0001104659-14-065171.txt : 20140908 0001104659-14-065171.hdr.sgml : 20140908 20140908145133 ACCESSION NUMBER: 0001104659-14-065171 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140908 DATE AS OF CHANGE: 20140908 EFFECTIVENESS DATE: 20140908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY VARIABLE INVESTMENT SERIES CENTRAL INDEX KEY: 0000716716 IRS NUMBER: 133178476 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03692 FILM NUMBER: 141090633 BUSINESS ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 800-869-6397 MAIL ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER VARIABLE INVESTMENT SERIES DATE OF NAME CHANGE: 19930209 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN VARIABLE INVESTMENT SERIES DATE OF NAME CHANGE: 19920703 0000716716 S000002453 MONEY MARKET PORTFOLIO C000006583 X C000006584 Y 0000716716 S000002459 LIMITED DURATION PORTFOLIO C000006595 X C000006596 Y 0000716716 S000002460 INCOME PLUS PORTFOLIO C000006597 X C000006598 Y 0000716716 S000002465 EUROPEAN EQUITY PORTFOLIO C000006607 X C000006608 Y 0000716716 S000002466 MULTI CAP GROWTH TRUST C000006609 X C000006610 Y N-CSRS 1 a14-17300_1ncsrs.htm N-CSRS

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number:

811-03692

 

Morgan Stanley Variable Investment Series

(Exact name of registrant as specified in charter)

 

522 Fifth Avenue, New York, New York

 

10036

(Address of principal executive offices)

 

(Zip code)

 

John H. Gernon

522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

212-296-0289

 

 

Date of fiscal year end:

December 31, 2014

 

 

Date of reporting period:

June 30, 2014

 

 


 

Item 1 - Report to Shareholders

 


MORGAN STANLEY
VARIABLE INVESTMENT SERIES

Semi-Annual Report

JUNE 30, 2014

The Portfolios are intended to be the funding vehicle for variable annuity contracts and variable life insurance policies offered by the separate accounts of certain life insurance companies.


Morgan Stanley Variable Investment Series

Table of Contents

Letter to the Shareholders

    

1

    
Fund Performance    

10

    

Expense Examples

    

12

    

Investment Advisory Agreement Approval

    

15

    

Portfolio of Investments:

  

Money Market

    

18

    

Limited Duration

    

23

    

Income Plus

    

32

    

European Equity

    

43

    

Multi Cap Growth

    

46

    

Financial Statements:

  
Statements of Assets and Liabilities    

50

    

Statements of Operations

    

52

    

Statements of Changes in Net Assets

    

54

    

Notes to Financial Statements

    

58

    
Financial Highlights    

90

    

Results of Special Shareholder Meetings

    

96

    


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited)

Dear Shareholder:

Financial markets faced some significant headwinds during the six-month period, including a volatile start to the year, disappointing economic growth across many of the world's major economies, and an increase in geopolitical tensions. Yet, aided by a backdrop of favorable global monetary policy and low inflation, risky assets, such as stocks and non-government sectors of the bond market, sustained their leads in the first six months of 2014.

Domestic and International Equity Overview

U.S. stocks advanced in the six-month period, up 7.14% as measured by the S&P 500® Index, but not without turbulence, especially early in 2014. Although the harsh winter weather was blamed for distortions in the economic data during the first quarter, there were some lingering uncertainties as to whether the U.S. economy was actually heading for a longer-term slump, which contributed to market turbulence in the first few months of the year.

However, improving economic data in the spring pointed to a likely reacceleration of the U.S. economy in the second quarter. Investor confidence was also bolstered by assurances from the Federal Reserve (Fed) that it could keep rates low "for a considerable time" after its bond buying stimulus program winds down. These influences helped the markets look past the escalating conflict between Russia and Ukraine, as well as increasing sectarian violence in Iraq, where Sunni militants began taking control of cities in the north.

European equities contended with slowing economic growth and deflation worries during the quarter but interventions from major central banks helped shares appreciate 5.5%, as measured by the MSCI Europe Index. Europe's better-performing sectors included pharmaceuticals, which benefited from increased merger and acquisition speculation; utilities, which advanced as investors fearing deflation sought relatively stable, defensive companies; and autos, which benefited from Europe's domestic recovery.

Fixed Income Overview

With low inflation persisting across major world economies and central banks remaining on the dovish side (that is, favoring low interest rates), the riskier segments of the fixed income markets performed well during the six-month period.

Corporate bonds saw gains during the period, as yield spreads narrowed relative to Treasuries. High yield and convertible bonds, with their equity-like characteristics, performed especially well because of the stock market's overall appreciation.


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

In the securitized market, monetary policy continued to play a primary role. Although the Fed continued to gradually reduce the amount of its monthly bond purchases, demand is expected to continue to exceed net supply in many mortgage backed security (MBS) sectors, providing a positive backdrop for MBS performance. The ongoing recovery in the fundamentals of the commercial real estate market have remained on track, which has benefited commercial MBS.

The yield on the 10-year Treasury fell and prices rose (as the two are inversely related) in the first quarter, as investors looked to government bonds for their relative safety amid concerns about the first quarter's weak economic data. Although the economy appeared to be on the mend during the second quarter, investors seemed reassured that the pace of growth was unlikely to prompt the Fed to raise short-term interest rates any time soon. This helped extend Treasuries' rally in the second quarter, further weighing on the 10-year yield.

The Fed's near-zero interest rate policy continued to constrain money market yields. The actions of the Fed's policy making committee, including the testing of a new tool designed to help control short-term interest rates and the tapering of its monthly bond purchases, continued to be a major focus of the markets during the period.

Money Market Portfolio

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in such funds.

As of June 30, 2014, Variable Investment Series – Money Market Portfolio had net assets of approximately $68.1 million with an average portfolio maturity of 31 days. For the seven-day period ended June 30, 2014, the Portfolio's Class X shares provided an effective annualized yield of 0.01% (subsidized) and -0.50% (non-subsidized) and a current yield of 0.01% (subsidized) and -0.50% (non-subsidized), while its 30-day moving average yield for June 30, 2014 was 0.01% (subsidized) and -0.50% (non-subsidized). Yield quotations more closely reflect the current earnings of the Portfolio. The non-subsidized yield reflects what the yield would have been had a fee and/or expense waiver not been in place during the period shown. For the six-month period ended June 30, 2014, the Portfolio's Class X shares returned 0.00%. Past performance is no guarantee of future results.

For the seven-day period ended June 30, 2014, the Portfolio's Class Y shares provided an effective annualized yield of 0.01% (subsidized) and -0.75% (non-subsidized) and a current yield of 0.01% (subsidized) and -0.74% (non-subsidized), while its 30-day moving average yield for June 30, 2014 was


2


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

0.01% (subsidized) and -0.75% (non-subsidized). Yield quotations more closely reflect the current earnings of the Portfolio. The non-subsidized yield reflects what the yield would have been had a fee and/or expense waiver not been in place during the period shown. For the six-month period ended June 30, 2014, the Portfolio's Class Y shares returned 0.00%. Past performance is no guarantee of future results.

The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.

We remain quite comfortable in our conservative approach to managing the Portfolio, focusing on securities with high liquidity and short durations. We believe our investment process and focus on credit research and risk management, combined with the high degree of liquidity and short maturity position of the Portfolio, has put us in a favorable position to respond to market uncertainty. Our investment philosophy continues to revolve around prudent credit and risk management and portfolios that are positioned defensively and with very high levels of liquidity.

There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.

Limited Duration Portfolio

For the six-month period ended June 30, 2014, Variable Investment Series – Limited Duration Portfolio Class X shares produced a total return of 1.13%, outperforming the Barclays Capital U.S. Government/Credit Index (1-5 Year) (the "Index"),1 which returned 1.06%. For the same period, the Portfolio's Class Y shares returned 1.11%. Past performance is no guarantee of future results.

The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.

The main driver of performance for the period was the Portfolio's overweight position in the investment-grade credit sector, which benefited from its focus on the banking sector. Overweight positions in selected industrial sectors also contributed to performance.

1  The Barclays Capital U.S. Government/Credit Index (1-5 Year) tracks the performance of U.S. government and corporate obligations, including U.S. government agency and Treasury securities, and corporate and Yankee bonds with maturities of one to five years. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.


3


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

The Portfolio's positioning in the securitized sector was also additive to relative returns. Allocations to agency mortgages, commercial mortgage-backed securities, and high quality asset-backed securities all contributed to relative gains, mainly due to the attractive yield offered by these securities.

Conversely, the Portfolio was underweight in the agency sector, which detracted from relative performance. The Portfolio's slightly shorter duration than the Index, managed using U.S. Treasury futures, also dampened relative returns.

There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.

Income Plus Portfolio

For the six-month period ended June 30, 2014, Variable Investment Series – Income Plus Portfolio Class X shares produced a total return of 6.42%, outperforming the Barclays Capital U.S. Corporate Index (the "Index"),2 which returned 5.68%. For the same period, the Portfolio's Class Y shares returned 6.22%. Past performance is no guarantee of future results.

The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.

During the first six months of 2014, investment grade corporate spreads narrowed relative to Treasuries. BBB-rated non-financial corporates, as well as subordinated financials, tightened more than other segments of the corporate index. The overall corporate market, and these segments in particular, benefited from continued easy monetary policies and expectations for renewed economic growth. The Portfolio entered 2014 overweight both BBB non-financial corporates and subordinated financials, and these exposures contributed to the Portfolio's outperformance relative to the Index. Holdings of both high yield corporate bonds and convertible bonds also aided performance during the period. With equity markets performing well during the period, those fixed income sectors with the most equity-like characteristics (such as high yield and convertibles) performed very strongly.

The primary detractor from performance were holdings of credit default swaps (both single-name and index swaps), which were held as partial hedges against the Portfolio's long credit exposures. The average

2  The Barclays Capital U.S. Corporate Index covers U.S. dollar-denominated, investment-grade, fixed rate, taxable securities sold by industrial, utility and financial issuers. It includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.


4


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

spread of these swaps tightened during the period, generating some modest underperformance for the Portfolio. The Portfolio maintained a shorter duration (a measure of interest-rate sensitivity) than the Index during the period, managed using interest rate swaps and U.S. Treasury futures. This position detracted from performance during the period as Treasury yields fell over the first half of the year.

Looking ahead, while corporate bond yield spreads have largely reached long-term median levels, we continue to see value within several segments of the corporate market. Within investment grade, we remain positive on the financial sector where we believe fundamentals are strong and valuations remain attractive relative to non-financial credits. We continue to position the Portfolio defensively within non-financials sectors, as many of those companies have become increasingly shareholder-friendly by sacrificing their balance sheet to fund acquisitions, increase stock buybacks or raise dividends. We continue to maintain opportunistic exposures to high yield and convertible bonds — two sectors that we believe are attractively positioned for the current environment.

There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.

European Equity Portfolio

For the six-month period ended June 30, 2014, Variable Investment Series – European Equity Portfolio Class X shares produced a total return of 2.04%, underperforming the MSCI Europe Index (the "Index"),3 which returned 5.48%. For the same period, the Portfolio's Class Y shares returned 1.92%. Past performance is no guarantee of future results.

The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.

Key country-level contributors to performance during the period included our stock selection in Switzerland, the Netherlands and Germany. The main detractors were stock selection in the United Kingdom, Spain, France and Sweden, and underweight allocations to Italy and Denmark. In addition, an overweight allocation to Ireland dampened relative results.

3  The Morgan Stanley Capital International (MSCI) Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.


5


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

At the industry level, stock selection in media and in food, beverage & tobacco were positive contributors to performance, along with no exposure to diversified financials. The primary detractors from performance included our stock selection in banks, telecommunications, capital goods, materials and pharmaceuticals, along with an underweight allocation to utilities. The energy sector also hurt performance, due to both stock selection in the sector and an underweight allocation.

Individual holdings that were the most beneficial to performance included a French industrial company, a Swiss pharmaceutical developer, a U.K. tobacco company, a French bank and no exposure to a German bank. Holdings that lagged included a U.K. bank, a U.K. telephone company, a French insurance provider, a U.K. industrial company and a Swedish consumer staples company.

Investors around the world have continued to seek high and reliable yields, and European defensive sectors have offered an attractive opportunity: cheap valuations, companies rich in cash, high free cash flow yield and wide international exposure. Financials, which performed strongly in second half of 2012 and in 2013, have underperformed the Index in the period considered. Nonetheless, we have observed a dichotomy in the market: peripheral banks in general have strongly outperformed the Index, while more conservative and defensive players in core Europe have generally underperformed.

The European recovery appears on track, with improvements in consumer confidence, business sentiment and manufacturing data, as well as bond spreads at a multi-year low.i Although consumer demand remains depressed, we believe the uptick in consumer confidence and easier lending standards for consumer credit could help drive a rebound. Banks have continued to benefit from a lower cost of funds as peripheral bonds' yield spreads have narrowed. A recent loan survey for the eurozone showed an improving picture for both credit supply and demand, as lending standards are easing and demand is rising for all three loan categories — corporate, household mortgage, and household credit card debt. Finally, corporations have turned expansionary, as capital expenditures as a share of gross domestic product has begun to climb off record lows and merger and acquisition activity has reaccelerated to its 2007 peak levels.

During the period, global equities registered new highs and the stocks of peripheral European banks broke out of their trading range. Italy reached a three-year high and was the best-performing European market year-to-date. Asset flows into European equities continued to be strong. Equities saw inflows in every week but one of 2014 so far. Despite strong performance in 2012 and 2013, European stocks are still an under-owned asset class within institutional and private portfolios in Europe, and we believe this could support asset rotation out of fixed income over the medium term.

i  Economic and market data referenced in the management team's commentary provided by Morgan Stanley Investment Management, Bloomberg LP, JPMorgan Research, and MSCI.


6


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

We believe that exposure to the domestic economic recovery and cheap valuations provide strong support to our favorable thesis on European equities. Our investment approach remains the same. We continue to seek high-quality companies with high earnings visibility and predictability, stable and strong cash flow, and low levels of debt, trading at attractive valuations.

There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.

Multi Cap Growth Portfolio

For the six-month period ended June 30, 2014, Variable Investment Series – Multi Cap Growth Portfolio Class X shares produced a total return of 1.90%, underperforming the Russell 3000® Growth Index (the "Index"),4 which returned 5.98%. For the same period, the Portfolio's Class Y shares returned 1.77%. Past performance is no guarantee of future results.

The performance of the Portfolio's two share classes varies because each has different expenses. The Portfolio's total returns assume the reinvestment of all distributions but do not reflect the deduction of any charges by your insurance company. Such costs would lower performance.

The largest detractor from relative performance during the period was the information technology sector, primarily due to stock selection. A holding in a global communication platform was the chief detractor within the sector. Stock selection in the industrials sector was also disadvantageous to performance. Here, a holding in a consulting services firm engaged in the health care and education industries was the main laggard. Relative weakness in the consumer discretionary sector also hampered relative gains, as both stock selection and an overweight position in the sector were unfavorable during the period. Within the sector, a holding in a leading online retailer was the most detrimental to performance.

The Portfolio fared better in the health care sector, where stock selection contributed positively to relative results. Performance in the sector was led by a holding in a developer of genome sequencing tools. Stock selection in the consumer staples sector was beneficial to performance, as well, with a holding in a specialty coffee company contributing the most to relative gains in the sector.

There is no guarantee that any sectors mentioned will continue to perform as discussed above or that securities in such sectors will be held by the Portfolio in the future.

4  The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000® Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.


7


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

We appreciate your ongoing support of Morgan Stanley Variable Investment Series and look forward to continuing to serve your investment needs.

Very truly yours,

John H. Gernon
President and Principal Executive Officer


8


Morgan Stanley Variable Investment Series

Letter to the Shareholders n June 30, 2014 (unaudited) continued

For More Information About Portfolio Holdings

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q and monthly holdings for each money market fund on Form N-MFP. Morgan Stanley does not deliver these reports to shareholders, nor are the first and third fiscal quarter reports posted to the Morgan Stanley public web site. However, the holdings for each money market fund are posted to the Morgan Stanley public web site. You may obtain the Form N-Q filings (as well as the Form N-CSR, N-CSRS and N-MFP filings) by accessing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's public reference room in Washington, DC. Information on the operation of the SEC's public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-1520.

Proxy Voting Policy and Procedures and Proxy Voting Record

You may obtain a copy of the Portfolio's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 548-7786 or by visiting the Mutual Fund Center on our web site at www.morganstanley.com. It is also available on the SEC's web site at http://www.sec.gov.

You may obtain information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our web site at www.morganstanley.com. This information is also available on the SEC's web site at http://www.sec.gov.


9



Morgan Stanley Variable Investment Series

Fund Performance n June 30, 2014 (unaudited)

Average Annual Total Returns—Period Ended June 30, 2014(1)   

Class X

  

1 Year

  

5 Years

  

10 Years

   Since
Inception		   Gross Expense
Ratio		   Date of
Inception		  

European Equity

    

25.05

%

    

13.41

%

    

7.31

%

    

9.22

%

    

1.22

%

  

3/1/1991

  

Income Plus

    

10.36

      

9.38

      

6.71

      

7.38

      

0.62

    

3/1/1987

  

Limited Duration

    

2.08

      

2.46

      

0.96

      

1.97

      

0.75

    

5/4/1999

  

Money Market

    

0.01

      

0.01

      

1.53

      

3.98

      

0.66

    

3/9/1984

  

Multi Cap Growth

    

36.66

      

21.71

      

11.25

      

11.79

      

0.57

    

3/9/1984

  

Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please contact the issuing insurance company or speak with your Financial Advisor. Investment return and principal value will fluctuate. When you sell Portfolio shares, they may be worth less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance for Class Y shares will vary from the performance of Class X shares due to differences in expenses. Expenses are as of each Portfolio's fiscal year end as outlined in the Portfolio's current prospectus.

(1)  Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. If performance information included the effect of these additional charges, the total returns would be lower.


