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 |
| 10036 | ||||||
(Address of principal executive offices) |
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John H. Gernon 522 Fifth Avenue, New York, New York 10036 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | 212-296-0289 |
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Date of fiscal year end: | December 31, |
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Date of reporting period: | December 31, 2016 |
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Item 1 - Report to Shareholders
MORGAN STANLEY
SELECT DIMENSIONS INVESTMENT SERIES
Annual Report
DECEMBER 31, 2016
The Portfolio is 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 | ||||||
Expense Example | 4 | ||||||
Portfolio of Investments | 6 | ||||||
Financial Statements: | |||||||
Statement of Assets and Liabilities | 10 | ||||||
Statement of Operations | 11 | ||||||
Statements of Changes in Net Assets | 12 | ||||||
Notes to Financial Statements | 14 | ||||||
| Financial Highlights | 30 | ||||||
| Report of Independent Registered Public Accounting Firm | 32 | ||||||
Results of Special Shareholder Meeting | 33 | ||||||
| Trustee and Officer Information | 34 | ||||||
| Federal Tax Notice | 40 | ||||||
Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n December 31, 2016 (unaudited)
Dear Shareholder:
The U.S. stock market was overwhelmed by negative news early in 2016 but staged a turnaround over the remainder of the year. Concerns about China's economy, falling oil prices and U.S. Federal Reserve (Fed) monetary policy weighed heavily on the markets from January through mid-February. From there, oil prices stabilized, economic growth improved, corporate earnings recovered and the Fed refrained from raising interest rates (until its December 2016 meeting), which provided upside to stock prices. Two major political events, the U.K.'s "Brexit" referendum and the election of Donald Trump, were initially viewed as negative surprises, but volatility subsided fairly quickly. Anticipation of pro-growth fiscal policy from the new administration drove share prices sharply higher in the final weeks of the year.
Within the mid-cap growth universe, as represented by the Russell Midcap® Growth Index, commodity-related and cyclical sectors led, with energy, materials, financials, industrials and information technology ending the year with double-digit gains. The utilities and health care sectors were the weakest performers, with negative returns for the year.
Mid Cap Growth Portfolio
For the 12-month period ended December 31, 2016, Select Dimensions — Mid Cap Growth Portfolio Class X shares produced a total return of -9.22%, underperforming the Russell Midcap® Growth Index (the "Index"), which returned 7.33%. For the same period, the Portfolio's Class Y shares returned -9.43%. Past performance is no guarantee of future results.
The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.
The long-term investment horizon and conviction-weighted investment approach embraced by the team since 1998 can result in periods of performance deviation from the benchmark and peers. In this reporting period, stock selection accounted for nearly all of the Portfolio's relative underperformance.
Stock selection in the information technology (IT) sector was the largest detractor from relative results, with a global communications platform, a professional social networking site and a cloud-based human resources platform driving the underperformance. The health care sector also fared poorly on weak results from a genetic tools developer and a cloud-based health care services provider. Stock selection in the financials sector hampered performance as well, after a holding in a consumer lending marketplace made a
Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n December 31, 2016 (unaudited) continued
surprise announcement that adversely affected its share price. We reduced the position during the year, due to our assessment of the relative risk/reward profile.
An overweight to IT, underweight to consumer discretionary and zero exposure to the real estate sector were positive contributors to relative performance, as was stock selection in the materials sector. But the gains fell short of offsetting negative performance elsewhere.
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,
John H. Gernon
President and Principal Executive Officer
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. 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.
Average Annual Total Returns as of December 31, 2016 | |||||||||||||||||||
1 Year | 5 Years | 10 Years | Since Inception* | ||||||||||||||||
Class X | -9.22 | % | 5.06 | % | 4.94 | % | 8.78 | % | |||||||||||
Class Y | -9.43 | % | 4.81 | % | 4.69 | % | 3.12 | % | |||||||||||
(1) Ending value on December 31, 2016 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges.
(2) 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.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y.
2
Morgan Stanley Select Dimensions Investment Series
Letter to the Shareholders n December 31, 2016 (unaudited) continued
For More Information About Portfolio Holdings
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com/im. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's public reference room in Washington, DC. Information on the operation of the SEC's public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the public reference room of the SEC, 100 F Street, NE, Washington, DC 20549-1520.
Proxy Voting Policy and Procedures and Proxy Voting Record
You may obtain a copy of the Portfolio's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 548-7786 or by visiting the Mutual Fund Center on our web site at www.morganstanley.com/im. It is also available on the SEC's web site at http://www.sec.gov.
You may obtain information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our web site at www.morganstanley.com/im. This information is also available on the SEC's web site at http://www.sec.gov.
3
Morgan Stanley Select Dimensions Investment Series
Expense Examples n December 31, 2016 (unaudited)
As the shareholder of the Portfolio, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, which may include advisory fees, administration fees, distribution and services (12b-1) fees, and other Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 07/01/16 – 12/31/16.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page 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.
4
Morgan Stanley Select Dimensions Investment Series
Expense Examples n December 31, 2016 (unaudited) continued
Mid Cap Growth
| Beginning Account Value | Ending Account Value | Expenses Paid During Period(1) | |||||||||||||
07/01/16 | 12/31/16 | 07/01/16 – 12/31/16 | |||||||||||||
Class X | |||||||||||||||
| Actual (-3.06% return) | $ | 1,000.00 | $ | 969.40 | $ | 5.54 | |||||||||
| Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.51 | $ | 5.69 | |||||||||
Class Y | |||||||||||||||
| Actual (-3.16% return) | $ | 1,000.00 | $ | 968.40 | $ | 6.78 | |||||||||
| Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,018.25 | $ | 6.95 | |||||||||
(1) Expenses are equal to the Portfolio's annualized expense ratios of 1.12% and 1.37% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). If the Portfolio had not received the reimbursement from the custodian, the annualized expense ratios would have been 1.52% and 1.77% for Class X and Class Y shares, respectively. Refer to Note 6 in the Notes to Financial Statements for discussion of prior period custodian out-of-pocket expenses that were reimbursed in the current period.
