||||||
2008 | 31.67 | (0.11 | ) | (15.10 | ) | (15.21 | ) | (0.12 | ) | — | (0.12 | ) | |||||||||||||||||||
2009 | 16.34 | (0.03 | ) | 9.84 | 9.81 | — | — | — | |||||||||||||||||||||||
2010 | ^ | 26.15 | (0.03 | ) | 0.32 | 0.29 | — | — | — |
^ For the six months ended June 30, 2010.
(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 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 Guarantee Program for Money Markets Funds. This fee had an effect of 0.03% for the year ended 2009.
(f) If the Portfolio had borne all expenses that were reimbursed or waived by the Distributor, Investment 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, 2010 | |||||||||||
Class X | 0.58 | % | (0.33 | )% | |||||||
Class Y | 0.83 | (0.58 | ) | ||||||||
December 31, 2009 | |||||||||||
Class X | 0.59 | (0.17 | ) | ||||||||
Class Y | 0.84 | (0.42 | ) |
See Notes to Financial Statements
100
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 | ||||||||||||||||||||||||
MID CAP GROWTH CLASS X SHARES | |||||||||||||||||||||||||||||||
2005 | $ | 23.76 | 18.69 | % | $ | 49,116 | 0.63 | % | (0.15 | )% | — | 102 | % | ||||||||||||||||||
2006 | 26.28 | 10.69 | 41,466 | 0.63 | 0.47 | — | 65 | ||||||||||||||||||||||||
2007 | 32.19 | 22.94 | 38,069 | 0.67 | 0.54 | — | 78 | ||||||||||||||||||||||||
2008 | 16.61 | (48.06 | ) | 16,023 | 0.74 | (h) | (0.19 | )(h) | 0.01 | % | 43 | ||||||||||||||||||||
2009 | 26.65 | 60.45 | 21,310 | 0.84 | (h) | 0.12 | (h) | 0.00 | (i) | 36 | |||||||||||||||||||||
2010 | ^ | 26.94 | 1.23 | (k) | 19,514 | 0.78 | (h)(l) | 0.04 | (h)(l) | 0.00 | (i)(l) | 18 | (k) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2005 | 23.43 | 18.40 | 10,704 | 0.88 | (0.40 | ) | — | 102 | |||||||||||||||||||||||
2006 | 25.86 | 10.42 | 10,192 | 0.88 | 0.22 | — | 65 | ||||||||||||||||||||||||
2007 | 31.67 | 22.65 | 12,788 | 0.92 | 0.29 | — | 78 | ||||||||||||||||||||||||
2008 | 16.34 | (48.20 | ) | 5,469 | 0.99 | (h) | (0.44 | )(h) | 0.01 | 43 | |||||||||||||||||||||
2009 | 26.15 | 60.04 | 8,267 | 1.09 | (h) | (0.13 | )(h) | 0.00 | (i) | 36 | |||||||||||||||||||||
2010 | ^ | 26.44 | 1.11 | (k) | 8,075 | 1.03 | (h)(l) | (0.21 | )(h)(l) | 0.00 | (i)(l) | 18 | (k) |
(g) Distribution from paid-in-capital.
(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) Amount is less than 0.005%.
(j) Includes dividends of less than $0.001.
(k) Not annualized.
(l) Annualized.
101
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Trustees | |||||||
Frank L. Bowman | Joseph J. Kearns | ||||||
Michael Bozic | Michael F. Klein | ||||||
Kathleen A. Dennis | Michael E. Nugent | ||||||
James F. Higgins | W. Allen Reed | ||||||
Dr. Manuel H. Johnson | Fergus Reid | ||||||
Officers | |||||||
Michael E. Nugent Chairperson of the Board | |||||||
Randy Takian President and Principal Executive Officer | |||||||
Mary Ann Picciotto Chief Compliance Officer | |||||||
Stefanie V. Chang Yu Vice President | |||||||
Francis J. Smith Treasurer and Principal Financial Officer | |||||||
Mary E. Mullin Secretary | |||||||
Transfer Agent | Independent Registered Public Accounting Firm | ||||||
Morgan Stanley Services Company, Inc. Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 | Deloitte & Touche LLP Two World Financial Center New York, New York 10281 | ||||||
Legal Counsel | Counsel to the Independent Trustees | ||||||
Dechert LLP 1095 Avenue of the Americas New York, New York 10036 | Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 | ||||||
Investment Adviser | Sub-Adviser (Global Infrastructure) | ||||||
Morgan Stanley Investment Advisors Inc. 522 Fifth Avenue New York, New York 10036 | Morgan Stanley Investment Management Limited 25 Cabot Square, Canary Wharf London, E14 4QA, England | ||||||
Morgan Stanley Investment Management Company 23 Church Street 16-01 Capital Square 049481 Singapore | |||||||
This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing.
Morgan Stanley Distributors Inc., member FINRA.
#40474
SELDIMSAN
IU10-02995P-Y06/10
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 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 Select Dimensions Investment Series | |
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/s/ Randy Takian |
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Randy Takian | |
Principal Executive Officer | |
August 17, 2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Randy Takian |
|
Randy Takian | |
Principal Executive Officer | |
August 17, 2010 | |
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/s/ Francis Smith |
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Francis Smith | |
Principal Financial Officer | |
August 17, 2010 |