10


Morgan Stanley Variable Investment Series

Fund Performance n June 30, 2014 (unaudited) continued

Average Annual Total Returns—Period Ended June 30, 2014(1)   

Class Y

  

1 Year

  

5 Years

  

10 Years

   Since
Inception		   Gross Expense
Ratio		   Date of
Inception		  

European Equity

    

24.77

%

    

13.12

%

    

7.04

%

    

2.96

%

    

1.47

%

  

6/5/2000

  

Income Plus

    

10.06

      

9.09

      

6.45

      

6.77

      

0.87

    

6/5/2000

  

Limited Duration

    

1.92

      

2.23

      

0.71

      

1.64

      

1.00

    

6/5/2000

  

Money Market

    

0.01

      

0.01

      

1.41

      

1.62

      

0.91

    

6/5/2000

  

Multi Cap Growth

    

36.30

      

21.40

      

10.97

      

4.98

      

0.82

    

6/5/2000

  

Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please contact the issuing insurance company or speak with your Financial Advisor. Investment return and principal value will fluctuate. When you sell Portfolio shares, they may be worth less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance for Class Y shares will vary from the performance of Class X shares due to differences in expenses. Expenses are as of each Portfolio's fiscal year end as outlined in the Portfolio's current prospectus.

(1)  Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. If performance information included the effect of these additional charges, the total returns would be lower.


11


Morgan Stanley Variable Investment Series

Expense Examples n June 30, 2014 (unaudited)

As a shareholder of the Portfolio, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, including advisory fees, administration fees, distribution and services (12b-1) fees, and other Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period 01/01/14 – 06/30/14.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any insurance company charges. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher.


12


Morgan Stanley Variable Investment Series

Expense Examples n June 30, 2014 (unaudited) continued

Money Market

    Beginning
Account Value		   Ending
Account Value		   Expenses Paid
During Period@		  
   

01/01/14

  

06/30/14

   01/01/14 –
06/30/14		  

Class X

  
Actual (0.00% return)  

$

1,000.00

    

$

1,000.05

    

$

0.89

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,023.90

    

$

0.90

    

Class Y

  
Actual (0.00% return)  

$

1,000.00

    

$

1,000.05

    

$

0.89

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,023.90

    

$

0.90

    

  @  Expenses are equal to the Portfolio's annualized expense ratios of 0.18% and 0.18% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 0.67% and 0.92% for Class X and Class Y shares, respectively.

Limited Duration

    Beginning
Account Value		   Ending
Account Value		   Expenses Paid
During Period@		  
   

01/01/14

  

06/30/14

   01/01/14 –
06/30/14		  

Class X

  
Actual (1.13% return)  

$

1,000.00

    

$

1,011.30

    

$

3.84

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,020.98

    

$

3.86

    

Class Y

  
Actual (1.11% return)  

$

1,000.00

    

$

1,011.10

    

$

5.09

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,019.74

    

$

5.11

    

  @  Expenses are equal to the Portfolio's annualized expense ratios of 0.77% and 1.02% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

Income Plus

    Beginning
Account Value		   Ending
Account Value		   Expenses Paid
During Period@		  
   

01/01/14

  

06/30/14

   01/01/14 –
06/30/14		  

Class X

  
Actual (6.42% return)  

$

1,000.00

    

$

1,064.20

    

$

3.22

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,021.67

    

$

3.16

    

Class Y

  
Actual (6.22% return)  

$

1,000.00

    

$

1,062.20

    

$

4.50

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,020.43

    

$

4.41

    

  @  Expenses are equal to the Portfolio's annualized expense ratios of 0.63% and 0.88% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).


13


Morgan Stanley Variable Investment Series

Expense Examples n June 30, 2014 (unaudited) continued

European Equity

    Beginning
Account Value		   Ending
Account Value		   Expenses Paid
During Period@		  
   

01/01/14

  

06/30/14

   01/01/14 –
06/30/14		  

Class X

  
Actual (2.04% return)  

$

1,000.00

    

$

1,020.40

    

$

5.01

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,019.84

    

$

5.01

    

Class Y

  
Actual (1.92% return)  

$

1,000.00

    

$

1,019.20

    

$

6.26

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,018.60

    

$

6.26

    

  @  Expenses are equal to the Portfolio's annualized expense ratios of 1.00% and 1.25% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). If the Portfolio had borne all of its expenses, the annualized expense ratios would have been 1.22% and 1.47% for Class X and Class Y shares, respectively.

Multi Cap Growth

    Beginning
Account Value		   Ending
Account Value		   Expenses Paid
During Period@		  
   

01/01/14

  

06/30/14

   01/01/14 –
06/30/14		  

Class X

  
Actual (1.90% return)  

$

1,000.00

    

$

1,019.00

    

$

2.85

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,021.97

    

$

2.86

    

Class Y

  
Actual (1.77% return)  

$

1,000.00

    

$

1,017.70

    

$

4.10

    
Hypothetical (5% annual return before expenses)  

$

1,000.00

    

$

1,020.73

    

$

4.11

    

  @  Expenses are equal to the Portfolio's annualized expense ratios of 0.57% and 0.82% for Class X and Class Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).


14


Morgan Stanley Variable Investment Series

Investment Advisory Agreement Approval n June 30, 2014 (unaudited)

Nature, Extent and Quality of Services

The Board reviewed and considered the nature and extent of the investment advisory services provided by the Adviser (as defined herein) under the advisory agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board reviewed similar information and factors regarding the Sub-Adviser (as defined herein), to the extent applicable. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Adviser under the administration agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Adviser's expense. (The Adviser and Sub-Adviser together are referred to as the "Adviser" and the advisory, sub-advisory and administration agreements together are referred to as the "Management Agreement.") The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper, Inc. ("Lipper").

The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and advisory services to the Portfolios. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Portfolios and supported its decision to approve the Management Agreement.

Performance, Fees and Expenses of the Portfolios

The Board reviewed the performance, fees and expenses of the Portfolios compared to their peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Portfolios. When considering a fund's performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance, as of December 31, 2013, or since inception, as applicable). When a fund underperforms its benchmark and/or its peer group average, they discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel.

Performance

The Board noted that the performance of the European Equity, Income Plus and Multi Cap Growth Portfolios was better than the peer group averages for the one-, three- and five-year periods.

The Board noted that the performance of the Limited Duration Portfolio was better than its peer group average for the three-year period but below its peer group average for the one- and five-year periods.


15


Morgan Stanley Variable Investment Series

Investment Advisory Agreement Approval n June 30, 2014 (unaudited) continued

The Board noted that the performance of the Money Market Portfolio was better than its peer group average for the one- and three-year periods but below its peer group average for the five-year period.

Performance Conclusions

With respect to the European Equity, Income Plus, Limited Duration, Money Market and Multi Cap Growth Portfolios, after discussion, the Board concluded that performance was competitive with the peer group averages.

Fees and Expenses

The Board members discussed with the Adviser the level of the advisory and administration fees (together, the "management fee") for the Portfolios relative to comparable funds and/or other accounts advised by the Adviser and/or compared to their peers as determined by Lipper. In addition to the management fee, the Board also reviewed the Portfolios' total expense ratios.

The Board noted that the management fees and total expense ratios for the European Equity, Income Plus, Money Market and Multi Cap Growth Portfolios were lower than the peer group averages.

The Board noted that while the Limited Duration Portfolio's management fee was lower than its peer group average, the total expense ratio was higher but close to its peer group average.

Fee and Expense Conclusions

With respect to the European Equity, Income Plus, Limited Duration, Money Market and Multi Cap Growth Portfolios, after discussion, the Board concluded that the management fees and total expense ratios were competitive with the peer group averages.

Economies of Scale

The Board considered the size and growth prospects of the Portfolios and how that relates to the Portfolios' total expense ratios and particularly the Portfolios' management fee rates (which, for all the Portfolios except Limited Duration, include one or more breakpoints). In conjunction with its review of the Adviser's profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Portfolios and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of each Portfolio supports its decision to approve the Management Agreement.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and its affiliates during the last year from their relationship with the Portfolios and during the last two years from their relationship


16


Morgan Stanley Variable Investment Series

Investment Advisory Agreement Approval n June 30, 2014 (unaudited) continued

with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. The Board has determined that its review of the analysis of the Adviser's expenses and profitability supports its decision to approve the Management Agreement.

Other Benefits of the Relationship

The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Portfolios and other funds advised by the Adviser. These benefits may include, among other things, research received by the Adviser generated from commission dollars spent on funds' portfolio trading, and fees for trading, distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of the Adviser's costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.

Resources of the Adviser and Historical Relationship Between the Portfolios and the Adviser

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board also reviewed and considered the historical relationship between the Portfolios and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Portfolios' operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Portfolios to continue their relationship with the Adviser.

Other Factors and Current Trends

The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund's Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund's business.

General Conclusion

After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of each Portfolio and its shareholders to approve renewal of the Management Agreement for another year. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors over the course of numerous meetings, some of which were in executive session with only the independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors differently in reaching their individual decisions to approve the Management Agreement.


17



Morgan Stanley Variable Investment Series - Money Market

Portfolio of Investments n June 30, 2014 (unaudited)

PRINCIPAL
AMOUNT
(000)		  


  ANNUALIZED
YIELD
ON DATE OF
PURCHASE		   MATURITY
DATE		  

VALUE

  
   

Repurchase Agreements (36.5%)

  

$

5,000

     ABN Amro Securities LLC, (dated 06/30/14;
proceeds $5,000,014; fully collateralized by a
U.S. Government agency security, 3.50%
due 10/01/26; valued at $5,150,000)		    

0.10

%

  

07/01/14

  

$

5,000,000

    
 

500

     ABN Amro Securities LLC, (dated 06/17/14;
proceeds $500,113; fully collateralized by
various Common Stocks; valued at $525,050)
(Demand 07/07/14)		    

0.27

(a)

  

07/17/14

    

500,000

    
 

8,300

     BNP Paribas Securities Corp., (dated 06/30/14;
proceeds $8,300,023; fully collateralized by
various U.S. Government agency securities,
2.21% - 7.50% due 09/15/29 - 06/20/44;
valued at $8,549,000)		    

0.10

    

07/01/14

    

8,300,000

    
 

2,500

     BNP Paribas Securities Corp., (dated 06/30/14;
proceeds $2,500,013; fully collateralized by
various Common Stocks and Preferred Stocks;
valued at $2,625,048)		    

0.18

    

07/01/14

    

2,500,000

    
 

2,000

     Credit Suisse Securities USA, (dated 06/17/14;
proceeds $2,003,230; fully collateralized by a
Corporate Bond, 7.50% due 09/15/18; valued
at $2,122,262)		    

0.63

    

09/17/14

    

2,000,000

    
 

500

     ING Financial Markets LLC, (dated 06/30/14;
proceeds $500,002; fully collateralized by a
Corporate Bond, 6.40% due 06/15/18; valued
at $528,368)		    

0.13

    

07/01/14

    

500,000

    
 

250

     ING Financial Markets LLC, (dated 06/16/14;
proceeds $250,042; fully collateralized by a
Corporate Bond, 6.40% due 06/15/18; valued
at $264,184) (Demand 07/07/14)		    

0.20

(a)

  

07/16/14

    

250,000

    
 

750

     ING Financial Markets LLC, (dated 06/30/14;
proceeds $750,005; fully collateralized by a
Corporate Bond, 5.32% due 09/15/16; valued
at $792,824)		    

0.26

    

07/01/14

    

750,000

    
 

200

     ING Financial Markets LLC, (dated 06/10/14;
proceeds $200,058; fully collateralized by a
Corporate Bond, 5.32% due 09/15/16; valued
at $210,680) (Demand 07/07/14)		    

0.35

(a)

  

07/10/14

    

200,000

    

See Notes to Financial Statements
18


Morgan Stanley Variable Investment Series - Money Market

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  


  ANNUALIZED
YIELD
ON DATE OF
PURCHASE		   MATURITY
DATE		  

VALUE

  

$

100

     ING Financial Markets LLC, (dated 04/28/14;
proceeds $100,132; fully collateralized by a
Corporate Bond, 5.32% due 09/15/16; valued
at $105,340) (Demand 07/07/14)		    

0.39

(a)%

  

08/28/14

  

$

100,000

    
 

2,000

     Merrill Lynch Pierce Fenner & Smith, (dated
06/30/14; proceeds $2,000,011; fully
collateralized by various Common Stocks and
Preferred Stocks; valued at $2,100,004)		    

0.20

    

07/01/14

    

2,000,000

    
 

500

     Merrill Lynch Pierce Fenner & Smith, (dated
02/04/14; proceeds $501,156; fully
collateralized by various Common Stocks,
Convertible Bonds, 2.75% - 5.00% due
04/15/15 - 12/15/20, Convertible Preferred
Stocks and a Preferred Stock; valued
at $545,472) (Demand 07/01/14)		    

0.46

(a)

  

08/04/14

    

500,000

    
 

750

     RBC Capital Markets LLC, (dated 04/11/14;
proceeds $750,626; fully collateralized by
various Corporate Bonds, 4.25% - 9.00%
due 02/12/15 - 09/15/21; valued at $795,000)
(Demand 07/07/14)		    

0.33

(a)

  

07/11/14

    

750,000

    
 

250

     RBC Capital Markets LLC, (dated 06/12/14;
proceeds $250,211; fully collateralized by
various Corporate Bonds, 7.25% - 8.13%
due 05/15/17 - 09/19/23; valued at $265,000)
(Demand 07/07/14)		    

0.33

(a)

  

09/12/14

    

250,000

    
 

300

     RBS Securities, Inc., (dated 06/30/14; proceeds
$300,003; fully collateralized by a U.S.
Government Obligation, 0.13% due 04/15/16;
valued at $308,762)		    

0.33

    

07/01/14

    

300,000

    
 

500

     TD Securities USA LLC, (dated 06/30/14;
proceeds $500,002; fully collateralized by
various Corporate Bonds, 2.90% - 4.88%
due 08/04/20 - 11/15/21 and a U.S.
Government agency security, 3.50%
due 06/01/43; valued at $518,844)		    

0.11

    

07/01/14

    

500,000

    
 

500

     Wells Fargo Securities LLC, (dated 04/28/14;
proceeds $500,569; fully collateralized by
various Corporate Bonds, 0.51% - 7.88%
due 10/29/15 - 12/15/18; valued at $530,316)		    

0.45

    

07/28/14

    

500,000

    
    Total Repurchase Agreements
(Cost $24,900,000)		    

24,900,000

    

See Notes to Financial Statements
19


Morgan Stanley Variable Investment Series - Money Market

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  


  ANNUALIZED
YIELD
ON DATE OF
PURCHASE		   MATURITY
DATE		  

VALUE

  
   

Certificates of Deposit (20.7%)

  
   

Domestic Banks (4.0%)

  

$

2,000

    

Branch Banking & Trust Co.

    

0.19

%

  

07/22/14

  

$

2,000,000

    
 

700

    

Citibank NA

    

0.19

    

08/18/14

    

700,000

    
     

2,700,000

    
   

International Banks (16.7%)

  
 

250

    

Banco Del Estado De Chile

    

0.19

    

10/01/14

    

250,000

    
 

3,000

    

Bank of Montreal

    

0.08

    

07/01/14

    

3,000,000

    
 

1,700

    

Credit Industriel et Commercial

    

0.33

    

07/23/14 - 10/03/14

    

1,700,000

    
 

850

    

Oversea Chinese Banking Corporation

    

0.20 - 0.23

    

08/15/14 - 09/03/14

    

850,000

    
 

1,300

    

Sumitomo Mitsui Banking Corp.

    

0.10 - 0.23

    

07/01/14 - 10/01/14

    

1,300,000

    
 

300

    

Sumitomo Trust & Banking Co., Ltd.

    

0.22

    

08/07/14

    

300,001

    
 

2,500

    

Swedbank AB

    

0.09

    

07/01/14

    

2,500,000

    
 

1,500

    

Toronto Dominion Bank

    

0.07

    

07/02/14

    

1,500,000

    
     

11,400,001

    
    Total Certificates of Deposit
(Cost $14,100,001)		    

14,100,001

    
   

Commercial Paper (16.1%)

  
   

Domestic Bank (2.1%)

  
 

1,400

    

JP Morgan Securities LLC (b)

    

0.28

    

07/14/14

    

1,399,858

    
   

Food & Beverage (2.8%)

  
 

1,000

    

Coca-Cola Co. (b)

    

0.18

    

09/02/14 - 01/02/15

    

999,518

    
 

900

    

Nestle Capital Corp. (b)

    

0.18 - 0.20

    

08/19/14 - 10/22/14

    

899,611

    
     

1,899,129

    
   

International Banks (11.2%)

  
 

300

    

ASB Finance Ltd.

    

0.19

    

09/10/14

    

299,888

    
 

1,000

    

Bank of Nova Scotia

    

0.20

    

07/01/14

    

1,000,000

    
 

200

    

Banque Et Caisse

    

0.23

    

01/06/15

    

199,759

    
 

600

    

Commonwealth Bank of Australia

    

0.20

    

12/05/14

    

599,477

    
 

1,000

    

DBS Bank Ltd. (b)

    

0.22 - 0.24

    

07/01/14 - 11/26/14

    

999,316

    
 

850

    

DBS Bank Ltd.

    

0.22 - 0.24

    

07/21/14 - 11/25/14

    

849,681

    
 

700

    

Nordea Bank AB (b)

    

0.23

    

10/22/14

    

699,506

    
 

1,750

    

Sumitomo Mitsui Banking Corp.

    

0.23

    

07/03/14

    

1,749,978

    
 

500

    

United Overseas Bank Ltd.

    

0.25

    

09/25/14

    

499,701

    
 

750

    

United Overseas Bank Ltd. (b)

    

0.30

    

03/24/15

    

748,338

    
     

7,645,644

    
    Total Commercial Paper
(Cost $10,944,631)		    

10,944,631

    

See Notes to Financial Statements
20


Morgan Stanley Variable Investment Series - Money Market

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  
  COUPON
RATE(a)		   DEMAND
DATE(c)		   MATURITY
DATE		  

VALUE

  
   

Floating Rate Notes (11.5%)

  
   

Domestic Bank (0.6%)

  

$

400

    

U.S. Bank NA

    

0.17

%

  

07/09/14

  

12/09/14

  

$

400,000

    
   

International Banks (10.9%)

  
 

1,000

    

Bank of Nova Scotia

    

0.24

    

08/18/14

  

02/17/15

    

1,000,000

    
 

500

    

DBS Bank Ltd. (b)

    

0.24

    

09/30/14

  

09/30/14

    

499,989

    
 

2,750

    

Rabobank Nederland NY

    

0.28 - 0.31

    

08/28/14 - 10/06/14

  

11/28/14 - 07/06/15

    

2,750,000

    
 

1,000

    

Toronto Dominion Bank

    

0.22

    

07/07/14 - 08/06/14

  

02/06/15 - 06/08/15

    

1,000,000

    
 

2,200

    

Westpac Banking Corp.