5
Mid Cap Growth
Portfolio of Investments n December 31, 2016
| NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (98.2%) | |||||||||||
Aerospace & Defense (3.8%) | |||||||||||
1,882 | TransDigm Group, Inc. | $ | 468,543 | ||||||||
Automobiles (5.7%) | |||||||||||
3,312 | Tesla Motors, Inc. (a)(b) | 707,741 | |||||||||
Biotechnology (0.8%) | |||||||||||
814 | Alnylam Pharmaceuticals, Inc. (b) | 30,476 | |||||||||
1,957 | Intrexon Corp. (a)(b) | 47,555 | |||||||||
927 | Juno Therapeutics, Inc. (a)(b) | 17,474 | |||||||||
95,505 | |||||||||||
Capital Markets (8.5%) | |||||||||||
5,546 | MSCI, Inc. | 436,914 | |||||||||
5,756 | S&P Global, Inc. | 619,000 | |||||||||
1,055,914 | |||||||||||
Construction Materials (2.1%) | |||||||||||
1,179 | Martin Marietta Materials, Inc. | 261,184 | |||||||||
Consumer Finance (1.0%) | |||||||||||
24,244 | LendingClub Corp. (b) | 127,281 | |||||||||
| Health Care Equipment & Supplies (6.4%) | |||||||||||
2,235 | DexCom, Inc. (b) | 133,429 | |||||||||
1,028 | Intuitive Surgical, Inc. (b) | 651,927 | |||||||||
785,356 | |||||||||||
Health Care Technology (9.1%) | |||||||||||
6,665 | athenahealth, Inc. (b) | 700,958 | |||||||||
10,515 | Veeva Systems, Inc., Class A (b) | 427,961 | |||||||||
1,128,919 | |||||||||||
| Hotels, Restaurants & Leisure (9.4%) | |||||||||||
347 | Chipotle Mexican Grill, Inc. (b) | 130,930 | |||||||||
8,434 | Dunkin' Brands Group, Inc. | 442,279 | |||||||||
7,192 | Marriott International, Inc., Class A | 594,635 | |||||||||
1,167,844 | |||||||||||
| NUMBER OF SHARES | VALUE | ||||||||||
| Information Technology Services (3.2%) | |||||||||||
3,885 | Gartner, Inc. (b) | $ | 392,657 | ||||||||
| Internet Software & Services (11.4%) | |||||||||||
15,229 | Dropbox, Inc. (b)(c)(d)(e) (acquisition cost - $137,809; acquired 05/01/12) | 133,863 | |||||||||
1,588 | MercadoLibre, Inc. (Brazil) | 247,950 | |||||||||
32,720 | Twitter, Inc. (b) | 533,336 | |||||||||
4,554 | Zillow Group, Inc., Class A (b) | 165,993 | |||||||||
9,178 | Zillow Group, Inc., Class C (b) | 334,722 | |||||||||
1,415,864 | |||||||||||
| Life Sciences Tools & Services (5.2%) | |||||||||||
4,995 | Illumina, Inc. (b) | 639,560 | |||||||||
Multi-line Retail (3.2%) | |||||||||||
5,129 | Dollar Tree, Inc. (b) | 395,856 | |||||||||
Professional Services (7.2%) | |||||||||||
12,830 | IHS Markit Ltd. (b) | 454,310 | |||||||||
5,389 | Verisk Analytics, Inc. (b) | 437,425 | |||||||||
891,735 | |||||||||||
| Semiconductors & Semiconductor Equipment (4.0%) | |||||||||||
4,654 | NVIDIA Corp. | 496,768 | |||||||||
Software (14.3%) | |||||||||||
3,434 | Activision Blizzard, Inc. | 124,002 | |||||||||
4,981 | Atlassian Corp., PLC, Class A (United Kingdom) (b) | 119,942 | |||||||||
1,897 | Mobileye N.V. (b) | 72,314 | |||||||||
5,745 | ServiceNow, Inc. (b) | 427,083 | |||||||||
7,986 | Splunk, Inc. (b) | 408,484 | |||||||||
9,280 | Workday, Inc., Class A (b) | 613,315 | |||||||||
1,765,140 | |||||||||||
See Notes to Financial Statements
6
Mid Cap Growth
Portfolio of Investments n December 31, 2016 continued
| NUMBER OF SHARES | VALUE | ||||||||||
| Textiles, Apparel & Luxury Goods (2.9%) | |||||||||||
5,425 | Michael Kors Holdings Ltd. (b) | $ | 233,167 | ||||||||
4,896 | Under Armour, Inc., Class C (b) | 123,232 | |||||||||
356,399 | |||||||||||
| Total Common Stocks (Cost $10,619,483) | 12,152,266 | ||||||||||
Convertible Preferred Stock (0.1%) | |||||||||||
Internet Software & Services | |||||||||||
1,479 | Dropbox, Inc., Series A (b)(c)(d)(e) (acquisition cost - $13,383; acquired 05/25/12) (Cost $13,383) | 13,001 | |||||||||
Preferred Stock (0.8%) | |||||||||||
| Internet & Direct Marketing Retail | |||||||||||
1,969 | Flipkart Online Services Pvt Ltd., Series D (India) (b)(c)(d)(e) (acquisition cost - $45,183; acquired 10/04/13) (Cost $45,183) | 99,454 | |||||||||
| NUMBER OF SHARES (000) | |||||||||||
| Short-Term Investments (1.9%) Securities held as Collateral on Loaned Securities (0.6%) | |||||||||||
Investment Company (0.5%) | |||||||||||
54 | Morgan Stanley Institutional Liquidity Funds - Treasury Securities Portfolio - Institutional Class (See Note 7) | 54,102 | |||||||||
| PRINCIPAL AMOUNT (000) | VALUE | ||||||||||
Repurchase Agreements (0.1%) | |||||||||||
$ | 1 | Merrill Lynch & Co., Inc. (0.50%, dated 12/30/16, due 01/03/17; proceeds $1,020; fully collateralized by a U.S. Government obligation; 1.88% due 08/31/22; valued at $1,040) | $ | 1,020 | |||||||
5 | Merrill Lynch & Co., Inc. (0.50%, dated 12/30/16, due 01/03/17; proceeds $5,100; fully collateralized by U.S. Government agency securities; 2.88% - 4.60% due 11/20/65 - 11/20/66; valued at $5,202) | 5,100 | |||||||||
8 | Merrill Lynch & Co., Inc. (0.81%, dated 12/30/16, due 01/03/17; proceeds $7,650; fully collateralized by Exchange Traded Funds; valued at $8,415) | 7,650 | |||||||||
13,770 | |||||||||||
| Total Securities held as Collateral on Loaned Securities (Cost $67,872) | 67,872 | ||||||||||
See Notes to Financial Statements
7
Mid Cap Growth
Portfolio of Investments n December 31, 2016 continued
| NUMBER OF SHARES (000) | VALUE | ||||||||||
Investment Company (1.3%) | |||||||||||
164 | Morgan Stanley Institutional Liquidity Funds - Treasury Securities Portfolio - Institutional Class (See Note 7) (Cost $164,036) | $ | 164,036 | ||||||||
| Total Short-Term Investments (Cost $231,908) | 231,908 | ||||||||||
| Total Investments (Cost $10,909,957) (f) | 101.0 | % | 12,496,629 | ||||||||
| Liabilities in Excess of Other Assets | (1.0 | ) | (124,988 | ) | |||||||
Net Assets | 100.0 | % | $ | 12,371,641 | |||||||
(a) All or a portion of this security was on loan at December 31, 2016.
(b) Non-income producing security.
(c) Illiquid security.
(d) Security cannot be offered for public resale without first being registered under the Securities Act of 1933 and related rules ("restricted security"). Acquisition date represents the day on which an enforceable right to acquire such security is obtained and is presented along with related cost in the security description. The Portfolio has registration rights for certain restricted securities. Any costs related to such registration are borne by the issuer. The aggregate value of restricted securities (excluding 144A holdings) at December 31, 2016, amounts to $246,318 and represents 2.0% of net assets.
(e) At December 31, 2016, the Portfolio held fair valued securities valued at $246,318, representing 2.0% 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.
(f) At December 31, 2016, the aggregate cost for federal income tax purposes is $11,042,729. The aggregate gross unrealized appreciation is $2,465,719 and the aggregate gross unrealized depreciation is $1,011,819 resulting in net unrealized appreciation of $1,453,900.
See Notes to Financial Statements
8
Mid Cap Growth
Summary of Investments n December 31, 2016
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Software | $ | 1,765,140 | 14.2 | % | |||||||
| Internet Software & Services | 1,428,865 | 11.5 | |||||||||
| Hotels, Restaurants & Leisure | 1,167,844 | 9.4 | |||||||||
Health Care Technology | 1,128,919 | 9.1 | |||||||||
Capital Markets | 1,055,914 | 8.5 | |||||||||
Professional Services | 891,735 | 7.2 | |||||||||
| Health Care Equipment & Supplies | 785,356 | 6.3 | |||||||||
Automobiles | 707,741 | 5.7 | |||||||||
| Life Sciences Tools & Services | 639,560 | 5.1 | |||||||||
| Semiconductors & Semiconductor Equipment | 496,768 | 4.0 | |||||||||
INDUSTRY | VALUE | PERCENT OF TOTAL INVESTMENTS | |||||||||
Aerospace & Defense | $ | 468,543 | 3.8 | % | |||||||
Multi-line Retail | 395,856 | 3.2 | |||||||||
| Information Technology Services | 392,657 | 3.1 | |||||||||
| Textiles, Apparel & Luxury Goods | 356,399 | 2.9 | |||||||||
Construction Materials | 261,184 | 2.1 | |||||||||
Investment Company | 164,036 | 1.3 | |||||||||
Consumer Finance | 127,281 | 1.0 | |||||||||
| Internet & Direct Marketing Retail | 99,454 | 0.8 | |||||||||
Biotechnology | 95,505 | 0.8 | |||||||||
$ | 12,428,757 | + | 100.0 | % | |||||||
+ Does not reflect the value of securities held as collateral on loaned securities.
See Notes to Financial Statements
9
Morgan Stanley Select Dimensions Investment Series
Financial Statements
Statement of Assets and Liabilities
December 31, 2016
Mid Cap Growth | |||||||
Assets: | |||||||
Investments in securities, at value* | $ | 12,278,491 | (1) | ||||
Investment in affiliate, at value** | 218,138 | ||||||
Total investments in securities, at value | 12,496,629 | ||||||
Cash | 108 | ||||||
Receivable for: | |||||||
Dividends | 10,828 | ||||||
Dividends from affiliate | 73 | ||||||
Prepaid expenses and other assets | 3,619 | ||||||
Total Assets | 12,511,257 | ||||||
Liabilities: | |||||||
Collateral on securities loaned, at value | 67,980 | ||||||
Payable for: | |||||||
Professional fee | 26,001 | ||||||
Shares of beneficial interest redeemed | 25,364 | ||||||
Advisory fee | 4,479 | ||||||
Administration fee | 861 | ||||||
Transfer agent fee | 822 | ||||||
Distribution fee (Class Y Shares) | 606 | ||||||
Investments purchased | 471 | ||||||
| Accrued expenses and other payables | 13,032 | ||||||
Total Liabilities | 139,616 | ||||||
Net Assets | $ | 12,371,641 | |||||
Composition of Net Assets: | |||||||
Paid-in-capital | $ | 11,240,658 | |||||
Net unrealized appreciation | 1,586,672 | ||||||
Accumulated net investment loss | (1,052 | ) | |||||
Accumulated net realized loss | (454,637 | ) | |||||
Net Assets | $ | 12,371,641 | |||||
| * Cost | $ | 10,691,819 | |||||
| ** Affiliated Cost | $ | 218,138 | |||||
Class X Shares: | |||||||
Net Assets | $ | 9,605,256 | |||||
| Shares Outstanding (unlimited shares authorized, $0.01 par value) | 356,926 | ||||||
Net Asset Value Per Share | $ | 26.91 | |||||
Class Y Shares: | |||||||
Net Assets | $ | 2,766,385 | |||||
| Shares Outstanding (unlimited shares authorized, $0.01 par value) | 107,419 | ||||||
Net Asset Value Per Share | $ | 25.75 | |||||
(1) Including securities loaned at value of $772,770.
See Notes to Financial Statements
10
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statement of Operations
For the year ended December 31, 2016
Mid Cap Growth | |||||||
Net Investment Loss: | |||||||
Income | |||||||
Dividends | $ | 100,172 | |||||
Income from securities loaned - net | 57,808 | ||||||
Dividends from affiliates (Note 7) | 1,904 | ||||||
Total Income | 159,884 | ||||||
Expenses | |||||||
Professional fees | 91,091 | ||||||
Advisory fee (Note 3) | 57,795 | ||||||
Shareholder reports and notices | 16,987 | ||||||
Administration fee (Note 3) | 11,009 | ||||||
Distribution fee (Class Y shares) (Note 4) | 7,927 | ||||||
Transfer agent fees and expenses (Note 5) | 3,800 | ||||||
Custodian fees (Note 6) | 2,930 | ||||||
Trustees' fees and expenses | 2,618 | ||||||
Other | 22,759 | ||||||
Total Expenses | 216,916 | ||||||
Less: reimbursement of custodian fees (Note 6) | (26,662 | ) | |||||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 7) | (1,083 | ) | |||||
Net Expenses | 189,171 | ||||||
Net Investment Loss | (29,287 | ) | |||||
Realized and Unrealized Gain (Loss): | |||||||
Realized Gain (Loss) on: | |||||||
Investments | (322,344 | ) | |||||
Foreign currency translation | 209 | ||||||
Net Realized Loss | (322,135 | ) | |||||
Change in Unrealized Appreciation (Depreciation) on: | |||||||
Investments | (1,111,587 | ) | |||||
Net Loss | (1,433,722 | ) | |||||
Net Decrease | $ | (1,463,009 | ) | ||||
See Notes to Financial Statements
11
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Changes in Net Assets
Mid Cap Growth | |||||||||||
| For The Year Ended December 31, 2016 | For The Year Ended December 31, 2015 | ||||||||||
Increase (Decrease) in Net Assets: | |||||||||||
Operations: | |||||||||||
Net investment loss | $ | (29,287 | ) | $ | (180,157 | ) | |||||
Net realized gain (loss) | (322,135 | ) | 382,948 | ||||||||
Net change in unrealized appreciation (depreciation) | (1,111,587 | ) | (1,298,561 | ) | |||||||
Net Decrease | (1,463,009 | ) | (1,095,770 | ) | |||||||
Distributions to Shareholders from: | |||||||||||
Net realized gain | |||||||||||
Class X shares | (398,972 | ) | (2,837,426 | ) | |||||||
Class Y shares | (126,159 | ) | (931,114 | ) | |||||||
Total Distributions | (525,131 | ) | (3,768,540 | ) | |||||||
Net increase (decrease) from transactions in shares of beneficial interest | (1,646,789 | ) | 107,946 | ||||||||
Net Decrease | (3,634,929 | ) | (4,756,364 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 16,006,570 | 20,762,934 | |||||||||
End of Period | $ | 12,371,641 | $ | 16,006,570 | |||||||
Accumulated Net Investment Loss | $ | (1,052 | ) | $ | (875 | ) | |||||
See Notes to Financial Statements
12
Morgan Stanley Select Dimensions Investment Series
Financial Statements continued
Statements of Changes in Net Assets continued
Summary of Transactions in Shares of Beneficial Interest
Mid Cap Growth | |||||||||||
| For The Year Ended | For The Year Ended | ||||||||||
December 31, 2016 | December 31, 2015 | ||||||||||
Class X Shares | |||||||||||
Shares | |||||||||||
Sold | 8,710 | 2,555 | |||||||||
Reinvestment of dividends and distributions | 14,372 | 84,548 | |||||||||
Redeemed | (66,397 | ) | (66,741 | ) | |||||||
Net Increase (Decrease) - Class X | (43,315 | ) | 20,362 | ||||||||
Amount | |||||||||||
Sold | $ | 241,174 | $ | 105,716 | |||||||
Reinvestment of dividends and distributions | 398,972 | 2,837,426 | |||||||||
Redeemed | (1,834,444 | ) | (2,546,939 | ) | |||||||
Net Increase (Decrease) - Class X | $ | (1,194,298 | ) | $ | 396,203 | ||||||
Class Y Shares | |||||||||||
Shares | |||||||||||
Sold | 1,682 | 1,252 | |||||||||
Reinvestment of dividends and distributions | 4,743 | 28,836 | |||||||||
Redeemed | (23,233 | ) | (34,960 | ) | |||||||
Net Decrease - Class Y | (16,808 | ) | (4,872 | ) | |||||||
Amount | |||||||||||
Sold | $ | 44,510 | $ | 38,404 | |||||||
Reinvestment of dividends and distributions | 126,159 | 931,114 | |||||||||
Redeemed | (623,160 | ) | (1,257,775 | ) | |||||||
Net Decrease - Class Y | $ | (452,491 | ) | $ | (288,257 | ) | |||||
See Notes to Financial Statements
13
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016
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 an open-end management investment company. The Fund is offered exclusively to life insurance companies in connection with particular life insurance and/or annuity contracts they offer. The Fund applies investment company accounting and reporting guidance.