    

0.23 - 0.24

    

08/06/14 - 09/15/14

  

12/15/14 - 05/06/15

    

2,199,958

    
     

7,449,947

    
        Total Floating Rate Notes
(Cost $7,849,947)		                

7,849,947

    
   

Extendible Floating Rate Notes (10.7%)

  
   

Domestic Banks (5.9%)

  
 

2,000

     JP Morgan Chase Bank NA
(Extendible Maturity Date
07/07/15)		    

0.35

    

09/08/14

  

03/07/19

    

2,000,000

    
 

2,000

     Wells Fargo Bank NA
(Extendible Maturity Date
07/15/15 - 07/20/15)		    

0.32

    

07/21/14 - 09/15/14

  

03/20/19 - 07/15/19

    

2,000,000

    
     

4,000,000

    
   

International Banks (4.8%)

  
 

1,000

     Bank of Nova Scotia
(Extendible Maturity Date
07/30/15)		    

0.32

    

07/30/14

  

01/31/19

    

1,000,000

    
 

1,000

     Royal Bank of Canada
(Extendible Maturity Date
07/01/15)		    

0.32

    

07/01/14

  

04/01/19

    

999,957

    
 

1,300

     Svenska Handelsbanken AB (b)
(Extendible Maturity Date
12/15/14)		    

0.28

    

07/15/14

  

05/13/16

    

1,300,000

    
     

3,299,957

    
        Total Extendible Floating Rate Notes
(Cost $7,299,957)		                

7,299,957

    

See Notes to Financial Statements
21


Morgan Stanley Variable Investment Series - Money Market

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  


  ANNUALIZED
YIELD
ON DATE OF
PURCHASE		   MATURITY
DATE		  

VALUE

  
   

Time Deposit (4.4%)

  
   

International Bank

  

$

3,000

     Credit Agricole CIB Grand Cayman
(Cost $3,000,000)		    

0.07

%

  

07/01/14

  

$

3,000,000

    
    Total Investments
(Cost $68,094,536)		        

99.9

%

    

68,094,536

    
   

Other Assets in Excess of Liabilities

        

0.1

      

83,501

    
   

Net Assets

        

100.0

%

  

$

68,178,037

    

  (a)  Rate shown is the rate in effect at June 30, 2014.

  (b)  144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

  (c)  Date of next interest rate reset.

MATURITY SCHEDULE†

1 - 30 Days    

69.2

%

  
31 - 60 Days    

7.8

    
61 - 90 Days    

14.5

    
91 - 120 Days    

4.8

    
121 + Days    

3.7

    
     

100.0

%

  

†  As a percentage of total investments

See Notes to Financial Statements
22


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  
   

Corporate Bonds (66.4%)

  
   

Basic Materials (1.8%)

  

$

190

    

ArcelorMittal (Luxembourg)

    

9.50

%

  

02/15/15

  

$

199,738

    
 

85

    

Ecolab, Inc.

    

1.00

    

08/09/15

    

85,439

    
 

115

    

Ecolab, Inc.

    

3.00

    

12/08/16

    

120,346

    
 

175

    

Goldcorp, Inc. (Canada)

    

2.125

    

03/15/18

    

175,683

    
 

125

    

Rio Tinto Finance USA PLC (United Kingdom)

    

1.375

    

06/17/16

    

126,412

    
         

707,618

    
   

Communications (6.7%)

  
 

300

    

AT&T, Inc.

    

2.375

    

11/27/18

    

305,348

    
 

375

    

AT&T, Inc.

    

2.50

    

08/15/15

    

383,248

    
 

225

    

Baidu, Inc. (China)

    

3.25

    

08/06/18

    

233,025

    
 

180

    

Comcast Corp.

    

5.70

    

05/15/18

    

207,546

    
 

225

    

Orange SA (France)

    

2.75

    

02/06/19

    

230,728

    
 

125

    

Thomson Reuters Corp. (Canada)

    

1.30

    

02/23/17

    

125,237

    
 

175

    

Time Warner Cable, Inc.

    

6.75

    

07/01/18

    

207,264

    
 

425

    

Verizon Communications, Inc.

    

2.55

    

06/17/19

    

431,645

    
 

225

    

Viacom, Inc.

    

2.50

    

09/01/18

    

230,198

    
 

275

    

Vodafone Group PLC (United Kingdom)

    

1.25

    

09/26/17

    

273,557

    
         

2,627,796

    
   

Consumer, Cyclical (4.4%)

  
 

210

    

CVS Caremark Corp.

    

2.25

    

12/05/18

    

212,789

    
 

250

    

Daimler Finance North America LLC (Germany) (a)

    

2.375

    

08/01/18

    

256,328

    
 

230

    

Glencore Funding LLC (a)

    

1.70

    

05/27/16

    

232,202

    
 

200

    

Home Depot, Inc.

    

2.00

    

06/15/19

    

200,370

    
 

240

    

Nissan Motor Acceptance Corp. (a)

    

2.65

    

09/26/18

    

246,547

    
 

200

    

Target Corp.

    

2.30

    

06/26/19

    

201,693

    
 

250

     Volkswagen International Finance N.V.
(Germany) (a)		    

1.125

    

11/18/16

    

251,029

    
 

135

    

Wesfarmers Ltd. (Australia) (a)

    

2.983

    

05/18/16

    

140,276

    
         

1,741,234

    
   

Consumer, Non-Cyclical (8.7%)

  
 

265

    

AbbVie, Inc.

    

1.75

    

11/06/17

    

266,661

    
 

250

    

Altria Group, Inc.

    

4.125

    

09/11/15

    

260,204

    
 

150

    

Amgen, Inc.

    

2.50

    

11/15/16

    

155,454

    
 

165

    

Anheuser-Busch InBev Worldwide, Inc. (Belgium)

    

4.125

    

01/15/15

    

168,326

    
 

200

     BAT International Finance PLC
(United Kingdom) (a)		    

1.40

    

06/05/15

    

201,743

    
 

265

    

Baxter International, Inc.

    

1.85

    

06/15/18

    

265,657

    
 

100

    

Covidien International Finance SA

    

1.35

    

05/29/15

    

100,834

    

See Notes to Financial Statements
23


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

210

    

Experian Finance PLC (United Kingdom) (a)

    

2.375

%

  

06/15/17

  

$

215,058

    
 

120

    

General Mills, Inc.

    

0.875

    

01/29/16

    

120,574

    
 

350

    

Gilead Sciences, Inc.

    

3.05

    

12/01/16

    

366,987

    
 

75

    

Kellogg Co.

    

1.125

    

05/15/15

    

75,539

    
 

250

    

Kraft Foods Group, Inc.

    

2.25

    

06/05/17

    

256,994

    
 

150

    

Kroger Co. (The)

    

2.30

    

01/15/19

    

151,687

    
 

100

    

Mastercard, Inc.

    

2.00

    

04/01/19

    

100,520

    
 

370

    

McKesson Corp.

    

3.25

    

03/01/16

    

385,017

    
 

100

    

Ventas Realty LP

    

1.55

    

09/26/16

    

101,073

    
 

240

    

WellPoint, Inc.

    

1.875

    

01/15/18

    

241,891

    
         

3,434,219

    
   

Diversified (0.5%)

  
 

200

    

LVMH Moet Hennessy Louis Vuitton SA (France) (a)

    

1.625

    

06/29/17

    

202,332

    
   

Energy (2.6%)

  
 

225

    

DCP Midstream Operating LP

    

2.70

    

04/01/19

    

228,160

    
 

50

    

Enbridge, Inc. (Canada)

    

0.678

(b)

  

06/02/17

    

50,137

    
 

175

    

EnLink Midstream Partners LP

    

2.70

    

04/01/19

    

177,687

    
 

115

    

Enterprise Products Operating LLC

    

1.25

    

08/13/15

    

115,842

    
 

180

    

Marathon Petroleum Corp.

    

3.50

    

03/01/16

    

188,048

    
 

275

    

Phillips 66

    

1.95

    

03/05/15

    

277,798

    
         

1,037,672

    
   

Finance (32.2%)

  
 

265

    

ABB Treasury Center USA, Inc. (Switzerland) (a)

    

2.50

    

06/15/16

    

273,030

    
 

120

     Abbey National Treasury Services PLC
(United Kingdom)		    

3.05

    

08/23/18

    

125,789

    
 

230

    

ABN Amro Bank N.V. (Netherlands) (a)

    

2.50

    

10/30/18

    

233,489

    
 

110

    

Aflac, Inc.

    

3.45

    

08/15/15

    

113,656

    
 

200

    

American Express Credit Corp.

    

2.125

    

03/18/19

    

201,074

    
 

205

    

American Honda Finance Corp. (Japan) (a)

    

1.60

    

02/16/18

    

205,830

    
 

200

     Australia & New Zealand Banking Group Ltd.
(Australia)		    

1.45

    

05/15/18

    

197,877

    
 

400

    

Bank of America Corp.

    

2.60

    

01/15/19

    

405,136

    
 

195

    

Bank of Montreal, MTN (Canada)

    

1.40

    

09/11/17

    

195,688

    
 

210

    

BB&T Corp.

    

2.25

    

02/01/19

    

212,841

    
 

200

    

Berkshire Hathaway Finance Corp.

    

2.90

    

10/15/20

    

206,275

    
 

100

    

BioMed Realty LP

    

2.625

    

05/01/19

    

100,713

    
 

210

    

BNP Paribas SA, MTN (France)

    

2.70

    

08/20/18

    

215,041

    
 

260

    

BNZ International Funding Ltd. (New Zealand) (a)

    

2.35

    

03/04/19

    

261,319

    
 

110

    

Canadian Imperial Bank of Commerce (Canada)

    

1.55

    

01/23/18

    

110,086

    
 

150

    

Capital One Financial Corp.

    

2.45

    

04/24/19

    

151,575

    
 

300

    

Citigroup, Inc.

    

8.50

    

05/22/19

    

383,856

    

See Notes to Financial Statements
24


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

250

    

Commonwealth Bank of Australia (Australia)

    

1.95

%

  

03/16/15

  

$

252,862

    
 

250

    

Commonwealth Bank of Australia (Australia)

    

2.50

    

09/20/18

    

256,834

    
 

115

     Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (Netherlands)		    

3.375

    

01/19/17

    

121,855

    
 

250

    

Credit Agricole SA (France) (a)

    

2.125

    

04/17/18

    

252,460

    
 

250

    

Credit Suisse (Switzerland)

    

2.30

    

05/28/19

    

250,690

    
 

250

    

Discover Bank

    

2.00

    

02/21/18

    

251,709

    
 

205

    

DNB Bank ASA (Norway) (a)

    

3.20

    

04/03/17

    

215,847

    
 

175

    

ERP Operating LP

    

2.375

    

07/01/19

    

175,893

    
 

275

    

Ford Motor Credit Co., LLC

    

5.00

    

05/15/18

    

306,196

    
 

635

    

General Electric Capital Corp.

    

1.625

    

04/02/18

    

636,615

    
 

325

    

Goldman Sachs Group, Inc. (The)

    

2.375

    

01/22/18

    

330,330

    
 

220

    

HSBC USA, Inc.

    

2.25

    

06/23/19

    

220,984

    
 

255

    

Hyundai Capital America (a)

    

2.125

    

10/02/17

    

259,083

    
 

200

    

ING Bank N.V. (Netherlands) (a)

    

3.75

    

03/07/17

    

212,870

    
 

125

    

ING US, Inc.

    

2.90

    

02/15/18

    

129,641

    
 

200

    

Intesa Sanpaolo SpA (Italy)

    

3.875

    

01/16/18

    

210,962

    
 

170

    

John Deere Capital Corp.

    

1.95

    

12/13/18

    

170,649

    
 

300

    

JPMorgan Chase & Co.

    

1.625

    

05/15/18

    

299,107

    
 

200

    

Lloyds Bank PLC (United Kingdom)

    

2.30

    

11/27/18

    

203,275

    
 

201

    

Macquarie Bank Ltd. (Australia) (a)

    

2.60

    

06/24/19

    

202,505

    
 

275

    

Metropolitan Life Global Funding I (See Note 7) (a)

    

1.50

    

01/10/18

    

273,270

    
 

230

    

Mizuho Corporate Bank Ltd. (Japan) (a)

    

1.85

    

03/21/18

    

231,115

    
 

250

    

National Australia Bank Ltd. (Australia) (a)

    

1.25

    

03/17/17

    

250,753

    
 

270

    

Nationwide Building Society (United Kingdom) (a)

    

4.65

    

02/25/15

    

277,054

    
 

240

    

Nordea Bank AB (Sweden) (a)

    

0.875

    

05/13/16

    

240,690

    
 

250

     PNC Bank NA    

0.80

    

01/28/16

    

250,816

    
 

250

    

Principal Financial Group, Inc.

    

1.85

    

11/15/17

    

251,467

    
 

320

    

Prudential Financial, Inc., MTN

    

4.75

    

09/17/15

    

335,944

    
 

200

    

QBE Insurance Group Ltd. (Australia) (a)

    

2.40

    

05/01/18

    

199,851

    
 

170

     Royal Bank of Scotland Group PLC
(United Kingdom)		    

2.55

    

09/18/15

    

173,558

    
 

40

    

Santander Holdings USA, Inc.

    

3.45

    

08/27/18

    

42,429

    
 

200

    

Skandinaviska Enskilda Banken AB (Sweden) (a)

    

1.75

    

03/19/18

    

199,959

    
 

300

    

Standard Chartered PLC (United Kingdom) (a)

    

3.85

    

04/27/15

    

307,951

    
 

260

    

Sumitomo Mitsui Banking Corp. (Japan)

    

2.45

    

01/10/19

    

266,165

    
 

200

    

Swedbank AB (Sweden) (a)

    

1.75

    

03/12/18

    

199,901

    
 

225

    

Toronto-Dominion Bank (The), MTN (Canada)

    

2.625

    

09/10/18

    

232,542

    
 

120

    

Wells Fargo & Co.

    

2.15

    

01/15/19

    

121,218

    
 

350

    

Westpac Banking Corp. (Australia) (a)

    

1.375

    

05/30/18

    

347,040

    
         

12,755,365

    

See Notes to Financial Statements
25


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  
   

Industrials (2.6%)

      

$

215

    

Eaton Corp.

    

1.50

%

  

11/02/17

  

$

215,441

    
 

200

    

Heathrow Funding Ltd. (United Kingdom) (a)

    

2.50

    

06/25/15

    

203,315

    
 

115

    

Ingersoll-Rand Global Holding Co., Ltd.

    

2.875

    

01/15/19

    

118,009

    
 

75

    

L-3 Communications Corp.

    

1.50

    

05/28/17

    

75,156

    
 

50

    

Precision Castparts Corp.

    

0.70

    

12/20/15

    

50,124

    
 

110

    

Thermo Fisher Scientific, Inc.

    

2.40

    

02/01/19

    

111,239

    
 

250

    

Waste Management, Inc.

    

2.60

    

09/01/16

    

258,792

    
         

1,032,076

    
   

Technology (3.4%)

      
 

100

    

Altera Corp.

    

2.50

    

11/15/18

    

101,641

    
 

200

    

Apple, Inc.

    

2.10

    

05/06/19

    

201,239

    
 

160

    

Applied Materials, Inc.

    

2.65

    

06/15/16

    

165,725

    
 

275

    

EMC Corp.

    

1.875

    

06/01/18

    

277,077

    
 

110

    

Hewlett-Packard Co.

    

3.30

    

12/09/16

    

115,830

    
 

200

    

Oracle Corp.

    

2.25

    

10/08/19

    

199,776

    
 

300

    

TSMC Global Ltd. (Taiwan) (a)

    

1.625

    

04/03/18

    

296,167

    
         

1,357,455

    
   

Utilities (3.5%)

      
 

100

    

Dominion Resources, Inc.

    

1.25

    

03/15/17

    

100,460

    
 

350

    

Enel Finance International N.V. (Italy) (a)

    

3.875

    

10/07/14

    

352,817

    
 

225

    

GDF Suez (France) (a)

    

1.625

    

10/10/17

    

226,563

    
 

175

    

Northeast Utilities

    

1.45

    

05/01/18

    

172,009

    
 

200

    

Origin Energy Finance Ltd. (Australia) (a)

    

3.50

    

10/09/18

    

207,761

    
 

200

    

PSEG Power LLC

    

5.50

    

12/01/15

    

213,424

    
 

110

    

Southern Co. (The)

    

2.45

    

09/01/18

    

112,834

    
         

1,385,868

    
        Total Corporate Bonds
(Cost $26,009,161)		            

26,281,635

    
   

Asset-Backed Securities (19.3%)

      
 

117

    

Ally Auto Receivables Trust

    

0.57

    

08/20/15

    

116,657

    
 

800

    

American Express Credit Account Master Trust

    

1.402

(b)

  

03/15/17

    

801,227

    
 

100

    

American Homes 4 Rent (a)

    

1.25

(b)

  

06/17/31

    

100,228

    
   

CarMax Auto Owner Trust

      
 

166

              

0.52

    

07/17/17

    

165,778

    
 

150

              

0.97

    

04/16/18

    

150,861

    
   

Chase Issuance Trust

      
 

425

              

0.54

    

10/16/17

    

425,438

    
 

573

              

0.59

    

08/15/17

    

573,470

    

See Notes to Financial Statements
26


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

150

    

Citibank Credit Card Issuance Trust

    

2.88

%

  

01/23/23

  

$

153,484

    
 

135

    

Colony American Homes 2014-1 (a)

    

1.40

(b)

  

05/17/31

    

135,570

    
 

112

     Colony American Homes Single-Family Rental
Pass-Through Certificates (a)		    

1.10

(b)

  

07/17/31

    

112,067

    
   

Discover Card Execution Note Trust

      
 

230

              

0.582

(b)

  

07/15/21

    

230,996

    
 

200

              

1.22

    

10/15/19

    

200,565

    
 

169

    

Fifth Third Auto Trust

    

0.88

    

10/16/17

    

169,898

    
 

210

    

Ford Credit Auto Lease Trust

    

0.60

    

03/15/16

    

210,303

    
 

381

    

Ford Credit Auto Owner Trust (a)

    

2.26

    

11/15/25

    

384,865

    
 

375

    

Ford Credit Floorplan Master Owner Trust (a)

    

4.20

    

02/15/17

    

383,878

    
   

GE Dealer Floorplan Master Note Trust

      
 

275

              

0.643

(b)

  

06/20/17

    

275,754

    
 

330

              

0.753

(b)

  

07/20/16

    

330,076

    
 

200

    

Hertz Fleet Lease Funding LP (a)

    

0.704

(b)

  

12/10/27

    

200,495

    
   

Hyundai Auto Receivables Trust

      
 

307

              

0.90

    

12/17/18

    

307,294

    
 

145

              

1.01

    

02/15/18

    

145,914

    
 

138

    

Invitation Homes Trust (a)

    

1.154

(b)

  

06/17/31

    

138,529

    
 

475

    

John Deere Owner Trust

    

0.60

    

03/15/17

    

476,147

    
 

225

     North Carolina State Education Assistance
Authority		    

1.029

(b)

  

07/25/25

    

226,663

    
 

98

    

Panhandle-Plains Higher Education Authority, Inc.