The Fund consists of the Mid Cap Growth Portfolio ("Portfolio"). The Fund was organized on June 2, 1994 as a Massachusetts business trust and commenced operations on November 9, 1994. The Portfolio is classified as diversified and seeks long-term capital growth.
On July 24, 2000, the Fund commenced offering one additional class of shares (Class Y shares). The Portfolio currently offers two share classes — Class X shares and 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.
Effective at the close of business on May 30, 2014, the Portfolio suspended offering Class X and Class Y shares to new investors. The Portfolio will continue to offer each class to existing shareholders and may recommence offering to new investors in the future. Any such offerings of the Portfolio's Class X and Class Y shares may be limited in amount and may commence and terminate without any prior notice.
The following is a summary of significant accounting policies:
A. Valuation of Investments — (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are
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Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers or dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (3) certain portfolio securities may be valued by an outside pricing service/vendor approved by the Fund's Board of Trustees (the "Trustees"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads, and/or other market data and specific security characteristics. Alternatively, if a valuation is not available from an outside pricing service/vendor, and the security trades on an exchange, the security may be valued at its latest reported sale price (or at the exchange official closing price if such exchange reports an official closing price), prior to the time when assets are valued. If there are no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available in the relevant exchanges; (4) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the New York Stock Exchange ("NYSE"); (5) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the "Adviser"), a wholly owned subsidiary of Morgan Stanley, determines that the closing price, last sale price or the mean between the last reported bid and asked prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Trustees or by the Adviser using a pricing service and/or procedures approved by the Trustees; (6) and investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.
The Trustees have responsibility for determining in good faith the fair value of the investments, and the Trustees may appoint others, such as the Fund's Adviser or a valuation committee, to assist the Trustees in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Trustees. Under procedures approved by the Trustees, the Fund's Adviser has formed a Valuation Committee whose members are approved by the Trustees. The Valuation Committee provides administration and oversight of the Fund's valuation policies and procedures, which are reviewed
15
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
at least annually by the Trustees. These procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date, except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income is accrued daily as earned except where collection is not expected. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income.
C. Repurchase Agreements — The Portfolio may enter into repurchase agreements under which the Portfolio lends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Portfolio takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine that the value of the collateral does not decrease below the repurchase
16
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. In the event of default on the obligation to repurchase, the Portfolio has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral proceeds may be subject to cost and delays. The Portfolio, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements.
D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.
E. Foreign Currency Translation and Foreign Investments — The books and records of the Portfolio are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
— investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;
— investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Portfolio is presented at the foreign exchange rates and market values at the close of the period, the Portfolio does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Portfolio does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Portfolio's books and the U.S.
17
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) in the Statement of Assets and Liabilities. The change in unrealized currency gains (losses) on foreign currency translations for the period is reflected in the Statement of Operations.
F. Restricted Securities — The Portfolio may invest in unregistered or otherwise restricted securities. The term "restricted securities" refers to securities that are unregistered or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale. As a result, restricted securities may be more difficult to value and the Portfolio may have difficulty disposing of such assets either in a timely manner or for a reasonable price. In order to dispose of an unregistered security, the Portfolio, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered so that the Portfolio could sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and acquirer of the securities. The Portfolio would, in either case, bear market risks during that period. Restricted securities, if any, are identified in the Portfolio of Investments.
G. Securities Lending — The Portfolio may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Portfolio. The Portfolio receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned-Net" in the Portfolio's Statement of Operations.
The Portfolio has the right under the lending agreement to recover the securities from the borrower on demand.
18
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2016.
GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES | |||||||||||||||||||
PORTFOLIO | GROSS ASSET AMOUNTS PRESENTED IN STATEMENTS OF ASSETS AND LIABILITIES | FINANCIAL INSTRUMENT | COLLATERAL RECEIVED | NET AMOUNT (NOT LESS THAN $0) | |||||||||||||||
Mid Cap Growth | $ | 772,770 | (a) | $ | — | $ | (772,770 | )(b)(c) | $ | 0 | |||||||||
(a) Represents market value of loaned securities at period end.
(b) The Portfolio received cash collateral of $67,980, of which $67,872 was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. As of December 31, 2016, there was uninvested cash of $108, which is not reflected in the Portfolio of Investments. In addition, the Portfolio received non-cash collateral of $725,328 in the form of U.S. Government obligations, which the Portfolio cannot sell or repledge, and accordingly are not reflected in the Portfolio of Investments.
(c) The actual collateral received is greater than the amount shown here due to overcollateralization.
FASB Accounting Standards Update No. 2014-11 ("ASU No. 2014-11"), "Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures", is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
REMAINING CONTRACTUAL MATURITY OF THE AGREEMENTS | |||||||||||||||||||||||
| OVERNIGHT AND CONTINUOUS | <30 DAYS | BETWEEN 30 & 90 DAYS | >90 DAYS | TOTAL | |||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||
Common Stocks | $ | 67,980 | $ | — | $ | — | $ | — | $ | 67,980 | |||||||||||||
Total Borrowings | $ | 67,980 | $ | — | $ | — | $ | — | $ | 67,980 | |||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 67,980 | |||||||||||||||||||||
H. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.
19
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
I. 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.
J. Indemnifications — The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
2. Fair Valuation Measurements
Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs); and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's investments. The inputs are summarized in the three broad levels listed below.
• Level 1 — unadjusted quoted prices in active markets for identical investments
• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
• Level 3 — significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances
20
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is a summary of the inputs used to value the Portfolio's investments as of December 31, 2016.
Investment Type | Level 1 Unadjusted Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant unobservable Inputs | Total | |||||||||||||||
Mid Cap Growth | |||||||||||||||||||
Assets: | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Aerospace & Defense | $ | 468,543 | $ | — | $ | — | $ | 468,543 | |||||||||||
Automobiles | 707,741 | — | — | 707,741 | |||||||||||||||
Biotechnology | 95,505 | — | — | 95,505 | |||||||||||||||
Capital Markets | 1,055,914 | — | — | 1,055,914 | |||||||||||||||
Construction Materials | 261,184 | — | — | 261,184 | |||||||||||||||
Consumer Finance | 127,281 | — | — | 127,281 | |||||||||||||||
Health Care Equipment & Supplies | 785,356 | — | — | 785,356 | |||||||||||||||
Health Care Technology | 1,128,919 | — | — | 1,128,919 | |||||||||||||||
Hotels, Restaurants & Leisure | 1,167,844 | — | — | 1,167,844 | |||||||||||||||
Information Technology Services | 392,657 | — | — | 392,657 | |||||||||||||||
Internet Software & Services | 1,282,001 | — | 133,863 | 1,415,864 | |||||||||||||||
Life Sciences Tools & Services | 639,560 | — | — | 639,560 | |||||||||||||||
Multi-line Retail | 395,856 | — | — | 395,856 | |||||||||||||||
Professional Services | 891,735 | — | — | 891,735 | |||||||||||||||
Semiconductors & Semiconductor Equipment | 496,768 | — | — | 496,768 | |||||||||||||||
Software | 1,765,140 | — | — | 1,765,140 | |||||||||||||||
Textiles, Apparel & Luxury Goods | 356,399 | — | — | 356,399 | |||||||||||||||
Total Common Stocks | 12,018,403 | — | 133,863 | 12,152,266 | |||||||||||||||
Convertible Preferred Stock | — | — | 13,001 | 13,001 | |||||||||||||||
Preferred Stock | — | — | 99,454 | 99,454 | |||||||||||||||
Short-Term Investments | |||||||||||||||||||
Investment Company | 218,138 | — | — | 218,138 | |||||||||||||||
Repurchase Agreements | — | 13,770 | — | 13,770 | |||||||||||||||
Total Short-Term Investments | 218,138 | 13,770 | — | 231,908 | |||||||||||||||
Total Assets | $ | 12,236,541 | $ | 13,770 | $ | 246,318 | $ | 12,496,629 | |||||||||||
21
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Portfolio recognizes transfers between the levels as of the end of the period. As of December 31, 2016, the Portfolio did not have any investments transfer between investment levels.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Mid Cap Growth | |||||||||||||||
| Common Stocks | Convertible Preferred Stock | Preferred Stocks | |||||||||||||
Beginning Balance | $ | 431,659 | $ | 21,179 | $ | 372,184 | |||||||||
Purchases | — | — | — | ||||||||||||
Sales | (254,796 | ) | — | — | |||||||||||
Amortization of discount | — | — | — | ||||||||||||
Transfers in | — | — | — | ||||||||||||
Transfers out | — | — | — | ||||||||||||
Corporate actions | — | — | (69,610 | ) | |||||||||||
Change in unrealized appreciation (depreciation) | (134,219 | ) | (8,178 | ) | (203,120 | ) | |||||||||
Realized gains (losses) | 91,219 | — | — | ||||||||||||
Ending Balance | $ | 133,863 | $ | 13,001 | $ | 99,454 | |||||||||
| Change in unrealized depreciation from investments still held as of December 31, 2016 | $ | (84,216 | ) | $ | (8,178 | ) | $ | (105,263 | ) | ||||||
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of December 31, 2016. Various valuation techniques were used in the valuation of certain investments and weighted based on the level of significance.
22
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
Mid Cap Growth
| Fair Value at December 31, 2016 | Valuation Technique | Unobservable Input | Range | Selected Value | Impact to Valuation from an increase in input | ||||||||||||||||||||||||||
| Internet & Direct Marketing Retail | |||||||||||||||||||||||||||||||
| Preferred Stock | $ | 99,454 | Discounted Cash Flow | Weighted Average Cost of Capital | 17.5 | % | 19.5 | % | 18.5 | % | Decrease | ||||||||||||||||||||
| Perpetual Growth Rate | 3.5 | % | 4.5 | % | 4.0 | % | Increase | ||||||||||||||||||||||||
| Market Comparable Companies | Enterprise Value/ Revenue | 1.1 | x | 2.8 | x | 2.2 | x | Increase | |||||||||||||||||||||||
| Discount for Lack of Marketability | 20.0 | % | 20.0 | % | 20.0 | % | Decrease | ||||||||||||||||||||||||
| Internet Software & Services | |||||||||||||||||||||||||||||||
| Common Stock | $ | 133,863 | Discounted Cash Flow | Weighted Average Cost of Capital | 18.0 | % | 20.0 | % | 19.0 | % | Decrease | ||||||||||||||||||||
| Convertible Preferred Stock | $ | 13,001 | Perpetual Growth Rate | 2.5 | % | 3.5 | % | 3.0 | % | Increase | |||||||||||||||||||||
Market Comparable | Enterprise Value/ | ||||||||||||||||||||||||||||||
Companies | Revenue | 4.1 | x | 11.2 | x | 5.5 | x | Increase | |||||||||||||||||||||||
| Discount for Lack of Marketability | 20.0 | % | 20.0 | % | 20.0 | % | Decrease | ||||||||||||||||||||||||
3. Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with the Adviser, the Portfolio pays an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Portfolio determined as of the close of each business day: 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. For the year ended
23
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
December 31, 2016, the advisory fee rate (net of rebate) was equivalent to an annual effective rate of 0.41% of the Portfolio's average daily net assets.
The Adviser also serves as the Administrator to the Fund and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and payable monthly, of 0.08%.
Under a Sub-Administration agreement between the Administrator and State Street, State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Portfolio.
4. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distribution, Inc. (the "Distributor"), an affiliate of the Adviser/Administrator. 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 the 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.
5. Dividend Disbursing and Transfer Agent
The Fund's dividend disbursing and transfer agent is Boston Financial Data Services, Inc. ("BFDS"). Pursuant to a Transfer Agency Agreement, the Fund pays BFDS a fee based on the number of classes, accounts and transactions relating to the Portfolio of the Fund.
6. Custodian Fees
State Street (the "Custodian") serves as Custodian for the Fund in accordance with a Custodian Agreement. The Custodian holds cash, securities, and other assets of the Fund as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
In December 2015, the Fund's Custodian announced that it had identified inconsistencies in the way in which clients were invoiced for out-of-pocket expenses from 1998 until November 2015. The dollar amount difference between what was charged and what should have been charged, plus interest, was paid back to the Portfolio in September 2016 as a reimbursement. The Custodian reimbursed the Portfolio directly, which was recognized as a change in accounting estimate and was reflected as "Reimbursement of custodian fees" in the Statement of Operations.
24
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Notes to Financial Statements n December 31, 2016 continued
7. Security Transactions and Transactions with Affiliates
The Portfolio's cost of purchases and proceeds from sales of investment securities, excluding short-term investments, for the year ended December 31, 2016, aggregated $5,059,326 and $6,480,907, respectively.