    

1.185

(b)

  

07/01/24

    

98,616

    
 

166

    

PFS Tax Lien Trust (a)

    

1.44

    

05/15/29

    

167,174

    
 

202

    

Toyota Auto Receivables Owner Trust

    

0.89

    

07/17/17

    

203,044

    
 

377

    

VOLT XXIV LLC (a)

    

3.25

    

11/25/53

    

378,627

    
 

235

    

Volvo Financial Equipment LLC (a)

    

0.74

    

03/15/17

    

235,499

    
   

World Omni Automobile Lease Securitization Trust

      
 

36

              

0.93

    

11/16/15

    

35,568

    
 

113

              

1.10

    

12/15/16

    

113,757

    
        Total Asset-Backed Securities
(Cost $7,486,870)		            

7,648,442

    
   

Agency Adjustable Rate Mortgages (4.9%)

      
    Federal Home Loan Mortgage Corporation,
Conventional Pools:		      
 

169

              

2.314

    

06/01/36

    

180,119

    
 

154

              

2.353

    

07/01/38

    

163,584

    
 

51

              

2.402

    

07/01/36

    

54,045

    
 

372

              

2.429

    

07/01/38

    

397,042

    
 

38

              

2.681

    

01/01/38

    

40,547

    

See Notes to Financial Statements
27


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  
    Federal National Mortgage Association,
Conventional Pools:		      

$

202

              

2.301

%

  

09/01/38

  

$

215,005

    
 

171

              

2.328

    

05/01/35

    

182,320

    
 

320

              

2.358

    

04/01/38

    

340,875

    
 

223

              

2.44

    

10/01/39

    

237,227

    
    Government National Mortgage Association,
Various Pools:		      
 

111

              

2.00

    

11/20/39 - 02/20/40

    

114,575

    
        Total Agency Adjustable Rate Mortgages
(Cost $1,929,930)		            

1,925,339

    
   

U.S. Treasury Security (3.1%)

      
 

1,200

     U.S. Treasury Note
(Cost $1,207,312)		    

0.875

    

01/31/17

    

1,205,484

    
   

Collateralized Mortgage Obligations - Agency Collateral Series (2.4%)

      
 

245

    

Federal Home Loan Mortgage Corporation

    

1.426

    

08/25/17

    

247,235

    
 

183

    

REMIC

    

7.50

    

09/15/29

    

211,584

    
   

Federal National Mortgage Association

      
 

185

              

0.595

    

08/25/15

    

185,436

    
 

98

              

0.953

    

11/25/15

    

98,617

    
 

221

              

1.083

    

02/25/16

    

222,101

    
        Total Collateralized Mortgage Obligations - Agency Collateral Series
(Cost $952,924)		            

964,973

    
   

Sovereign (1.1%)

      
 

245

     Korea Development Bank (The) (Korea,
Republic of)		    

1.50

    

01/22/18

    

241,958

    
 

200

    

Qatar Government International Bond (Qatar) (a)

    

4.00

    

01/20/15

    

204,000

    
        Total Sovereign
(Cost $453,928)		            

445,958

    
   

Mortgage - Other (0.6%)

      
 

243

     Freddie Mac Structured Agency Credit Risk
Debt Notes
(Cost $242,957)		    

1.152

    

02/25/24

    

243,890

    

See Notes to Financial Statements
28


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  
   

Commercial Mortgage-Backed Securities (0.5%)

      

$

96

    

Citigroup Commercial Mortgage Trust (a)

    

2.11

%

  

01/12/30

  

$

97,927

    
 

100

    

Hilton USA Trust (a)

    

1.151

(b)

  

11/05/30

    

100,187

    
        Total Commercial Mortgage-Backed Securities
(Cost $198,604)		            

198,114

    
   

Agency Fixed Rate Mortgages (0.5%)

      
    Federal National Mortgage Association,
Conventional Pools:		      
 

103

              

6.50

    

01/01/32 - 11/01/33

    

116,838

    
 

64

              

7.00

    

12/01/31 - 06/01/32

    

70,794

    
        Total Agency Fixed Rate Mortgages
(Cost $175,414)		            

187,632

    
   

Short-Term Investments (0.9%)

      
   

U.S. Treasury Securities (0.4%)

      
   

U.S. Treasury Bills

      
 

25

    

(c)(d)

    

0.023

    

08/21/14

    

24,999

    
 

115

    

(c)(d)

    

0.063

    

08/21/14

    

114,990

    
        Total U.S. Treasury Securities
(Cost $139,989)		            

139,989

    
NUMBER OF
SHARES (000)		  
 
 
 
 
   

Investment Company (0.5%)

      
 

190

     Morgan Stanley Institutional Liquidity Funds - Money
Market Portfolio - Institutional Class (See Note 7)
(Cost $190,143) 		   

190,143

    
        Total Short-Term Investments
(Cost $330,132)		            

330,132

    
        Total Investments
(Cost $38,987,232) (e)		        

99.7

%

    

39,431,599

    
       

Other Assets in Excess of Liabilities

        

0.3

      

134,039

    
       

Net Assets

        

100.0

%

  

$

39,565,638

    

  MTN  Medium Term Note.

  REMIC  Real Estate Mortgage Investment Conduit.

  (a)  144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

See Notes to Financial Statements
29


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

  (b)  Variable/Floating Rate Security — Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 2014.

  (c)  Rate shown is the yield to maturity at June 30, 2014.

  (d)  All or a portion of the security was pledged to cover margin requirements for futures contracts and swap agreements.

  (e)  Securities are available for collateral in connection with open futures contracts and swap agreements.

FUTURES CONTRACTS OPEN AT JUNE 30, 2014:

NUMBER OF
CONTRACTS		  

LONG/SHORT

   DESCRIPTION, DELIVERY
MONTH AND YEAR		   UNDERLYING FACE
AMOUNT AT VALUE		   UNREALIZED
APPRECIATION
(DEPRECIATION)		  
 

47

    

Long

   U.S. Treasury 2 yr. Note,
Sep-14		  

$

10,320,906

    

$

(10,281

)

  
 

12

    

Long

   U.S. Treasury 10 yr. Note,
Sep-14		    

1,502,062

      

(6,469

)

  
 

7

    

Long

   U.S. Treasury Long Bond,
Sep-14		    

960,313

      

(4,977

)

  
 

48

    

Short

   U.S. Treasury 5 yr. Note,
Sep-14		    

(5,734,125

)

    

19,000

    

Net Unrealized Depreciation

  

$

(2,727

)

  

CREDIT DEFAULT SWAP AGREEMENTS OPEN AT JUNE 30, 2014:

SWAP
COUNTERPARTY &
REFERENCE
OBLIGATION		   BUY/SELL
PROTECTION		   NOTIONAL
AMOUNT
(000)		   INTEREST
RATE		   TERMINATION
DATE		   UNREALIZED
APPRECIATION
(DEPRECIATION)		   UPFRONT
PAYMENTS
PAID
(RECEIVED)		  

VALUE

   CREDIT
RATING OF
REFERENCE
OBLIGATION†		  
Barclays Bank PLC
Yum! Brands, Inc.		  

Buy

  

$

225

      

1.00

%

  

12/20/18

  

$

(2,726

)

  

$

(3,905

)

  

$

(6,631

)

  

BBB

  
Barclays Bank PLC
Quest  
Diagnostics, Inc.		  

Buy

    

250

      

1.00

    

03/20/19

    

(4,972

)

    

4,798

      

(174

)

  

BBB+

  
Morgan Stanley &
Co., LLC* 
CDX.NA.IG.22		  

Buy

    

600

      

1.00

    

06/20/19

    

258

      

(12,284

)

    

(12,026

)

  

NR

  
Total Credit
Default Swaps		      

$

1,075

            

$

(7,440

)

  

$

(11,391

)

  

$

(18,831

)

      

See Notes to Financial Statements
30


Morgan Stanley Variable Investment Series - Limited Duration

Portfolio of Investments n June 30, 2014 (unaudited) continued

INTEREST RATE SWAP AGREEMENTS OPEN AT JUNE 30, 2014:

SWAP COUNTERPARTY

   NOTIONAL
AMOUNT
(000)		   FLOATING
RATE INDEX		   PAY/RECEIVE
FLOATING RATE		  

FIXED RATE

   TERMINATION
DATE		   UNREALIZED
APPRECIATION		  

Bank of America NA

  

$

660

     3 Month LIBOR  

Receive

    

2.10

%

  

02/05/23

  

$

11,988

    
Goldman Sachs
International		    

1,050

     3 Month LIBOR  

Receive

    

2.09

    

02/15/23

    

21,061

    

Royal Bank of Canada

    

1,060

     3 Month LIBOR  

Receive

    

2.06

    

02/06/23

    

23,427

    

Total Unrealized Appreciation

                      

$

56,476

    

  LIBOR  London Interbank Offered Rate.

  NR  Not Rated.

  *  Cleared swap agreement, the broker is Morgan Stanley & Co., LLC.

  †  Credit rating as issued by Standard & Poor's.

LONG TERM CREDIT ANALYSIS+

  

AAA

    

20.0

%

  

AA

    

23.1

    

A

    

37.9

    

BBB

    

17.0

    

BB

    

0.5

    

Not Rated

    

1.5

    
     

100.0

%++

  

+  The ratings shown are based on the Portfolio's security ratings as determined by Standard & Poor's, Moody's or Fitch, each a Nationally Recognized Statistical Ratings Organization ("NRSRO").

++  Does not include open long/short futures contracts with an underlying face amount of $18,517,406 with net unrealized depreciation of $2,727. Also does not include open swap agreements with net unrealized appreciation of $49,036.

See Notes to Financial Statements
31



Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  
   

Corporate Bonds (97.1%)

  
   

Basic Materials (4.8%)

  

$

545

    

ArcelorMittal (Luxembourg)

    

10.35

%

  

06/01/19

  

$

700,325

    
 

225

    

Ashland, Inc.

    

6.875

    

05/15/43

    

243,563

    
 

790

    

BHP Billiton Finance USA Ltd. (Australia)

    

3.85

    

09/30/23

    

830,061

    
 

390

    

Eldorado Gold Corp. (Canada) (a)

    

6.125

    

12/15/20

    

395,850

    
 

940

    

Freeport-McMoRan Copper & Gold, Inc.

    

3.875

    

03/15/23

    

938,856

    
 

690

    

Glencore Funding LLC (Switzerland) (a)

    

4.125

    

05/30/23

    

694,279

    
 

540

    

Goldcorp, Inc. (Canada)

    

3.70

    

03/15/23

    

533,604

    
 

175

    

Goldcorp, Inc. (Canada)

    

5.45

    

06/09/44

    

180,120

    
 

535

    

Incitec Pivot Ltd. (Australia) (a)

    

4.00

    

12/07/15

    

555,951

    
 

545

    

Lubrizol Corp.

    

8.875

    

02/01/19

    

700,621

    
 

470

    

NOVA Chemicals Corp. (a)

    

5.25

    

08/01/23

    

515,237

    
 

375

    

Rockwood Specialties Group, Inc.

    

4.625

    

10/15/20

    

390,937

    
 

195

    

Vale Overseas Ltd. (Brazil)

    

6.875

    

11/21/36

    

216,848

    
 

210

    

Vale Overseas Ltd. (Brazil)

    

6.875

    

11/10/39

    

234,265

    
         

7,130,517

    
   

Communications (10.6%)

  
 

375

    

AT&T, Inc.

    

5.35

    

09/01/40

    

409,380

    
 

875

    

AT&T, Inc.

    

6.30

    

01/15/38

    

1,062,421

    
 

200

    

Baidu, Inc. (China)

    

2.75

    

06/09/19

    

201,009

    
 

200

    

Baidu, Inc. (China)

    

3.25

    

08/06/18

    

207,133

    
 

310

    

Cablevision Systems Corp.

    

7.75

    

04/15/18

    

351,462

    
 

575

    

CC Holdings GS V LLC/Crown Castle GS III Corp.

    

3.849

    

04/15/23

    

578,302

    
 

200

    

Columbus International, Inc. (Barbados) (a)

    

7.375

    

03/30/21

    

216,250

    
 

670

    

Comcast Corp.

    

6.40

    

05/15/38

    

856,810

    
 

195

    

CSC Holdings LLC

    

6.75

    

11/15/21

    

215,231

    
 

251

    

Ctrip.com International Ltd. (a)

    

1.25

    

10/15/18

    

274,374

    
 

675

    

DirecTV Holdings LLC/DirecTV Financing Co., Inc.

    

3.80

    

03/15/22

    

698,177

    
 

285

    

ENTEL Chile SA (Chile) (a)

    

4.875

    

10/30/24

    

297,495

    
 

325

    

Juniper Networks, Inc.

    

4.50

    

03/15/24

    

340,577

    
 

470

    

Lamar Media Corp. (a)

    

5.375

    

01/15/24

    

488,800

    
 

350

    

MDC Partners, Inc. (Canada) (a)

    

6.75

    

04/01/20

    

371,000

    
 

675

    

NBC Universal Media LLC

    

5.95

    

04/01/41

    

831,779

    
 

350

    

Omnicom Group, Inc.

    

3.625

    

05/01/22

    

360,682

    
 

250

    

Priceline Group, Inc.

    

0.35

    

06/15/20

    

296,406

    
 

900

    

Qtel International Finance Ltd. (Qatar) (a)

    

3.25

    

02/21/23

    

866,250

    
 

243

    

SINA Corp. (China) (a)

    

1.00

    

12/01/18

    

223,560

    
 

580

    

Telefonica Europe BV (Spain)

    

8.25

    

09/15/30

    

795,081

    
 

125

    

Time Warner Cable, Inc.

    

4.50

    

09/15/42

    

122,165

    
 

1,200

    

Time Warner Cable, Inc.

    

6.75

    

07/01/18

    

1,421,242

    
 

410

    

Time Warner, Inc.

    

7.70

    

05/01/32

    

570,906

    

See Notes to Financial Statements
32


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

350

    

Verizon Communications, Inc.

    

5.15

%

  

09/15/23

  

$

392,410

    
 

2,025

    

Verizon Communications, Inc.

    

6.55

    

09/15/43

    

2,557,680

    
 

500

    

Viacom, Inc.

    

5.85

    

09/01/43

    

576,545

    
 

226

    

Yahoo!, Inc. (a)

    

0.00

    

12/01/18

    

226,000

    
         

15,809,127

    
   

Consumer, Cyclical (6.1%)

  
 

413

    

American Airlines Pass-Through Trust (a)

    

4.00

    

07/15/25

    

421,239

    
 

873

    

American Airlines Pass-Through Trust (a)

    

4.95

    

01/15/23

    

945,413

    
 

645

    

British Airways PLC (United Kingdom) (a)

    

4.625

    

06/20/24

    

677,212

    
 

425

    

Chrysler Group LLC/CG Co-Issuer, Inc.

    

8.00

    

06/15/19

    

463,781

    
 

395

    

Daimler Finance North America LLC (Germany)

    

8.50

    

01/18/31

    

600,724

    
 

425

    

Exide Technologies (b)(c)

    

8.625

    

02/01/18

    

258,188

    
 

475

    

General Motors Co. (a)

    

4.875

    

10/02/23

    

502,312

    
 

325

    

Guitar Center, Inc. (a)

    

6.50

    

04/15/19

    

322,563

    
 

325

    

Home Depot, Inc.

    

5.875

    

12/16/36

    

403,374

    
 

141

    

Iconix Brand Group, Inc.

    

2.50

    

06/01/16

    

204,450

    
 

75

    

Johnson Controls, Inc.

    

3.625

    

07/02/24

    

75,484

    
 

150

    

Johnson Controls, Inc.

    

4.95

    

07/02/64

    

152,660

    

KRW

200,000

    

Lotte Shopping Co. Ltd., Series LOTT (Korea, Republic of)

    

0.00

    

01/24/18

    

200,221

    

$

575

    

QVC, Inc.

    

4.375

    

03/15/23

    

585,136

    
 

250

    

Target Corp.

    

3.50

    

07/01/24

    

253,352

    
 

220

    

Toll Brothers Finance Corp.

    

0.50

    

09/15/32

    

234,575

    
 

450

    

Toyota Motor Credit Corp. (Japan)

    

2.75

    

05/17/21

    

452,513

    
 

875

    

United Airlines Pass-Through Trust

    

4.30

    

08/15/25

    

901,250

    
 

275

    

US Airways Pass-Through Trust

    

3.95

    

11/15/25

    

279,125

    
 

780

    

Wyndham Worldwide Corp.

    

4.25

    

03/01/22

    

802,939

    
 

265

    

Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp.

    

7.75

    

08/15/20

    

290,175

    
         

9,026,686

    
   

Consumer, Non-Cyclical (10.0%)

  
 

440

    

ADT Corp. (The)

    

6.25

    

10/15/21

    

467,500

    
 

400

    

Albea Beauty Holdings SA (a)

    

8.375

    

11/01/19

    

437,000

    
 

465

    

Altria Group, Inc.

    

5.375

    

01/31/44

    

511,295

    
 

819

    

Amgen, Inc.

    

5.15

    

11/15/41

    

882,101

    
 

775

    

Anheuser-Busch InBev Finance, Inc. (Belgium)

    

3.70

    

02/01/24

    

796,987

    
 

340

    

Aramark Services, Inc.

    

5.75

    

03/15/20

    

361,250

    
 

450

    

BioMarin Pharmaceutical, Inc.

    

1.50

    

10/15/20

    

476,156

    
 

260

     BRF SA (Brazil) (a)    

3.95

    

05/22/23

    

246,350

    
 

500

    

Coca-Cola Co.

    

3.20

    

11/01/23

    

506,400

    
 

350

    

ESAL GmbH (Brazil) (a)

    

6.25

    

02/05/23

    

344,750

    
 

350

    

Gilead Sciences, Inc.