The Portfolio invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Portfolio are reduced by an amount equal to its pro-rata share of advisory and administrative fees paid by the Portfolio due to its investment in the Liquidity Funds. For the year ended December 31, 2016, advisory fees paid were reduced by $1,083 relating to the Portfolio's investment in the Liquidity Funds.
A summary of the Portfolio's transactions in shares of the Liquidity Funds during the year ended December 31, 2016 is as follows:
| VALUE DECEMBER 31, 2015 | PURCHASES AT COST | SALES | DIVIDEND INCOME | VALUE DECEMBER 31, 2016 | |||||||||||||||
| $ | 1,451,307 | $ | 4,457,063 | $ | 5,690,232 | $ | 1,904 | $ | 218,138 | ||||||||||
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund did not engage in any cross-trade transactions.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the NAV of the Fund.
8. Federal Income Tax Status
It is the Portfolio's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
25
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Notes to Financial Statements n December 31, 2016 continued
The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.
FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Portfolio recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Portfolio files tax returns with the U.S. Internal Revenue Service, New York and various states. Each of the tax years in the four-year period ended December 31, 2016, remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2016 and 2015 was as follows:
2016 DISTRIBUTIONS PAID FROM: | 2015 DISTRIBUTIONS PAID FROM: | ||||||||||||||
| ORDINARY INCOME | LONG-TERM CAPITAL GAIN | ORDINARY INCOME | LONG-TERM CAPITAL GAIN | ||||||||||||
| $ | — | $ | 525,131 | $ | — | $ | 3,768,540 | ||||||||
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are primarily due to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
Permanent differences, primarily due to differing treatments of gains (losses) related to foreign currency transactions, a net operating loss and partnership basis adjustments, resulted in the following reclassifications among the components of net assets at December 31, 2016:
| ACCUMULATED NET INVESTMENT LOSS | ACCUMULATED NET REALIZED LOSS | PAID-IN-CAPITAL | |||||||||
| $ | 29,110 | $ | 37,802 | $ | (66,912 | ) | |||||
26
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
At December 31, 2016, the Portfolio had no distributable earnings on a tax basis.
At December 31, 2016, the Portfolio had available for federal income tax purposes unused short term capital losses of $321,866 that do not have an expiration date. To the extent that capital loss carryforwards are used to offset any future capital gains realized as provided by U.S. federal income tax regulations, no capital gains tax liability will be incurred by the Portfolio for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders.
9. Purposes of and Risks Relating to Certain Financial Instruments
The Portfolio may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
10. Credit Facility
As of April 4, 2016, the Fund and other Morgan Stanley funds participated in a $150,000,000 committed, unsecured revolving line of credit facility (the "facility") with State Street. This facility is to be used for temporary emergency purposes or funding of shareholder redemption requests. The interest rate on borrowings is based on the federal funds rate or one month libor rate plus a spread. The facility also has a commitment fee of 0.25% per annum based on the unused portion of the facility. During the year ended December 31, 2016, the Portfolio did not have any borrowings under the facility.
11. Other
At December 31, 2016, the Portfolio had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 88.4%.
12. Accounting Pronouncements
In December 2016, FASB issued Accounting Standards update 2016-19 — Technical Corrections and Improvements ("ASU 2016-19"), which is effective for interim periods for all entities beginning after December 15, 2016. ASU 2016-19 includes an amendment to Topic 820, Fair Value Measurement, which
27
Morgan Stanley Select Dimensions Investment Series
Notes to Financial Statements n December 31, 2016 continued
clarifies the difference between a valuation approach and a valuation technique when applying the guidance in that Topic. That amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The transition guidance for the amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. Although still evaluating the potential impacts of ASU 2016-19 to the Portfolio, management expects that the impact of the Portfolio's adoption will be limited to additional financial statement disclosures.
In October 2016, the Securities and Exchange Commission (SEC) issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. Compliance with the guidance is effective for financial statements filed with the SEC on or after August 1, 2017; adoption will have no effect on the Portfolio's net assets or results of operations. Although still evaluating the potential impacts of the Investment Company Reporting Modernization to the Portfolio, management expects that the impact of the Portfolio's adoption will be limited to additional financial statement disclosures.
28
(This page has been intentionally left blank.)
Morgan Stanley Select Dimensions Investment Series
Financial Highlights
| FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE BEGINNING OF PERIOD | NET INVESTMENT INCOME (LOSS)(1) | 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 | |||||||||||||||||||||||||||||||
2012 | $ | 32.77 | $ | 0.12 | $ | 2.62 | $ | 2.74 | — | $ | (2.61 | ) | $ | (2.61 | ) | ||||||||||||||||
2013 | 32.90 | (0.12 | ) | 12.47 | 12.35 | $ | (0.13 | ) | (0.10 | ) | (0.23 | ) | |||||||||||||||||||
2014 | 45.02 | (0.13 | ) | 0.55 | 0.42 | — | (4.34 | ) | (4.34 | ) | |||||||||||||||||||||
2015 | 41.10 | (0.33 | ) | (1.70 | ) | (2.03 | ) | — | (8.27 | ) | (8.27 | ) | |||||||||||||||||||
2016 | (2) | 30.80 | (0.04 | ) | (2.77 | ) | (2.81 | ) | — | (1.08 | ) | (1.08 | ) | ||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2012 | 32.11 | 0.03 | 2.57 | 2.60 | — | (2.61 | ) | (2.61 | ) | ||||||||||||||||||||||
2013 | 32.10 | (0.21 | ) | 12.17 | 11.96 | (0.02 | ) | (0.10 | ) | (0.12 | ) | ||||||||||||||||||||
2014 | 43.94 | (0.23 | ) | 0.53 | 0.30 | — | (4.34 | ) | (4.34 | ) | |||||||||||||||||||||
2015 | 39.90 | (0.41 | ) | (1.62 | ) | (2.03 | ) | — | (8.27 | ) | (8.27 | ) | |||||||||||||||||||
2016 | (2) | 29.60 | (0.11 | ) | (2.66 | ) | (2.77 | ) | — | (1.08 | ) | (1.08 | ) | ||||||||||||||||||
(1) The per share amounts were computed using an average number of shares outstanding during the period.
(2) Refer to Note 6 in the Notes to Financial Statements for discussion of prior period custodian out-of-pocket expenses that were reimbursed in the current period. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of the Fund.
(3) 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.
(4) 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."
(5) Amount is less than 0.005%.