    

4.80

    

04/01/44

    

370,801

    
 

225

    

Grifols Worldwide Operations Ltd. (Spain) (a)

    

5.25

    

04/01/22

    

234,000

    

See Notes to Financial Statements
33


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

HKD

2,000

    

Hengan International Group Co., Ltd. (China)

    

0.00

%

  

06/27/18

  

$

266,760

    

$

131

    

Jarden Corp.

    

1.875

    

09/15/18

    

181,189

    
 

200

    

JBS Investments GmbH (Brazil) (a)

    

7.75

    

10/28/20

    

215,000

    
 

450

    

McKesson Corp.

    

2.70

    

12/15/22

    

431,481

    
 

140

    

McKesson Corp.

    

4.883

    

03/15/44

    

147,605

    
 

760

    

Medtronic, Inc.

    

3.625

    

03/15/24

    

781,080

    
 

770

    

Novartis Capital Corp. (Switzerland)

    

3.40

    

05/06/24

    

781,523

    
 

775

    

PepsiCo, Inc.

    

3.60

    

03/01/24

    

799,951

    
 

321

    

PHH Corp.

    

4.00

    

09/01/14

    

323,408

    
 

600

    

Philip Morris International, Inc.

    

4.50

    

03/20/42

    

612,941

    
 

455

    

RR Donnelley & Sons Co.

    

7.875

    

03/15/21

    

525,525

    
 

425

    

Salix Pharmaceuticals Ltd. (a)

    

6.00

    

01/15/21

    

456,875

    
 

800

    

Sigma Alimentos SA de CV (Mexico) (a)

    

5.625

    

04/14/18

    

888,800

    
 

595

    

Teva Pharmaceutical Finance IV BV (Israel)

    

3.65

    

11/10/21

    

611,575

    
 

370

    

United Rentals North America, Inc.

    

5.75

    

11/15/24

    

385,263

    
 

750

    

UnitedHealth Group, Inc.

    

2.875

    

03/15/23

    

737,141

    
 

930

    

WM Wrigley Jr Co. (a)

    

2.90

    

10/21/19

    

954,763

    
 

190

    

Zimmer Holdings, Inc.

    

5.75

    

11/30/39

    

221,595

    
         

14,957,065

    
   

Diversified (0.2%)

  
 

200

    

Alfa SAB de CV (Mexico) (a)

    

5.25

    

03/25/24

    

209,200

    
   

Energy (8.4%)

  
 

400

    

Anadarko Petroleum Corp.

    

6.45

    

09/15/36

    

511,758

    
 

675

    

Buckeye Partners LP

    

4.15

    

07/01/23

    

696,977

    
 

450

    

Canadian Natural Resources Ltd. (Canada)

    

6.25

    

03/15/38

    

562,125

    
 

400

    

Cimarex Energy Co.

    

5.875

    

05/01/22

    

444,000

    
 

350

    

Continental Resources, Inc.

    

5.00

    

09/15/22

    

381,063

    
 

600

    

DCP Midstream Operating LP

    

3.875

    

03/15/23

    

608,573

    
 

340

    

Denbury Resources, Inc.

    

5.50

    

05/01/22

    

348,075

    
 

510

    

Ecopetrol SA (Colombia)

    

5.875

    

09/18/23

    

573,750

    
 

425

    

Energy Transfer Partners LP

    

3.60

    

02/01/23

    

421,861

    
 

600

    

Energy Transfer Partners LP

    

4.90

    

02/01/24

    

645,527

    

EUR

200

    

Eni SpA, Series GALP (Italy)

    

0.25

    

11/30/15

    

282,185

    

$

650

    

EnLink Midstream Partners LP

    

2.70

    

04/01/19

    

659,979

    
 

850

    

Enterprise Products Operating LLC

    

5.95

    

02/01/41

    

1,015,402

    
 

1,175

    

Kinder Morgan Energy Partners LP

    

3.50

    

09/01/23

    

1,143,373

    
 

100

    

Kinder Morgan Energy Partners LP

    

4.15

    

02/01/24

    

101,619

    
 

200

    

Lukoil International Finance BV (Russia)

    

2.625

    

06/16/15

    

204,250

    
 

375

    

Marathon Petroleum Corp.

    

6.50

    

03/01/41

    

464,724

    
 

500

    

Nexen Energy ULC (Canada)

    

6.40

    

05/15/37

    

603,620

    
 

240

    

Pertamina Persero PT (Indonesia) (a)

    

6.45

    

05/30/44

    

238,800

    

See Notes to Financial Statements
34


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

100

    

Phillips 66

    

5.875

%

  

05/01/42

  

$

120,253

    
 

675

    

Pioneer Natural Resources Co.

    

3.95

    

07/15/22

    

710,078

    
 

245

    

Plains All American Pipeline LP/PAA Finance Corp.

    

6.70

    

05/15/36

    

312,878

    
 

300

    

Rowan Cos., Inc.

    

5.85

    

01/15/44

    

325,025

    
 

355

     Sinopec Group Overseas Development 2012 Ltd.
(China) (a)(d)		    

2.75

    

05/17/17

    

366,261

    
 

225

    

Spectra Energy Capital LLC

    

8.00

    

10/01/19

    

284,195

    
 

450

    

Transocean, Inc.

    

6.375

    

12/15/21

    

521,365

    
         

12,547,716

    
   

Finance (40.4%)

  

EUR

200

    

Aabar Investments PJSC (Germany)

    

4.00

    

05/27/16

    

329,591

    

$

390

    

ABB Treasury Center USA, Inc. (Switzerland) (a)

    

4.00

    

06/15/21

    

416,603

    
 

300

    

Abbey National Treasury Services PLC (United Kingdom)

    

4.00

    

03/13/24

    

310,207

    
 

800

    

ABN Amro Bank N.V. (Netherlands) (a)

    

2.50

    

10/30/18

    

812,136

    
 

475

    

ACE INA Holdings, Inc.

    

3.35

    

05/15/24

    

480,138

    
 

420

    

AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (a)

    

3.75

    

05/15/19

    

423,675

    
 

375

    

Alexandria Real Estate Equities, Inc.

    

3.90

    

06/15/23

    

374,124

    
 

325

    

American Campus Communities Operating Partnership LP

    

3.75

    

04/15/23

    

321,842

    
 

1,285

    

American Financial Group, Inc.

    

9.875

    

06/15/19

    

1,684,618

    
 

375

    

American International Group, Inc.

    

4.875

    

06/01/22

    

418,279

    
 

720

    

American International Group, Inc.

    

6.40

    

12/15/20

    

870,396

    
 

350

    

American International Group, Inc.

    

8.25

    

08/15/18

    

435,235

    
 

370

    

American Tower Corp.

    

3.50

    

01/31/23

    

363,502

    
 

151

    

Ares Capital Corp. (a)

    

4.375

    

01/15/19

    

159,683

    
 

825

    

Banco de Credito del Peru (Peru) (a)

    

6.125

(e)

  

04/24/27

    

882,750

    
 

1,920

    

Bank of America Corp.

    

4.00

    

04/01/24

    

1,963,359

    
 

555

    

Bank of America Corp.

    

7.75

    

05/14/38

    

764,833

    
 

800

    

BBVA Bancomer SA (Mexico) (a)

    

6.50

    

03/10/21

    

906,000

    
 

610

    

Bear Stearns Cos., LLC (The)

    

5.55

    

01/22/17

    

672,829

    
 

300

    

Billion Express Investments Ltd. (China) (d)

    

0.75

    

10/18/15

    

308,250

    
 

365

    

BNP Paribas SA (France)

    

5.00

    

01/15/21

    

407,075

    
 

75

    

Boston Properties LP

    

3.80

    

02/01/24

    

75,996

    
 

425

     BPCE SA (France) (a)    

5.15

    

07/21/24

    

449,557

    
 

385

    

Brookfield Asset Management, Inc. (Canada)

    

5.80

    

04/25/17

    

427,169

    
 

936

    

Capital One Bank, USA NA

    

3.375

    

02/15/23

    

931,402

    
 

300

    

Citigroup, Inc.

    

3.875

    

10/25/23

    

307,877

    
 

170

    

Citigroup, Inc.

    

5.50

    

09/13/25

    

190,033

    
 

170

    

Citigroup, Inc.

    

6.675

    

09/13/43

    

212,398

    
 

1,200

    

Citigroup, Inc.

    

8.125

    

07/15/39

    

1,807,103

    
 

700

    

CNA Financial Corp.

    

7.35

    

11/15/19

    

865,444

    
 

1,175

     Cooperatieve Centrale Raiffeisen-Boerenleenbank BA
(Netherlands)		    

3.95

    

11/09/22

    

1,196,653

    

See Notes to Financial Statements
35


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

260

     Cooperatieve Centrale Raiffeisen-Boerenleenbank BA
(Netherlands) (a)		    

11.00

(e) %

  

06/30/19(f)

  

$

349,749

    
 

270

    

Credit Agricole SA (France) (a)

    

7.875

(e)

  

01/23/24(f)

    

295,313

    
 

825

    

Credit Suisse AG (Switzerland) (a)

    

6.50

    

08/08/23

    

917,812

    
 

425

    

Discover Bank

    

7.00

    

04/15/20

    

511,116

    
 

715

    

Discover Financial Services

    

3.85

    

11/21/22

    

729,264

    
 

1,060

    

Ford Motor Credit Co., LLC

    

4.207

    

04/15/16

    

1,119,212

    
 

600

    

Ford Motor Credit Co., LLC

    

5.00

    

05/15/18

    

668,063

    
 

400

    

Ford Motor Credit Co., LLC

    

5.875

    

08/02/21

    

470,320

    
 

545

    

General Electric Capital Corp.

    

5.30

    

02/11/21

    

620,605

    
 

1,170

    

General Electric Capital Corp., MTN

    

5.875

    

01/14/38

    

1,424,331

    
 

1,650

    

General Electric Capital Corp., Series G

    

6.00

    

08/07/19

    

1,956,694

    
 

620

    

Genworth Financial, Inc.

    

7.70

    

06/15/20

    

765,965

    
 

1,935

    

Goldman Sachs Group, Inc. (The)

    

3.625

    

01/22/23

    

1,946,875

    
 

900

    

Goldman Sachs Group, Inc. (The)

    

6.75

    

10/01/37

    

1,086,173

    
 

950

    

Goodman Funding Pty Ltd. (Australia) (a)

    

6.375

    

04/15/21

    

1,106,357

    
 

600

    

Hartford Financial Services Group, Inc.

    

5.50

    

03/30/20

    

687,451

    
 

1,675

    

HBOS PLC, Series G (United Kingdom) (a)

    

6.75

    

05/21/18

    

1,933,000

    
 

400

    

Healthcare Trust of America Holdings LP

    

3.70

    

04/15/23

    

389,403

    
 

485

    

HSBC Finance Corp.

    

6.676

    

01/15/21

    

580,799

    
 

200

    

HSBC Holdings PLC (United Kingdom)

    

4.25

    

03/14/24

    

206,233

    
 

705

    

HSBC Holdings PLC (United Kingdom)

    

6.50

    

05/02/36

    

868,746

    
 

375

    

HSBC USA, Inc.

    

3.50

    

06/23/24

    

376,851

    
 

750

    

ING Bank N.V. (Netherlands) (a)

    

5.80

    

09/25/23

    

846,410

    
 

420

    

Intesa Sanpaolo SpA (Italy)

    

5.25

    

01/12/24

    

460,160

    
 

310

    

Jefferies Finance LLC/JFIN Co-Issuer Corp. (a)

    

7.375

    

04/01/20

    

327,050

    
 

490

    

JPMorgan Chase & Co.

    

3.20

    

01/25/23

    

487,413

    
 

910

    

JPMorgan Chase & Co.

    

3.875

    

02/01/24

    

938,969

    
 

1,745

    

JPMorgan Chase & Co.

    

4.50

    

01/24/22

    

1,915,117

    
 

275

    

Lincoln National Corp.

    

7.00

    

06/15/40

    

378,321

    
 

1,170

    

Lloyds Bank PLC (United Kingdom) (a)

    

6.50

    

09/14/20

    

1,375,100

    
 

705

    

Macquarie Group Ltd. (Australia) (a)

    

6.00

    

01/14/20

    

799,603

    
 

600

    

Metlife Capital Trust IV (See Note 7) (a)

    

7.875

    

12/15/37

    

748,500

    
 

1,315

    

Nationwide Building Society (United Kingdom) (a)

    

6.25

    

02/25/20

    

1,554,564

    
 

775

    

Nationwide Financial Services, Inc. (a)

    

5.375

    

03/25/21

    

865,525

    
 

375

    

Omega Healthcare Investors, Inc. (a)

    

4.95

    

04/01/24

    

384,886

    
 

370

    

Platinum Underwriters Finance, Inc., Series B

    

7.50

    

06/01/17

    

425,881

    
 

1,035

    

Post Apartment Homes LP

    

3.375

    

12/01/22

    

1,007,855

    
 

350

    

Principal Financial Group, Inc.

    

1.85

    

11/15/17

    

352,053

    
 

425

    

Principal Financial Group, Inc.

    

8.875

    

05/15/19

    

549,270

    
 

925

    

Protective Life Corp.

    

7.375

    

10/15/19

    

1,145,801

    
 

675

    

Prudential Financial, Inc.

    

5.625

(e)

  

06/15/43

    

725,409

    

See Notes to Financial Statements
36


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

135

    

Prudential Financial, Inc., MTN

    

6.625

%

  

12/01/37

  

$

174,281

    
 

775

    

QBE Capital Funding III Ltd. (Australia) (a)

    

7.25

(e)

  

05/24/41

    

836,200

    
 

575

    

Realty Income Corp.

    

3.25

    

10/15/22

    

563,868

    
 

280

    

Santander Holdings USA, Inc.

    

3.45

    

08/27/18

    

297,006

    
 

700

    

Santander US Debt SAU (Spain) (a)

    

3.724

    

01/20/15

    

710,455

    
 

510

    

Standard Chartered PLC (United Kingdom) (a)

    

3.95

    

01/11/23

    

508,232

    
 

550

    

Turkiye Is Bankasi (Turkey) (a)

    

7.85

    

12/10/23

    

610,500

    
 

375

    

Voya Financial, Inc.

    

5.65

(e)

  

05/15/53

    

383,438

    
 

575

    

Weingarten Realty Investors

    

3.375

    

10/15/22

    

564,538

    
 

450

    

Wells Fargo & Co.

    

4.10

    

06/03/26

    

456,739

    
 

670

    

Wells Fargo & Co.

    

4.125

    

08/15/23

    

697,321

    
 

284

    

Wells Fargo & Co.

    

5.606

    

01/15/44

    

326,617

    
         

60,196,171

    
   

Industrials (6.1%)

  
 

522

    

Anixter, Inc.

    

5.625

    

05/01/19

    

563,108

    
 

377

    

Bombardier, Inc. (Canada) (a)

    

6.125

    

01/15/23

    

390,195

    
 

1,000

    

Burlington Northern Santa Fe LLC

    

3.05

    

03/15/22

    

1,006,573

    
 

875

    

Caterpillar, Inc.

    

3.40

    

05/15/24

    

886,770

    
 

330

    

CEVA Group PLC (United Kingdom) (a)

    

7.00

    

03/01/21

    

340,725

    
 

480

    

CRH America, Inc.

    

8.125

    

07/15/18

    

590,622

    
 

248

    

General Cable Corp.

    

4.50

(g)

  

11/15/29

    

246,450

    
 

220

    

General Electric Co.

    

4.50

    

03/11/44

    

230,180

    
 

1,060

    

Heathrow Funding Ltd. (United Kingdom) (a)

    

4.875

    

07/15/21

    

1,161,600

    
 

950

    

Koninklijke Philips N.V. (Netherlands)

    

3.75

    

03/15/22

    

1,000,570

    
 

340

    

L-3 Communications Corp.

    

4.95

    

02/15/21

    

377,334

    
 

510

    

MasTec, Inc.

    

4.875

    

03/15/23

    

504,900

    
 

460

    

Packaging Corp. of America

    

4.50

    

11/01/23

    

493,619

    
 

500

    

Silgan Holdings, Inc. (a)

    

5.50

    

02/01/22

    

520,000

    
 

775

    

Union Pacific Railroad Co. 2014-1 Pass Through Trust

    

3.227

    

05/14/26

    

781,177

    
         

9,093,823

    
   

Information Technology (0.4%)

  
 

600

    

Oracle Corp.

    

4.50

    

07/08/44

    

599,706

    
   

Technology (3.8%)

  
 

475

    

Apple, Inc.

    

4.45

    

05/06/44

    

483,294

    
 

225

    

Hewlett-Packard Co.

    

3.75

    

12/01/20

    

235,516

    
 

495

    

Hewlett-Packard Co.

    

4.65

    

12/09/21

    

540,905

    
 

234

    

Intel Corp.

    

2.95

    

12/15/35

    

291,476

    
 

1,150

    

International Business Machines Corp.

    

1.95

    

02/12/19

    

1,156,846

    
 

255

    

Lam Research Corp.

    

1.25

    

05/15/18

    

349,669

    
 

400

    

NetApp, Inc.

    

2.00

    

12/15/17

    

406,230

    
 

264

    

Nuance Communications, Inc.

    

2.75

    

11/01/31

    

264,990

    

See Notes to Financial Statements
37


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

VALUE

  

$

227

    

NVIDIA Corp. (a)

    

1.00  

%

  

12/01/18

  

$

251,686

    
 

438

    

Salesforce.com, Inc. (a)

    

0.25

    

04/01/18

    

505,069

    
 

325

    

SanDisk Corp. (a)

    

0.50

    

10/15/20

    

410,516

    
 

355

    

Take-Two Interactive Software, Inc.

    

1.75

    

12/01/16

    

466,381

    
 

350

    

Xilinx, Inc.

    

3.00

    

03/15/21

    

353,791

    
         

5,716,369

    
   

Utilities (6.3%)

  
 

775

    

Boston Gas Co. (a)

    

4.487

    

02/15/42

    

797,662

    
 

530

    

CEZ AS (Czech Republic) (a)

    

4.25

    

04/03/22

    

556,405

    
 

495

    

CMS Energy Corp.

    

5.05

    

03/15/22

    

563,518

    
 

280

    

CMS Energy Corp.