See Notes to Financial Statements
30
| RATIO TO AVERAGE NET ASSETS | |||||||||||||||||||||||||||||||
| FOR THE YEAR ENDED DECEMBER 31 | NET ASSET VALUE END OF PERIOD | TOTAL RETURN(3) | 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 | |||||||||||||||||||||||||||||||
2012 | $ | 32.90 | 8.51 | % | $ | 17,016 | 1.02 | %(4) | 0.35 | %(4) | 0.00 | %(5) | 31 | % | |||||||||||||||||
2013 | 45.02 | 37.69 | 19,453 | 0.99 | (4) | (0.33 | )(4) | 0.00 | (5) | 47 | |||||||||||||||||||||
2014 | 41.10 | 1.04 | 15,612 | 1.20 | (4) | (0.30 | )(4) | 0.00 | (5) | 43 | |||||||||||||||||||||
2015 | 30.80 | (6.59 | ) | 12,329 | 1.28 | (4) | (0.91 | )(4) | 0.00 | (5) | 23 | ||||||||||||||||||||
2016 | (2) | 26.91 | (9.22 | ) | 9,605 | 1.32 | (4)(6) | (0.16 | )(4)(6) | 0.01 | 38 | ||||||||||||||||||||
CLASS Y SHARES | |||||||||||||||||||||||||||||||
2012 | 32.10 | 8.24 | 6,425 | 1.27 | (4) | 0.10 | (4) | 0.00 | (5) | 31 | |||||||||||||||||||||
2013 | 43.94 | 37.36 | 6,971 | 1.24 | (4) | (0.58 | )(4) | 0.00 | (5) | 47 | |||||||||||||||||||||
2014 | 39.90 | 0.78 | 5,151 | 1.45 | (4) | (0.55 | )(4) | 0.00 | (5) | 43 | |||||||||||||||||||||
2015 | 29.60 | (6.81 | ) | 3,677 | 1.53 | (4) | (1.16 | )(4) | 0.00 | (5) | 23 | ||||||||||||||||||||
2016 | (2) | 25.75 | (9.43 | ) | 2,766 | 1.57 | (4)(6) | (0.41 | )(4)(6) | 0.01 | 38 | ||||||||||||||||||||
(6) If the Portfolio had not received the reimbursement from the custodian, the annualized expense and net investment loss ratios would have been as follows:
PERIOD ENDED | EXPENSE RATIO | NET INVESTMENT LOSS RATIO | |||||||||
December 31, 2016 | |||||||||||
Class X | 1.52 | % | (0.36 | )% | |||||||
Class Y | 1.77 | (0.61 | ) | ||||||||
31
Morgan Stanley Select Dimensions Investment Series
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Morgan Stanley Select Dimensions Investment Series:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Mid Cap Growth Portfolio (the portfolio comprising Morgan Stanley Select Dimensions Investment Series) as of December 31, 2016, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2016, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Mid Cap Growth Portfolio (the portfolio comprising Morgan Stanley Select Dimensions Investment Series) at December 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 17, 2017
32
Morgan Stanley Select Dimensions Investment Series
Results of Special Shareholder Meeting (unaudited)
On January 29, 2016, a Special Meeting of Shareholders of Money Market Portfolio (the "Portfolio") was held to consider and act upon a proposal to liquidate the Portfolio. The voting results were as follows:
Number of Shares | |||||||||||||||
For | Against | Abstain | |||||||||||||
33,006,842 | 5,535,260 | 2,721 | |||||||||||||
33
Morgan Stanley Select Dimensions Investment Series
Trustee and Officer Information (unaudited)
Independent Trustees:
| Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee*** | ||||||||||||||||||
| Frank L. Bowman (72) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since August 2006 | President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); formerly, Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (2007-2015); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996) and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009). | 90 | Director of BP p.l.c.; Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA; Director of the U.S. Naval Submarine League; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Chairman of the charity J Street Cup Golf; Trustee of Fairhaven United Methodist Church; and Director of other various non-profit organizations. | ||||||||||||||||||
| Kathleen A. Dennis (63) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since August 2006 | President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); Chairperson of the Liquidity and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 91 | Director of various non-profit organizations. | ||||||||||||||||||
34
Morgan Stanley Select Dimensions Investment Series
Trustee and Officer Information (unaudited) continued
| Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee*** | ||||||||||||||||||
| Nancy C. Everett (61) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since January 2015 | Chief Executive Officer, Virginia Commonwealth University Investment Company (since November 2015); Owner OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010). | 91 | Member of Virginia Commonwealth University School of Business Foundation; formerly, Member of Virginia Commonwealth University Board of Visitors (2013-2015); Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010). | ||||||||||||||||||
| Jakki L. Haussler (59) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since January 2015 | Chairman and Chief Executive Officer, Opus Capital Group (since January 1996); formerly, Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008). | 91 | Director of Cincinnati Bell Inc. and Member, Audit Committee and Compensation Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Director of Chase College of Law Board of Visitors; formerly, Member, University of Cincinnati Foundation Investment Committee; Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008) and Member, Service Provider Committee (2005-2008). | ||||||||||||||||||
35
Morgan Stanley Select Dimensions Investment Series
Trustee and Officer Information (unaudited) continued
| Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee*** | ||||||||||||||||||
| Dr. Manuel H. Johnson (67) c/o Johnson Smick International, Inc. 220 I Street, N.E. — Suite 200 Washington, D.C. 20002 | Trustee | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 91 | Director of NVR, Inc. (home construction). | ||||||||||||||||||
| Joseph J. Kearns (74) c/o Kearns & Associates LLC 46 E Peninsula Center #385 Rolling Hills Estates, CA 90274-3712 | Trustee | Since August 1994 | President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust. | 93 | Director of Electro Rent Corporation (equipment leasing). Prior to December 31, 2013, Director of The Ford Family Foundation. | ||||||||||||||||||
36
Morgan Stanley Select Dimensions Investment Series
Trustee and Officer Information (unaudited) continued
| Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee*** | ||||||||||||||||||
| Michael F. Klein (58) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since August 2006 | Managing Director, Aetos Capital, LLC (since March 2000); Co-President, Aetos Alternatives Management, LLC (since January 2004) and Co-Chief Executive Officer of Aetos Capital LLC (since August 2013); Chairperson of the Fixed Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, various Morgan Stanley Funds (June1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 90 | Director of certain investment funds managed or sponsored by Aetos Capital, LLC; Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). | ||||||||||||||||||
| Patricia Maleski (56) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since January 2017 | Management Director, JPMorgan Asset Management (2013-2016); President, JPMorgan Funds (2010-2013), Chief Administrative Officer, JPMorgan Funds (2004-2010), Treasurer, JPMorgan Funds (2003-2004, 2008-2010), and Vice President and Board Liaison, JPMorgan Funds (2001-2004); Managing Director, J.P. Morgan Investment Management Inc. (2001-2013); Vice President of Finance, Pierpont Group (1996-2001); Vice President, Bank of New York (1995-1996); Senior Audit Manager, Price Waterhouse, LLP (1982-1995). | 91 | None. | ||||||||||||||||||
37
Morgan Stanley Select Dimensions Investment Series
Trustee and Officer Information (unaudited) continued
| Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years and Other Relevant Professional Experience | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee*** | ||||||||||||||||||
| Michael E. Nugent (80) 522 Fifth Avenue New York, NY 10036 | Chair of the Board and Trustee | Chair of the Boards since July 2006 and Trustee since July 1991 | Chair of the Boards of various Morgan Stanley Funds (since July 2006); Chairperson of the Closed-End Fund Committee (since June 2012) and Director or Trustee of various Morgan Stanley Funds (since July 1991); formerly, Chairperson of the Insurance Committee (until July 2006); General Partner, Triumph Capital, L.P. (private investment partnership) (1988-2013). | 92 | None. | ||||||||||||||||||
| W. Allen Reed (69) c/o Perkins Coie LLP Counsel to the Independent Trustees 30 Rockefeller Plaza New York, NY 10112 | Trustee | Since August 2006 | Chairperson of the Equity Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 91 | Director of Legg Mason, Inc.; formerly, Director of the Auburn University Foundation (2010-2015). | ||||||||||||||||||
| Fergus Reid (84) c/o Joe Pietryka, Inc. 85 Charles Colman Blvd. Pawling, NY 12564 | Trustee | Since June 1992 | Chairman, Joe Pietryka, Inc.; Chairperson of the Governance Committee and Director or Trustee of various Morgan Stanley Funds (since June 1992). | 92 | Formerly, Trustee and Director of certain investment companies in the JP Morgan Fund Complex managed by JP Morgan Investment Management Inc. (1987-2012). | ||||||||||||||||||
* This is the earliest date the Trustee began serving the Morgan Stanley Funds. Each Trustee serves an indefinite term, until his or her successor is elected.
** The Fund Complex includes (as of December 31, 2016) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).
*** This includes any directorships at public companies and registered investment companies held by the Trustee at any time during the past five years.
38
Morgan Stanley Select Dimensions Investment Series
Trustee and Officer Information (unaudited) continued
Executive Officers:
| Name, Age and Address of Executive Officer | Position(s) Held with Registrant | Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
| John H. Gernon (53) 522 Fifth Avenue New York, NY 10036 | President and Principal Executive Officer | Since September 2013 | President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex; Managing Director of the Adviser; Head of Product (since 2006). | ||||||||||||
| Timothy J. Knierim (58) 522 Fifth Avenue New York, NY 10036 | Chief Compliance Officer | Since December 2016 | Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since December 2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP (since 2014). Formerly, Managing Director and Deputy Chief Compliance Officer of the Adviser (2014-2016); and formerly, Chief Compliance Officer of Prudential Investment Management, Inc. (2007-2014). | ||||||||||||
| Francis J. Smith (51) 522 Fifth Avenue New York, NY 10036 | Treasurer and Principal Financial Officer | Treasurer since July 2003 and Principal Financial Officer since September 2002 | Managing Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002). | ||||||||||||
| Mary E. Mullin (49) 522 Fifth Avenue New York, NY 10036 | Secretary | Since June 1999 | Executive Director of the Adviser; Secretary of various Morgan Stanley Funds (since June 1999). | ||||||||||||
* This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and qualifies.
39
Morgan Stanley Select Dimensions Investment Series
Federal Tax Notice n December 31, 2016 (unaudited)
For Federal Income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2016. The Portfolio designated and paid $525,131 as a long-term capital gain distribution.
40
Trustees | |||||||
| Frank L. Bowman | Joseph J. Kearns | ||||||
| Kathleen A. Dennis | Michael F. Klein | ||||||
| Nancy C. Everett | Patricia Maleski | ||||||
| Jakki L. Haussler | Michael E. Nugent | ||||||
| Dr. Manuel H. Johnson | Chair of the Board | ||||||
W. Allen Reed | |||||||
Fergus Reid | |||||||
Officers | |||||||
John H. Gernon
President and Principal Executive Officer
Timothy J. Knierim
Chief Compliance Officer
Francis J. Smith
Treasurer and Principal Financial Officer
Mary E. Mullin
Secretary
| Transfer Agent | Custodian | ||||||
| Boston Financial Data Services, Inc. 2000 Crown Colony Drive Quincy, Massachusetts 02169 | State Street Bank and Trust Company One Lincoln Street Boston, Massachusetts 02111 | ||||||
| Independent Registered Public Accounting Firm | Legal Counsel | ||||||
| Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 | Dechert LLP 1095 Avenue of the Americas New York, New York 10036 | ||||||
| Counsel to the Independent Trustees | Adviser and Administrator | ||||||
| Perkins Coie LLP 30 Rockefeller Plaza New York, New York 10112 | Morgan Stanley Investment Management Inc. 522 Fifth Avenue New York, New York 10036 | ||||||
This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available without charge, by calling (800) 548-7786.
This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an
effective Prospectus. Read the Prospectus carefully before investing.
Morgan Stanley Distribution, Inc., member FINRA.
#40474
SELDIMANN
1694974 EXP 2.28.18
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the “Code of Ethics”) that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund’s Code of Ethics is attached hereto as Exhibit 12 A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund’s Board of Trustees has determined that Joseph J. Kearns, an “independent” Trustee, is an “audit committee financial expert” serving on its audit committee. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2016
|
| Registrant |
| Covered Entities(1) |
| ||
Audit Fees |
| $ | 33,583 |
| N/A |
| |
|
|
|
|
|
| ||
Non-Audit Fees |
|
|
|
|
| ||
Audit-Related Fees |
| $ | — | (2) | $ | — | (2) |
Tax Fees |
| $ | 3,500 | (3) | $ | 8,817,179 | (4) |
All Other Fees |
| $ | — |
| $ | 227,300 | (5) |
Total Non-Audit Fees |
| $ | 3,500 |
| $ | 9,044,479 |
|
|
|
|
|
|
| ||
Total |
| $ | 37,083 |
| $ | 9,044,479 |
|
2015
|
| Registrant |
| Covered Entities(1) |
| ||
Audit Fees |
| $ | 65,270 |
| N/A |
| |
|
|
|
|
|
| ||
Non-Audit Fees |
|
|
|
|
| ||
Audit-Related Fees |
| $ | — | (2) | $ | — | (2) |
Tax Fees |
| $ | 6,500 | (3) | $ | 8,237,026 | (4) |
All Other Fees |
| $ | — |
| $ | 212,000 | (5) |
Total Non-Audit Fees |
| $ | 6,500 |
| $ | 8,449,026 |
|
|
|
|
|
|
| ||
Total |
| $ | 71,770 |
| $ | 8,449,026 |
|
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities’ and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant’s tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities’ tax returns.
(5) All other fees represent project management for future business applications and improving business and operational processes.
(e)(1) The audit committee’s pre-approval policies and procedures are as follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. Statement of Principles
The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor’s independence from the Fund.
The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s administration of the engagement of the independent auditor. The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee or its delegate (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the “Policy”), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time.
The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the Independent Auditors to management.
The Fund’s Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors’ independence.
2. Delegation
As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
3. Audit Services
The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
4. Audit-related Services
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory
reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
5. Tax Services
The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
6. All Other Services
The Audit Committee believes, based on the SEC’s rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
7. Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.
8. Procedures
All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund’s Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund’s Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the
Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund’s Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.
The Audit Committee has designated the Fund’s Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund’s Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund’s Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund’s Chief Financial Officer or any member of management.
9. Additional Requirements
The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence.
10. Covered Entities
Covered Entities include the Fund’s investment adviser(s) and any entity controlling, controlled by or under common control with the Fund’s investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund’s audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee’s pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors’ independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Joseph J. Kearns, Jakki L. Haussler, Michael F. Klein and Allen W. Reed.
(b) Not applicable.
Item 6. Schedule of Investments
(a) Refer to Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
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) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto.
(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
/s/ John H. Gernon |
|
|
John H. Gernon |
|
|
Principal Executive Officer |
|
|
February 16, 2017 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John H. Gernon |
|
|
John H. Gernon |
|
|
Principal Executive Officer |
|
|
February 16, 2017 |
|
|
|
|
|
/s/ Francis Smith |
|
|
Francis Smith |
|
|
Principal Financial Officer |
|
|
February 16, 2017 |
|
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