    

6.25

    

02/01/20

    

332,739

    
 

440

    

EDP Finance BV (Portugal) (a)

    

4.90

    

10/01/19

    

466,444

    
 

330

    

EDP Finance BV (Portugal) (a)

    

5.25

    

01/14/21

    

350,625

    
 

675

    

Enel Finance International N.V. (Italy) (a)

    

5.125

    

10/07/19

    

760,849

    
 

210

    

Enel SpA (Italy) (a)

    

8.75

(e)

  

09/24/73

    

247,800

    
 

1,400

    

Exelon Generation Co., LLC

    

4.00

    

10/01/20

    

1,477,964

    
 

200

    

Fermaca Enterprises S de RL de CV (Mexico) (a)

    

6.375

    

03/30/38

    

209,500

    
 

850

    

Jersey Central Power & Light Co. (a)

    

4.70

    

04/01/24

    

910,981

    
 

325

    

Origin Energy Finance Ltd. (Australia) (a)

    

3.50

    

10/09/18

    

337,611

    
 

775

    

PPL WEM Holdings Ltd. (a)

    

3.90

    

05/01/16

    

811,907

    
 

590

    

Puget Energy, Inc.

    

6.50

    

12/15/20

    

712,253

    
 

870

    

TransAlta Corp. (Canada)

    

4.50

    

11/15/22

    

883,240

    
         

9,419,498

    
    Total Corporate Bonds
(Cost $134,309,666)		    

144,705,878

    
   

Asset-Backed Securities (0.8%)

  
   

CVS Pass-Through Trust

  
 

934

              

6.036

    

12/10/28

    

1,077,936

    
 

108

    

(a)

    

8.353

    

07/10/31

    

142,973

    
    Total Asset-Backed Securities
(Cost $1,042,752)		    

1,220,909

    
   

Variable Rate Senior Loan Interests (0.4%)

  
   

Consumer, Cyclical (0.2%)

  
 

300

    

Diamond Resorts Corp., Term Loan

    

5.50

    

09/30/14

    

302,625

    
   

Technology (0.2%)

  
 

365

    

Aspect Software, Inc., Term B

    

7.25

    

08/07/14

    

369,497

    
    Total Variable Rate Senior Loan Interests
(Cost $670,306)		    

672,122

    

See Notes to Financial Statements
38


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

NUMBER OF
SHARES		  


 

VALUE

  
   

Convertible Preferred Stock (0.3%)

      
   

Electric Utilities

      
 5,800   NextEra Energy, Inc.
(Cost $328,396)		                  

$

376,942

    
PRINCIPAL
AMOUNT
(000)		  

  COUPON
RATE		   MATURITY
DATE		  

 
   

Short-Term Investments (0.8%)

      
   

U.S. Treasury Securities (0.7%)

      
   

U.S. Treasury Bills

      

$

40

    

(h)(i)

    

0.023

%

  

08/21/14

    

39,999

    
 

60

    

(h)(i)

    

0.04

    

08/21/14

    

59,997

    
 

10

    

(h)(i)

    

0.058

    

08/21/14

    

9,999

    
 

967

    

(h)(i)

    

0.063

    

08/21/14

    

966,915

    
    Total U.S. Treasury Securities
(Cost $1,076,910)		    

1,076,910

    
NUMBER OF
SHARES (000)		  
 
 
 
 
   

Investment Company (0.1%)

      
    80Morgan Stanley Institutional Liquidity Funds - Money Market
Portfolio - Institutional Class (See Note 7)
(Cost $80,208)		    

80,208

    
    Total Short-Term Investments
(Cost $1,157,118)		    

1,157,118

    
    Total Investments
(Cost $137,508,238) (j)		        

99.4

%

    

148,132,969

    
   

Other Assets in Excess of Liabilities

        

0.6

      

967,788

    
   

Net Assets

        

100.0

%

  

$

149,100,757

    

  MTN  Medium Term Note.

  PJSC  Public Joint Stock Company.

  (a)  144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

  (b)  Issuer in bankruptcy.

  (c)  Non-income producing security; bond in default.

  (d)  Security trades on the Hong Kong exchange.

See Notes to Financial Statements
39


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

  (e)  Variable/Floating Rate Security — Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 2014.

  (f)  Perpetual — One or more securities do not have a predetermined maturity date. Rates for these securities are fixed for a period of time, after which they revert to a floating rate. Interest rates in effect are as of June 30, 2014.

  (g)  Multi-step coupon rate changes in predetermined increments to maturity. Rate disclosed is as of June 30, 2014. Maturity date disclosed is the ultimate maturity date.

  (h)  Rate shown is the yield to maturity at June 30, 2014.

  (i)  All or a portion of the security was pledged to cover margin requirements for futures contracts and swap agreements.

  (j)  Securities are available for collateral in connection with open foreign currency forward exchange contracts, futures contracts and swap agreements.

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS OPEN AT JUNE 30, 2014:

COUNTERPARTY

   CONTRACTS
TO DELIVER		   IN EXCHANGE
FOR		   DELIVERY
DATE		   UNREALIZED
APPRECIATION
(DEPRECIATION)		  

HSBC Bank PLC

  

HKD

2,082,500

    

$

268,664

    

07/17/14

  

$

21

    

UBS AG

  

EUR

590,333

    

$

805,256

    

07/17/14

    

(3,133

)

  

Net Unrealized Depreciation

  

$

(3,112

)

  

FUTURES CONTRACTS OPEN AT JUNE 30, 2014:

NUMBER OF
CONTRACTS		  

LONG/SHORT

   DESCRIPTION, DELIVERY
MONTH AND YEAR		   UNDERLYING FACE
AMOUNT AT VALUE		   UNREALIZED
APPRECIATION
(DEPRECIATION)		  
 

215

    

Long

  U.S. Treasury 2 yr. Note,
Sep-14		  

$

47,212,656

    

$

(47,031

)

  
 

127

    

Long

   U.S. Treasury Ultra Long Bond,
Sep-14		    

19,042,063

      

(126,081

)

  
 

16

    

Long

   U.S. Treasury Long Bond,
Sep-14		    

2,195,000

      

(5,828

)

  
 

196

    

Short

   U.S. Treasury 5 yr. Note,
Sep-14		    

(23,414,344

)

    

71,336

    
 

212

    

Short

   U.S. Treasury 10 yr. Note,
Sep-14		    

(26,536,438

)

    

100,485

    

Net Unrealized Depreciation

  

$

(7,119

)

  

See Notes to Financial Statements
40


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

CREDIT DEFAULT SWAP AGREEMENTS OPEN AT JUNE 30, 2014:

SWAP
COUNTERPARTY &
REFERENCE
OBLIGATION		   BUY/SELL
PROTECTION		   NOTIONAL
AMOUNT
(000)		   INTEREST
RATE		   TERMINATION
DATE		   UNREALIZED
APPRECIATION
(DEPRECIATION)		   UPFRONT
PAYMENTS
PAID
(RECEIVED)		  

VALUE

   CREDIT
RATING OF
REFERENCE
OBLIGATION†		  
Barclays Bank PLC
Yum! Brands, Inc.		  

Buy

  

$

825

      

1.00

%

  

12/20/18

  

$

(9,996

)

  

$

(14,319

)

  

$

(24,315

)

  

BBB

  
Barclays Bank PLC
Quest Diagnostics, Inc.		  

Buy

    

845

      

1.00

    

03/20/19

    

(16,806

)

    

16,218

      

(588

)

  

BBB+

  
Morgan Stanley &
Co., LLC* 
CDX.NA.IG.22		  

Buy

    

10,225

      

1.00

    

06/20/19

    

4,410

      

(209,345

)

    

(204,935

)

  

NR

  
Morgan Stanley &
Co., LLC* 
CDX.NA.HY.21		  

Buy

    

3,564

      

5.00

    

12/20/18

    

(34,210

)

    

(296,152

)

    

(330,362

)

  

NR

  
Morgan Stanley &
Co., LLC* 
CDX.NA.IG.22		  

Buy

    

1,411

      

5.00

    

06/20/19

    

(16,723

)

    

(107,600

)

    

(124,323

)

  

NR

  
Total Credit
Default Swaps		      

$

16,870

            

$

(73,325

)

  

$

(611,198

)

  

$

(684,523

)

      

INTEREST RATE SWAP AGREEMENTS OPEN AT JUNE 30, 2014:

SWAP COUNTERPARTY

   NOTIONAL
AMOUNT
(000)		   FLOATING
RATE INDEX		   PAY/RECEIVE
FLOATING RATE		  

FIXED RATE

   TERMINATION
DATE		   UNREALIZED
APPRECIATION
(DEPRECIATION)		  

Bank of America NA

  

$

2,000

     3 Month LIBOR  

Receive

    

2.04

%

  

02/13/23

  

$

48,344

    

Deutsche Bank AG

    

6,510

     3 Month LIBOR  

Receive

    

3.03

    

05/14/43

    

324,566

    

Deutsche Bank AG

    

2,185

     3 Month LIBOR  

Receive

    

2.80

    

05/01/43

    

202,554

    

Goldman Sachs International

    

2,200

     3 Month LIBOR  

Receive

    

2.42

    

03/22/22

    

(34,052

)

  

JPMorgan Chase Bank NA

    

1,069

     3 Month LIBOR  

Receive

    

2.43

    

03/22/22

    

(17,795

)

  
Morgan Stanley & Co., LLC*    

7,820

     3 Month LIBOR  

Receive

    

2.75

    

11/20/23

    

(160,049

)

  

Net Unrealized Appreciation

                      

$

363,568

    

  LIBOR  London Interbank Offered Rate.

  NR  Not Rated.

  †  Credit rating as issued by Standard & Poor's.

  *  Cleared swap agreements, the broker is Morgan Stanley & Co., LLC.

See Notes to Financial Statements
41


Morgan Stanley Variable Investment Series - Income Plus

Portfolio of Investments n June 30, 2014 (unaudited) (continued)

Currency Abbreviations

EUR  Euro.

HKD  Hong Kong Dollar.

KRW  South Korean Won.

USD  United States Dollar.

LONG TERM CREDIT ANALYSIS+

  

AA

    

6.7

%

  

A

    

32.6

    

BBB

    

45.8

    

BB

    

8.8

    

B or Below

    

2.8

    

Not Rated

    

3.3

    
     

100.0

%++

  

  +  The ratings shown are based on the Portfolio's security ratings as determined by Standard & Poor's, Moody's or Fitch, each a Nationally Recognized Statistical Ratings Organization ("NRSRO").

  ++  Does not include open long/short futures contracts with an underlying face amount of $118,400,501 with net unrealized depreciation of $7,119. Does not include open foreign currency forward exchange contracts with net unrealized depreciation of $3,112. Also does not include open swap agreements with net unrealized appreciation of $290,243.

See Notes to Financial Statements
42



Morgan Stanley Variable Investment Series - European Equity

Portfolio of Investments n June 30, 2014 (unaudited)

NUMBER OF
SHARES		  

 

VALUE

  
   

Common Stocks (97.8%)

  
   

France (16.8%)

  
   

Aerospace & Defense

  
 

17,236

    

Airbus Group N.V.

  

$

1,155,046

    
   

Banks

  
 

17,646

    

BNP Paribas SA

    

1,197,140

    
 

55,029

    

Credit Agricole SA

    

776,117

    
     

1,973,257

    
   

Electrical Equipment

  
 

13,819

    

Schneider Electric SE

    

1,300,912

    
   

Hotels, Restaurants & Leisure

  
 

20,967

    

Accor SA

    

1,090,697

    
   

Insurance

  
 

50,415

    

AXA SA

    

1,204,976

    
   

Media

  
 

27,623

    

SES SA

    

1,047,730

    
   

Multi-Utilities

  
 

49,546

    

Suez Environnement Co.

    

948,450

    
       

Total France

    

8,721,068

    
   

Germany (15.5%)

  
   

Automobiles

  
 

16,905

    

Daimler AG (Registered)

    

1,583,325

    
 

4,950

    

Volkswagen AG (Preference)

    

1,300,027

    
     

2,883,352

    
    Health Care Providers &
Services		  
 

6,135

    

Fresenius SE & Co., KGaA

    

914,832

    
   

Industrial Conglomerates

  
 

11,772

    

Siemens AG (Registered)

    

1,554,717

    
   

Insurance

  
 

4,811

     Muenchener
Rueckversicherungs AG
(Registered) (a)		    

1,066,549

    
   

Pharmaceuticals

  
 

11,722

    

Bayer AG (Registered)

    

1,655,654

    
       

Total Germany

    

8,075,104

    
NUMBER OF
SHARES		  

 

VALUE

  
   

Ireland (1.9%)

  
   

Construction Materials

  
 

39,177

    

CRH PLC

  

$

1,005,309

    
   

Italy (1.8%)

  
   

Banks

  
 

113,071

    

UniCredit SpA

    

946,774

    
   

Netherlands (2.2%)

  
   

Media

  
 

50,019

    

Reed Elsevier N.V.

    

1,147,225

    
   

Spain (4.2%)

  
   

Banks

  
 

89,092

     Banco Bilbao Vizcaya
Argentaria SA		    

1,135,639

    
    Information Technology
Services		  
 

25,474

     Amadeus IT Holding SA,
Class A		    

1,050,633

    
       

Total Spain

    

2,186,272

    
   

Sweden (3.0%)

  
   

Household Products

  
 

31,456

     Svenska Cellulosa AB SCA,
Class B		    

819,644

    
    Wireless Telecommunication
Services		  
 

8,296

     Millicom International
Cellular SA SDR		    

759,876

    
       

Total Sweden

    

1,579,520

    
   

Switzerland (17.5%)

  
   

Chemicals

  
 

2,426

    

Syngenta AG (Registered)

    

903,595

    
   

Food Products

  
 

30,878

    

Nestle SA (Registered)

    

2,392,105

    
   

Insurance

  
 

4,036

     Zurich Insurance
Group AG (b)		    

1,216,534

    

See Notes to Financial Statements
43


Morgan Stanley Variable Investment Series - European Equity

Portfolio of Investments n June 30, 2014 (unaudited) continued

NUMBER OF
SHARES		  

 

VALUE

  
   

Pharmaceuticals

  
 

24,542

    

Novartis AG (Registered)

  

$

2,222,285

    
 

7,848

     Roche Holding AG
(Genusschein)		    

2,340,772

    
     

4,563,057

    
       

Total Switzerland

    

9,075,291

    
   

United Kingdom (34.9%)

  
   

Aerospace & Defense

  
 

51,049

    

Rolls-Royce Holdings PLC (b)

    

933,934

    
   

Banks

  
 

308,765

    

Barclays PLC

    

1,124,478

    
 

180,714

    

HSBC Holdings PLC

    

1,833,685

    
     

2,958,163

    
   

Household Products

  
 

16,286

     Reckitt Benckiser
Group PLC		    

1,421,465

    
   

Insurance

  
 

60,325

    

Prudential PLC

    

1,384,451

    
   

Metals & Mining

  
 

193,154

    

Glencore PLC

    

1,076,150

    
   

Oil, Gas & Consumable Fuels

  
 

60,795

    

BG Group PLC

    

1,284,950

    
 

191,555

     BP PLC    

1,687,982

    
 

42,475

     Royal Dutch Shell PLC,
Class A		    

1,758,049

    
     

4,730,981

    
   

Pharmaceuticals

  
 

55,061

    

GlaxoSmithKline PLC

    

1,473,779

    
   

Tobacco

  
 

28,305

     British American
Tobacco PLC		    

1,684,784

    
 

24,719

    

Imperial Tobacco Group PLC

    

1,112,598

    
     

2,797,382

    
    Wireless Telecommunication
Services		  
 

409,563

    

Vodafone Group PLC

    

1,366,806

    
       

Total United Kingdom

    

18,143,111

    
        Total Common Stocks
(Cost $34,423,316)		    

50,879,674

    
NUMBER OF
SHARES (000)		  

 

VALUE

  
    Short-Term Investments (3.3%)
Securities held as Collateral
on Loaned Securities (1.4%)		  
   

Investment Company (1.2%)

  
 

599

     Morgan Stanley Institutional
Liquidity Funds - Money
Market Portfolio -
Institutional Class
(See Note 7)
(Cost $598,994)		  

$

598,994

    
PRINCIPAL
AMOUNT
(000)		  

 

 
   

Repurchase Agreement (0.2%)

  

$

111

     Barclays Capital, Inc.
(0.07%, dated 06/30/14,
due 07/01/14; proceeds
$111,308; fully
collateralized by a U.S.
Government Obligation;
3.63% due 08/15/43;
valued at $113,535)
(Cost $111,308)		    

111,308

    
    Total Securities held as
Collateral on Loaned
Securities
(Cost $710,302)		    

710,302

    

See Notes to Financial Statements
44


Morgan Stanley Variable Investment Series - European Equity

Portfolio of Investments n June 30, 2014 (unaudited) continued

NUMBER OF
SHARES (000)		  

 

VALUE

  
   

Investment Company (1.9%)

      
 

1,010

     Morgan Stanley Institutional
Liquidity Funds - Money
Market Portfolio -
Institutional Class
(See Note 7)
(Cost $1,009,541)		  

$

1,009,541

    
    Total Short-Term
Investments
(Cost $1,719,843)		    

1,719,843

    
Total Investments
(Cost $36,143,159)		    

101.1

%

    

52,599,517

    
Liabilities in Excess of
Other Assets		    

(1.1

)

    

(557,003

)

  

Net Assets

    

100.0

%

  

$

52,042,514

    

  SDR  Swedish Depositary Receipt.

  (a)  All or a portion of this security was on loan at June 30, 2014.

  (b)  Non-income producing security.

SUMMARY OF INVESTMENTS
INDUSTRY		  

VALUE

   PERCENT OF
TOTAL
INVESTMENTS		  

Pharmaceuticals

  

$

7,692,490

      

14.8

%

  

Banks

    

7,013,833

      

13.5

    

Insurance

    

4,872,510

      

9.4

    
Oil, Gas & Consumable
Fuels		    

4,730,981

      

9.1

    

Automobiles

    

2,883,352

      

5.6

    

Tobacco

    

2,797,382

      

5.4

    

Food Products

    

2,392,105

      

4.6

    

Household Products

    

2,241,109

      

4.3

    

Media

    

2,194,955

      

4.2

    
Wireless Telecommunication
Services		    

2,126,682

      

4.1

    

Aerospace & Defense

    

2,088,980

      

4.0

    

Industrial Conglomerates

    

1,554,717

      

3.0

    

Electrical Equipment

    

1,300,912

      

2.5

    
Hotels, Restaurants &
Leisure		    

1,090,697

      

2.1

    

Metals & Mining

    

1,076,150

      

2.1

    
Information Technology
Services		    

1,050,633

      

2.0

    

Investment Company

    

1,009,541

      

2.0

    

Construction Materials

    

1,005,309

      

1.9

    

Multi-Utilities

    

948,450

      

1.8

    
Health Care Providers &
Services		    

914,832

      

1.8

    

Chemicals

    

903,595

      

1.8

    
   

$

51,889,215

++

    

100.0

%

  

++  Does not reflect the value of securities held as collateral on loaned securities.

See Notes to Financial Statements
45


Morgan Stanley Variable Investment Series - Multi Cap Growth

Portfolio of Investments n June 30, 2014 (unaudited)

NUMBER OF
SHARES		  

 

VALUE

  
   

Common Stocks (98.1%)

  
   

Automobiles (3.8%)

  
 

42,431

    

Tesla Motors, Inc. (a)

  

$

10,185,986

    
   

Chemicals (2.1%)

  
 

44,332

    

Monsanto Co.

    

5,529,974

    
    Commercial Services &
Supplies (2.4%)		  
 

214,831

    

Edenred (France)

    

6,514,354

    
    Communications
Equipment (2.4%)		  
 

95,931

    

Motorola Solutions, Inc.

    

6,386,127

    
    Diversified Financial
Services (2.6%)		  
 

152,104

    

MSCI, Inc. (a)

    

6,973,968

    
   

Electrical Equipment (0.5%)

  
 

18,952

    

SolarCity Corp. (a)(b)

    

1,338,011

    
   

Food Products (2.9%)

  
 

85,368

    

Mead Johnson Nutrition Co.

    

7,953,736

    
    Health Care Equipment &
Supplies (3.7%)		  
 

24,377

    

Intuitive Surgical, Inc. (a)

    

10,038,449

    
   

Health Care Technology (3.3%)

  
 

72,219

    

athenahealth, Inc. (a)

    

9,036,763

    
    Hotels, Restaurants &
Leisure (3.9%)		  
 

105,024

     Fiesta Restaurant
Group, Inc. (a)		    

4,874,164

    
 

71,921

    

Starbucks Corp.

    

5,565,247

    
     

10,439,411

    
    Information Technology
Services (5.7%)		  
 

105,323

    

Mastercard, Inc., Class A

    

7,738,081

    
 

36,565

    

Visa, Inc., Class A

    

7,704,611

    
     

15,442,692

    
   

Insurance (1.5%)

  
 

72,465

    

Arch Capital Group Ltd. (a)

    

4,162,390

    
    Internet & Catalog
Retail (11.6%)		  
 

64,674

    

Amazon.com, Inc. (a)

    

21,004,822

    
 

8,659

    

Priceline Group, Inc. (a)

    

10,416,777

    
     

31,421,599

    
NUMBER OF
SHARES		  

 

VALUE

  
    Internet Software &
Services (22.3%)		  
 

335,989

    

Facebook, Inc., Class A (a)

  

$

22,608,700

    
 

14,256

    

Google, Inc., Class A (a)

    

8,335,055

    
 

20,392

    

Google, Inc., Class C (a)

    

11,731,110

    
 

40,687

    

LinkedIn Corp., Class A (a)

    

6,976,600

    
 

262,275

    

Twitter, Inc. (a)

    

10,745,407

    
     

60,396,872

    
    Life Sciences Tools &
Services (6.1%)		  
 

92,405

    

Illumina, Inc. (a)

    

16,497,989

    
   

Media (1.6%)

  
 

36,473

     Naspers Ltd., Class N
(South Africa)		    

4,293,765

    
    Oil, Gas & Consumable
Fuels (1.0%)		  
 

31,647

    

Range Resources Corp.

    

2,751,707

    
   

Pharmaceuticals (2.8%)

  
 

60,847

     Valeant Pharmaceuticals
International, Inc.
(Canada) (a)		    

7,674,024

    
   

Professional Services (5.8%)

  
 

142,714

    

Advisory Board Co. (The) (a)

    

7,392,585

    
 

119,996

     Corporate Executive
Board Co. (The)		    

8,186,127

    
     

15,578,712

    
   

Software (6.9%)

  
 

55,294

    

FireEye, Inc. (a)

    

2,242,172

    
 

149,598

    

Salesforce.com, Inc. (a)

    

8,688,652

    
 

53,092

    

Splunk, Inc. (a)

    

2,937,580

    
 

52,239

    

Workday, Inc., Class A (a)

    

4,694,196

    
     

18,562,600

    
    Tech Hardware, Storage &
Peripherals (2.7%)		  
 

79,408

    

Apple, Inc.

    

7,379,385

    
    Textiles, Apparel &
Luxury Goods (2.5%)		  
 

34,215

    

Christian Dior SA (France)

    

6,807,393

    
        Total Common Stocks
(Cost $142,792,750)		    

265,365,907

    

See Notes to Financial Statements
46


Morgan Stanley Variable Investment Series - Multi Cap Growth

Portfolio of Investments n June 30, 2014 (unaudited) continued

NUMBER OF
SHARES		  

 

VALUE

  
   

Preferred Stocks (1.9%)

      
    Hotels, Restaurants &
Leisure (0.7%)		      
 

114,561

     Blue Bottle Coffee, Inc.,
Series B (a)(c)(d)(e)
(acquisition
cost - $1,657,606;
acquired 01/24/14)		  

$

1,789,443

    
    Internet & Catalog
Retail (0.6%)		      
 

14,239

     Airbnb, Inc.,
Series D (a)(c)(d)(e)
(acquisition
cost - $1,739,139;
acquired 04/16/14)		    

1,739,138

    
   

Software (0.6%)

      
 

141,612

     Lookout, Inc.,
Series F (a)(c)(d)(e)
(acquisition
cost - $1,617,648;
acquired 06/17/14)		    

1,617,648

    
        Total Preferred Stocks
(Cost $5,014,393)		    

5,146,229

    
NOTIONAL
AMOUNT 		         
   

Call Options Purchased (0.0%)

      
   

Foreign Currency Options

      
 

3,207,286

     USD/CNY December 2014
@ CNY 6.50		    

1,408

    
 

39,918,529

     USD/CNY December 2014
@ CNY 6.50		    

18,363

    
 

45,129,097

     USD/CNY December 2014
@ CNY 6.50		    

21,391

    
 

48,990,861

     USD/CNY June 2015
@ CNY 6.62		    

77,601

    
        Total Call Options
Purchased
(Cost $414,359)		    

118,763

    
NUMBER OF
SHARES (000)		  
 

VALUE

  
    Short-Term Investments (0.7%)
Securities held as Collateral
on Loaned Securities (0.5%)		  
   

Investment Company (0.4%)

  
 

1,048

     Morgan Stanley Institutional
Liquidity Funds - Money
Market Portfolio -
Institutional Class
(See Note 7)
(Cost $1,047,636)		  

$

1,047,636

    
PRINCIPAL
AMOUNT
(000)		  

 

 
   

Repurchase Agreements (0.1%)

  

$

109

     Barclays Capital, Inc.
(0.08%, dated 06/30/14,
due 07/01/14; proceeds
$108,562; fully
collateralized by various
U.S. Government agency
securities; 3.50% - 4.50%
due 09/01/33 - 06/20/44;
valued at $110,733)		    

108,562

    
 

136

     BNP Paribas Securities Corp.
(0.11%, dated 06/30/14,
due 07/01/14; proceeds
$136,234; fully
collateralized by a
U.S. Government agency
security; 4.00%
due 06/20/44;
valued at $139,029)		    

136,234

    
        Total Repurchase
Agreements
(Cost $244,796)		    

244,796

    
        Total Securities held as
Collateral on Loaned
Securities
(Cost $1,292,432)		    

1,292,432

    

See Notes to Financial Statements
47


Morgan Stanley Variable Investment Series - Multi Cap Growth

Portfolio of Investments n June 30, 2014 (unaudited) continued

NUMBER OF
SHARES (000) 		 
 

VALUE		  
   

Investment Company (0.2%)

      
 

502

     Morgan Stanley Institutional
Liquidity Funds - Money
Market Portfolio -
Institutional Class
(See Note 7)
(Cost $501,923)		  

$

501,923

    
    Total Short-Term
Investments
(Cost $1,794,355)		    

1,794,355

    
Total Investments
(Cost $150,015,857)		    

100.7

%

    

272,425,254

    
Liabilities in Excess of
Other Assets		    

(0.7

)

    

(1,868,272

)

  

Net Assets

    

100.0

%

  

$

270,556,982

    

  (a)  Non-income producing security.

  (b)  All or a portion of this security was on loan at June 30, 2014.

  (c)  At June 30, 2014, the Portfolio held fair valued securities valued at $5,146,229, representing 1.9% of net assets. These securities have been fair valued as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees.

  (d)  Security cannot be offered for public resale without first being registered under the Securities Act of 1933 and related rules ("restricted security"). Acquisition date represents the day on which an enforceable right to acquire such security is obtained and is presented along with related cost in the security description. The Portfolio has registration rights for certain restricted securities. Any costs related to such registration are borne by the issuer. The aggregate value of restricted securities (excluding 144A holdings) at June 30, 2014 amounts to $5,146,229 and represents 1.9% of net assets.

  (e)  Illiquid security.

Currency Abbreviation

CNY — Chinese Yuan Renminbi.

USD — United States Dollar.

SUMMARY OF INVESTMENTS
INDUSTRY		  

VALUE

   PERCENT OF
TOTAL
INVESTMENTS		  
Internet Software &
Services		  

$

60,396,872

      

22.3

%

  
Internet & Catalog
Retail		    

33,160,737

      

12.2

    

Software

    

20,180,248

      

7.4

    
Life Sciences Tools &
Services		    

16,497,989

      

6.1

    

Professional Services

    

15,578,712

      

5.8

    
Information Technology
Services		    

15,442,692

      

5.7

    
Hotels, Restaurants &
Leisure		    

12,228,854

      

4.5

    

Automobiles

    

10,185,986

      

3.8

    
Health Care Equipment &
Supplies		    

10,038,449

      

3.7

    

Health Care Technology

    

9,036,763

      

3.3

    

Food Products

    

7,953,736

      

2.9

    

Pharmaceuticals

    

7,674,024

      

2.8

    
Tech Hardware, Storage &
Peripherals		    

7,379,385

      

2.7

    
Diversified Financial
Services		    

6,973,968

      

2.6

    
Textiles, Apparel &
Luxury Goods		    

6,807,393

      

2.5

    
Commercial Services &
Supplies		    

6,514,354

      

2.4

    
Communications
Equipment		    

6,386,127

      

2.4

    

Chemicals

    

5,529,974

      

2.0

    

Media

    

4,293,765

      

1.6

    

Insurance

    

4,162,390

      

1.5

    
Oil, Gas &
Consumable Fuels		    

2,751,707

      

1.0

    

Electrical Equipment

    

1,338,011

      

0.5

    

Investment Company

    

501,923

      

0.2

    

Other

    

118,763

      

0.1

    
   

$

271,132,822

++

    

100.0

%

  

++  Does not reflect the value of securities held as collateral on loaned securities.

See Notes to Financial Statements
48



(This page has been intentionally left blank.)


Morgan Stanley Variable Investment Series

Financial Statements

Statements of Assets and Liabilities
June 30, 2014 (unaudited)

    Money
Market		   Limited
Duration		   Income
Plus		  

Assets:

  

Investments in securities, at value*

  

$

68,094,536

(1)

  

$

38,968,186

    

$

147,304,261

    

Investment in affiliate, at value**

    

—

      

463,413

      

828,708

    

Total investments in securities, at value

    

68,094,536

      

39,431,599

      

148,132,969

    

Unrealized appreciation on open swap agreements

    

—

      

56,476

      

575,464

    

Unrealized appreciation on open foreign currency forward exchange contracts

    

—

      

—

      

21

    

Cash

    

14,810

      

—

      

—

    

Receivable for:

  

Interest

    

10,460

      

188,502

      

1,714,746

    

Shares of beneficial interest sold

    

103,414

      

19,196

      

70,084

    

Investments sold

    

—

      

133,249

      

4,808

    

Dividends

    

—

      

—

      

—

    

Foreign withholding taxes reclaimed

    

—

      

—

      

—

    

Variation margin on open futures contracts

    

—

      

1,003

      

64,004

    

Premium paid on open swap agreements

    

—

      

4,798

      

16,218

    

Interest and dividends from affiliates

    

—

      

1,977

      

2,124

    

Variation margin on open swap agreements

    

—

      

296

      

—

    

Due from Adviser

    

654

      

—

      

—

    

Prepaid expenses and other assets

    

6,852

      

1,553

      

8,610

    

Total Assets

    

68,230,726

      

39,838,649

      

150,589,048

    

Liabilities:

  

Collateral on securities loaned, at value

    

—

      

—

      

—

    

Unrealized depreciation on open swap agreements

    

—

      

7,698

      

78,649

    

Unrealized depreciation on open foreign currency forward exchange contracts

    

—

      

—

      

3,133

    

Due to broker

    

—

      

—

      

630,000

    

Payable for:

  

Investments purchased

    

—

      

199,776

      

599,706

    

Shares of beneficial interest redeemed

    

22,518

      

468

      

15,383

    

Advisory fee

    

—

      

10,130

      

53,291

    

Distribution fee (Class Y)

    

—

      

6,593

      

16,288

    

Administration fee

    

—

      

2,709

      

10,158

    

Premium received on open swap agreements

    

—

      

3,905

      

14,319

    

Variation margin on open swap agreements

    

—

      

—

      

1,845

    

Transfer agent fee

    

—

      

390

      

7

    

Accrued expenses and other payables

    

30,171

      

41,342

      

65,512

    

Total Liabilities

    

52,689

      

273,011

      

1,488,291

    

Net Assets

  

$

68,178,037

    

$

39,565,638

    

$

149,100,757

    

Composition of Net Assets:

  

Paid-in-capital

  

$

68,182,225

    

$

68,724,853

    

$

139,309,211

    

Net unrealized appreciation (depreciation)

    

—

      

490,676

      

10,904,750

    

Accumulated undistributed net investment income (net investment loss)

    

(2,581

)

    

189,462

      

2,537,307

    

Accumulated net realized gain (loss)

    

(1,607

)

    

(29,839,353

)

    

(3,650,511

)

  

Net Assets

  

$

68,178,037

    

$

39,565,638

    

$

149,100,757

    
* Cost  

$

68,094,536

    

$

38,523,524

    

$

136,795,030

    
** Affiliated Cost  

$

—

    

$

463,708

    

$

713,208

    

Class X Shares:

  

Net Assets

  

$

31,129,218

    

$

8,793,982

    

$

72,684,183

    
Shares Outstanding (unlimited shares authorized, $0.01 par value)    

31,130,948

      

1,173,912

      

6,207,711

    

Net Asset Value Per Share

  

$

1.00

    

$

7.49

    

$

11.71

    

Class Y Shares:

  

Net Assets

  

$

37,048,819

    

$

30,771,656

    

$

76,416,574

    
Shares Outstanding (unlimited shares authorized, $0.01 par value)    

37,051,281

      

4,111,081

      

6,537,126

    

Net Asset Value Per Share

  

$

1.00

    

$

7.49

    

$

11.69

    

(1)  Including repurchase agreements of $24,900,000.

(2)  Including securities loaned at value of $701,085 and $1,338,011, respectively.

(3)  Including foreign currency valued at $48,500 with a cost of $48,220.

See Notes to Financial Statements
50


    European
Equity		   Multi Cap
Growth		  

Assets:

  

Investments in securities, at value*

  

$

50,990,982

(2)

  

$

270,875,695

(2)

  

Investment in affiliate, at value**

    

1,608,535

      

1,549,559

    

Total investments in securities, at value

    

52,599,517

      

272,425,254

    

Unrealized appreciation on open swap agreements

    

—

      

—

    

Unrealized appreciation on open foreign currency forward exchange contracts

    

—

      

—

    

Cash

    

63,560

(3)

    

81,588

    

Receivable for:

  

Interest

    

—

      

—

    

Shares of beneficial interest sold

    

587

      

44,610

    

Investments sold

    

11,236

      

—

    

Dividends

    

85,149

      

61,752

    

Foreign withholding taxes reclaimed

    

94,314

      

—

    

Variation margin on open futures contracts

    

—

      

—

    

Premium paid on open swap agreements

    

—

      

—

    

Interest and dividends from affiliates

    

68

      

134

    

Variation margin on open swap agreements

    

—

      

—

    

Due from Adviser

    

—

      

—

    

Prepaid expenses and other assets

    

5,787

      

14,060

    

Total Assets

    

52,860,218

      

272,627,398

    

Liabilities:

  

Collateral on securities loaned, at value

    

725,363

      

1,374,020

    

Unrealized depreciation on open swap agreements

    

—

      

—

    

Unrealized depreciation on open foreign currency forward exchange contracts

    

—

      

—

    

Due to broker

    

—

      

300,000

    

Payable for:

  

Investments purchased

    

—

      

—

    

Shares of beneficial interest redeemed

    

28,706

      

134,240

    

Advisory fee

    

28,727

      

92,863

    

Distribution fee (Class Y)

    

2,322

      

12,555

    

Administration fee

    

3,592

      

18,001

    

Premium received on open swap agreements

    

—

      

—

    

Variation margin on open swap agreements

    

—

      

—

    

Transfer agent fee

    

210

      

457

    

Accrued expenses and other payables

    

28,784

      

138,280

    

Total Liabilities

    

817,704

      

2,070,416

    

Net Assets

  

$

52,042,514

    

$

270,556,982

    

Composition of Net Assets:

  

Paid-in-capital

  

$

42,813,611

    

$

128,105,429

    

Net unrealized appreciation (depreciation)

    

16,460,449

      

122,409,397

    

Accumulated undistributed net investment income (net investment loss)

    

1,979,348

      

(58,343

)

  

Accumulated net realized gain (loss)

    

(9,210,894

)

    

20,100,499

    

Net Assets

  

$

52,042,514

    

$

270,556,982

    
* Cost  

$

34,534,624

    

$

148,466,298

    
** Affiliated Cost  

$

1,608,535

    

$

1,549,559

    

Class X Shares:

  

Net Assets

  

$

41,296,752

    

$

210,316,628

    
Shares Outstanding (unlimited shares authorized, $0.01 par value)    

2,055,842

      

3,892,801

    

Net Asset Value Per Share

  

$

20.09

    

$

54.03

    

Class Y Shares:

  

Net Assets

  

$

10,745,762

    

$

60,240,354

    
Shares Outstanding (unlimited shares authorized, $0.01 par value)    

536,008

      

1,131,735

    

Net Asset Value Per Share

  

$

20.05

    

$

53.23

    


51


Morgan Stanley Variable Investment Series

Financial Statements continued

Statements of Operations
For the six months ended June 30, 2014 (unaudited)

    Money
Market		   Limited
Duration		   Income
Plus		  

Net Investment Income:

  

Income

  

Interest

  

$

66,136

    

$

372,856

    

$

3,074,205

    

Dividends†

    

—

      

—

      

18,055

    

Income from securities loaned - net

    

—

      

—

      

—

    

Interest and dividends from affiliates (Note 7)

    

—

      

2,221

      

24,207

    

Total Income

    

66,136

      

375,077

      

3,116,467

    

†Net of foreign withholding taxes

    

—

      

—

      

—

    

Expenses

  

Advisory fee (Note 4)

    

158,296

      

60,812

      

319,098

    

Professional fees

    

36,917

      

41,884

      

44,145

    

Administration fee (Note 4)

    

17,588

      

16,217

      

60,781

    

Custodian fees

    

12,388

      

12,998

      

19,318

    

Pricing fees

    

—

      

10,913

      

—

    

Shareholder reports and notices

    

5,886

      

4,894

      

9,146

    

Transfer agent fees and expenses

    

2,459

      

1,518

      

1,212

    

Trustees' fees and expenses

    

1,009

      

815

      

1,316

    

Distribution fee (Class Y shares) (Note 5)

    

47,073

      

39,385

      

98,634

    

Other

    

2,632

      

6,893

      

26,783

    

Total Expenses

    

284,248

      

196,329

      

580,433

    

Less: amounts waived

    

(221,631

)(4)

    

—

      

—

    

Less: rebate from Morgan Stanley affiliated cash sweep (Note 7)

    

—

      

(358

)

    

(1,209

)

  

Net Expenses

    

62,617

      

195,971

      

579,224

    

Net Investment Income (Loss)

    

3,519

      

179,106

      

2,537,243

    

Realized and Unrealized Gain (Loss):

  

Realized Gain (Loss) on:

  

Investments

    

40

      

102,865

      

2,268,483

    

Futures contracts

    

—

      

82,928

      

1,583,658

    

Swap agreements

    

—

      

(50,902

)

    

(176,499

)

  

Foreign currency forward exchange contracts

    

—

      

—

      

419

    

Foreign currency translation

    

—

      

—

      

699

    

Net Realized Gain

    

40

      

134,891

      

3,676,760

    

Change in Unrealized Appreciation (Depreciation) on:

  

Investments

    

—

      

215,406

      

4,932,662

    

Investments in affiliates (Note 7)

    

—

      

5,544

      

57,000

    

Futures contracts

    

—

      

77,461

      

79,664

    

Swap agreements

    

—

      

(160,339

)

    

(1,904,033

)

  

Foreign currency forward exchange contracts

    

—

      

—

      

5,571

    

Foreign currency translation

    

—

      

—

      

(153

)

  

Net Change in Unrealized Appreciation (Depreciation)

    

—

      

138,072

      

3,170,711

    

Net Gain (Loss)

    

40

      

272,963

      

6,847,471

    

Net Increase

  

$

3,559

    

$

452,069

    

$

9,384,714

    

(4)  See Note 5.

(5)  See Note 4.

See Notes to Financial Statements
52


    European
Equity		   Multi Cap
Growth		  

Net Investment Income:

  

Income

  

Interest

  

$

—

    

$

—

    

Dividends†

    

2,222,015

      

696,700

    

Income from securities loaned - net

    

39,342

      

134,807

    

Interest and dividends from affiliates (Note 7)

    

248

      

2,215

    

Total Income

    

2,261,605

      

833,722

    

†Net of foreign withholding taxes

    

133,818

      

45,145

    

Expenses

  

Advisory fee (Note 4)

    

230,388

      

586,208

    

Professional fees

    

40,516

      

55,395

    

Administration fee (Note 4)

    

21,185

      

111,659

    

Custodian fees

    

14,780

      

10,860

    

Pricing fees

    

—

      

—

    

Shareholder reports and notices

    

5,224

      

14,848

    

Transfer agent fees and expenses

    

1,772

      

1,648

    

Trustees' fees and expenses

    

1,439

      

7,836

    

Distribution fee (Class Y shares) (Note 5)

    

13,892

      

82,692

    

Other

    

7,886

      

8,513

    

Total Expenses

    

337,082

      

879,659

    

Less: amounts waived

    

(58,379

)(5)

    

(1,397

)(5)

  

Less: rebate from Morgan Stanley affiliated cash sweep (Note 7)

    

(557

)

    

(4,644

)

  

Net Expenses

    

278,146

      

873,618

    

Net Investment Income (Loss)

    

1,983,459

      

(39,896

)

  

Realized and Unrealized Gain (Loss):

  

Realized Gain (Loss) on:

  

Investments

    

3,078,019

      

20,135,552

    

Futures contracts

    

—

      

—

    

Swap agreements

    

—

      

—

    

Foreign currency forward exchange contracts

    

—

      

—

    

Foreign currency translation

    

(5,875

)

    

(1,566

)

  

Net Realized Gain

    

3,072,144

      

20,133,986

    

Change in Unrealized Appreciation (Depreciation) on:

  

Investments

    

(4,011,439

)

    

(15,404,395

)

  

Investments in affiliates (Note 7)

    

—

      

—

    

Futures contracts

    

—

      

—

    

Swap agreements

    

—

      

—

    

Foreign currency forward exchange contracts

    

—

      

—

    

Foreign currency translation

    

(260

)

    

—

    

Net Change in Unrealized Appreciation (Depreciation)

    

(4,011,699

)

    

(15,404,395

)

  

Net Gain (Loss)

    

(939,555

)

    

4,729,591

    

Net Increase

  

$

1,043,904

    

$

4,689,695

    


53


Morgan Stanley Variable Investment Series

Financial Statements continued

Statements of Changes in Net Assets

   

Money Market

  

Limited Duration

  

Income Plus

  
    For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		   For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		   For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		  
   

(unaudited)

      

(unaudited)

      

(unaudited)

      

Increase (Decrease) in Net Assets:

  

Operations:

  

Net investment income (loss)

  

$

3,519

    

$

8,325

    

$

179,106

    

$

485,624

    

$

2,537,243

    

$

6,220,980

    

Net realized gain

    

40

      

181

      

134,891

      

221,661

      

3,676,760

      

3,197,006

    

Net change in unrealized appreciation (depreciation)

    

—

      

—

      

138,072

      

(675,597

)

    

3,170,711

      

(8,029,174

)

  

Net Increase

    

3,559

      

8,506

      

452,069

      

31,688

      

9,384,714

      

1,388,812

    

Dividends and Distributions to Shareholders from:

  

Net investment income

  

Class X shares

    

(1,636

)

    

(3,879

)

    

(155,915

)

    

(250,020

)

    

(3,018,703

)

    

(3,915,814

)

  

Class Y shares

    

(1,883

)

    

(4,439

)

    

(458,467

)

    

(817,023

)

    

(2,962,049

)

    

(4,145,124

)

  

Net realized gain

  

Class X shares

    

—

      

—

      

—

      

—

      

—

      

—

    

Class Y shares

    

—

      

—

      

—

      

—

      

—

      

—

    

Total Dividends and Distributions

    

(3,519

)

    

(8,318

)

    

(614,382

)

    

(1,067,043

)

    

(5,980,752

)

    

(8,060,938

)

  
Net increase (decrease) from transactions in shares of
beneficial interest		    

(5,124,133

)

    

(17,530,755

)

    

(2,592,061

)

    

(6,008,408

)

    

(10,729,733

)

    

(21,246,050

)

  

Net Increase (Decrease)

    

(5,124,093

)

    

(17,530,567

)

    

(2,754,374

)

    

(7,043,763

)

    

(7,325,771

)

    

(27,918,176

)

  

Net Assets:

  

Beginning of period

    

73,302,130

      

90,832,697

      

42,320,012

      

49,363,775

      

156,426,528

      

184,344,704

    

End of Period

  

$

68,178,037

    

$

73,302,130

    

$

39,565,638

    

$

42,320,012

    

$

149,100,757

    

$

156,426,528

    
Accumulated Undistributed Net Investment
Income (Loss)		  

$

(2,581

)

  

$

(2,581

)

  

$

189,462

    

$

624,738

    

$

2,537,307

    

$

5,980,816

    

See Notes to Financial Statements
54


   

European Equity

  

Multi Cap Growth

  
    For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		   For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		  
   

(unaudited)

      

(unaudited)

      

Increase (Decrease) in Net Assets:

  

Operations:

  

Net investment income (loss)

  

$

1,983,459

    

$

1,190,720

    

$

(39,896

)

  

$

(279,819

)

  

Net realized gain

    

3,072,144

      

2,377,762

      

20,133,986

      

35,123,309

    

Net change in unrealized appreciation (depreciation)

    

(4,011,699

)

    

9,249,212

      

(15,404,395

)

    

70,572,291

    

Net Increase

    

1,043,904

      

12,817,694

      

4,689,695

      

105,415,781

    

Dividends and Distributions to Shareholders from:

  

Net investment income

  

Class X shares

    

(966,435

)

    

(1,199,464

)

    

—

      

(803,872

)

  

Class Y shares

    

(223,195

)

    

(318,348

)

    

—

      

(149,244

)

  

Net realized gain

  

Class X shares

    

—

      

—

      

(26,529,060

)

    

(2,596,410

)

  

Class Y shares

    

—

      

—

      

(7,687,678

)

    

(880,535

)

  

Total Dividends and Distributions

    

(1,189,630

)

    

(1,517,812

)

    

(34,216,738

)

    

(4,430,061

)

  
Net increase (decrease) from transactions in shares of
beneficial interest		    

(3,032,778

)

    

(7,992,151

)

    

4,260,060

      

(15,635,322

)

  

Net Increase (Decrease)

    

(3,178,504

)

    

3,307,731

      

(25,266,983

)

    

85,350,398

    

Net Assets:

  

Beginning of period

    

55,221,018

      

51,913,287

      

295,823,965

      

210,473,567

    

End of Period

  

$

52,042,514

    

$

55,221,018

    

$

270,556,982

    

$

295,823,965

    
Accumulated Undistributed Net Investment
Income (Loss)		  

$

1,979,348

    

$

1,185,519

    

$

(58,343

)

  

$

(18,447

)

  


55


Morgan Stanley Variable Investment Series

Financial Statements continued

Statements of Changes in Net Assets continued
Summary of Transactions in Shares of Beneficial Interest

   

Money Market

  

Limited Duration

  

Income Plus

  
    For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		   For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		   For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		  
   

(unaudited)

      

(unaudited)

      

(unaudited)

      

Class X Shares

  

Shares

  

Sold

    

3,483,550

      

7,380,723

      

16,525

      

43,669

      

47,144

      

64,030

    

Issued due to a tax-free reorganization

    

—

      

—

      

—

      

—

      

—

      

—

    

Reinvestment of dividends and distributions

    

1,636

      

3,879

      

20,816

      

33,469

      

257,788

      

353,732

    

Redeemed

    

(6,306,716

)

    

(15,701,483

)

    

(103,598

)

    

(214,752

)

    

(540,462

)

    

(1,222,438

)

  

Net Increase (Decrease) - Class X

    

(2,821,530

)

    

(8,316,881

)

    

(66,257

)

    

(137,614

)

    

(235,530

)

    

(804,676

)

  

Amount

  

Sold

  

$

3,483,550

    

$

7,380,723

    

$

125,346

    

$

332,159

    

$

564,411

    

$

746,626

    

Issued due to tax-free reorganization

    

—

      

—

      

—

      

—

      

—

      

—

    

Reinvestment of dividends and distributions

    

1,636

      

3,879

      

155,915

      

250,020

      

3,018,703

      

3,915,814

    

Redeemed

    

(6,306,716

)

    

(15,701,483

)

    

(786,714

)

    

(1,641,542

)

    

(6,427,963

)

    

(14,284,563

)

  

Net Increase (Decrease) - Class X

  

$

(2,821,530

)

  

$

(8,316,881

)

  

$

(505,453

)

  

$

(1,059,363

)

  

$

(2,844,849

)

  

$

(9,622,123

)

  

Class Y Shares

  

Sold

    

6,290,152

      

14,392,152

      

79,550

      

140,151

      

32,674

      

285,191

    

Issued due to a tax-free reorganization

    

—

      

—

      

—

      

—

      

—

      

—

    

Reinvestment of dividends and distributions

    

1,883

      

4,439

      

61,211

      

109,521

      

253,383

      

375,124

    

Redeemed

    

(8,594,638

)

    

(23,610,465

)

    

(416,207

)

    

(899,133

)

    

(949,532

)

    

(1,640,218

)

  

Net Increase (Decrease) - Class Y

    

(2,302,603

)

    

(9,213,874

)

    

(275,446

)

    

(649,461

)

    

(663,475

)

    

(979,903

)

  

Amount

  

Sold

  

$

6,290,152

    

$

14,392,152

    

$

602,865

    

$

1,069,903

    

$

388,491

    

$

3,272,780

    

Issued due to a tax-free reorganization

    

—

      

—

      

—

      

—

      

—

      

—

    

Reinvestment of dividends and distributions

    

1,883

      

4,439

      

458,467

      

817,023

      

2,962,049

      

4,145,124

    

Redeemed

    

(8,594,638

)

    

(23,610,465

)

    

(3,147,940

)

    

(6,835,971

)

    

(11,235,424

)

    

(19,041,831

)

  

Net Increase (Decrease) - Class Y

  

$

(2,302,603

)

  

$

(9,213,874

)

  

$

(2,086,608

)

  

$

(4,949,045

)

  

$

(7,884,884

)

  

$

(11,623,927

)

  

See Notes to Financial Statements
56


   

European Equity

  

Multi Cap Growth

  
    For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		   For The Six
Months Ended
June 30, 2014		   For The Year
Ended
December 31, 2013		  
   

(unaudited)

      

(unaudited)

      

Class X Shares

  

Shares

  

Sold

    

17,262

      

29,245

      

7,888

      

22,511

    

Issued due to a tax-free reorganization

    

—

      

—

      

—

      

249,276

    

Reinvestment of dividends and distributions

    

48,105

      

72,916

      

491,006

      

75,161

    

Redeemed

    

(163,433

)

    

(408,264

)

    

(293,034

)

    

(681,103

)

  

Net Increase (Decrease) - Class X

    

(98,066

)

    

(306,103

)

    

205,860

      

(334,155

)

  

Amount

  

Sold

  

$

349,259

    

$

532,041

    

$

494,768

    

$

1,091,891

    

Issued due to tax-free reorganization

    

—

      

—

      

—

      

10,973,148

    

Reinvestment of dividends and distributions

    

966,435

      

1,199,464

      

26,529,060

      

3,400,282

    

Redeemed

    

(3,304,924

)

    

(7,259,851

)

    

(17,753,232

)

    

(33,184,994

)

  

Net Increase (Decrease) - Class X

  

$

(1,989,230

)

  

$

(5,528,346

)

  

$

9,270,596

    

$

(17,719,673

)

  

Class Y Shares

  

Sold

    

1,130

      

5,705

      

3,739

      

2,273

    

Issued due to a tax-free reorganization

    

—

      

—

      

—

      

360,951

    

Reinvestment of dividends and distributions

    

11,132

      

19,400

      

144,424

      

23,002

    

Redeemed

    

(64,019

)

    

(161,337

)

    

(219,450

)

    

(306,356

)

  

Net Increase (Decrease) - Class Y

    

(51,757

)

    

(136,232

)

    

(71,287

)

    

79,870

    

Amount

  

Sold

  

$

23,098

    

$

99,702

    

$

212,651

    

$

119,830

    

Issued due to a tax-free reorganization

    

—

      

—

      

—

      

15,701,356

    

Reinvestment of dividends and distributions

    

223,195

      

318,348

      

7,687,678

      

1,029,779

    

Redeemed

    

(1,289,841

)

    

(2,881,855

)

    

(12,910,865

)

    

(14,766,614

)

  

Net Increase (Decrease) - Class Y

  

$

(1,043,548

)

  

$

(2,463,805

)

  

$

(5,010,536

)

  

$

2,084,351

    


57



Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited)

1. Organization and Accounting Policies

Morgan Stanley Variable Investment Series (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund is offered exclusively to life insurance companies in connection with particular life insurance and/or annuity contracts they offer. The Fund applies investment company accounting and reporting guidance.

The Fund, organized on February 25, 1983 as a Massachusetts business trust, consists of five Portfolios ("Portfolios") which commenced operations as follows:

PORTFOLIO

   COMMENCEMENT OF
OPERATIONS		  

PORTFOLIO

   COMMENCEMENT OF
OPERATIONS		  

Money Market

  

March 9, 1984

  

European Equity

  

March 1, 1991

  

Limited Duration

  

May 4, 1999

  

Multi Cap Growth

  

March 9, 1984

  

Income Plus

  

March 1, 1987

          

On June 5, 2000, the Fund commenced offering one additional class of shares (Class Y shares). The two classes are identical except that Class Y shares incur distribution expenses. Class X shares are generally available to holders of contracts offered before May 1, 2000. Class Y shares are available to holders of contracts offered on or after June 5, 2000.

The investment objectives of each Portfolio are as follows:

PORTFOLIO  

INVESTMENT OBJECTIVE

  
Money Market  

Seeks high current income, preservation of capital and liquidity.

  
Limited Duration  

Seeks to provide a high level of current income, consistent with the preservation of capital.

  
Income Plus  

Seeks, as its primary objective, to provide a high level of current income by investing primarily in U.S. government securities and other fixed-income securities. As a secondary objective, the Portfolio seeks capital appreciation but only when consistent with its primary objective.

  
European Equity  

Seeks to maximize the capital appreciation of its investments.

  
Multi Cap Growth  

Seeks, as its primary objective, growth of capital through investments in common stocks of companies believed by the Adviser to have potential for superior growth. As a secondary objective, the Portfolio seeks income but only when consistent with its primary objective.

  


58


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

The following is a summary of significant accounting policies:

A. Valuation of Investments — Money Market: Portfolio securities are valued at amortized cost, which approximates fair value, in accordance with Rule 2a-7 under the Act. The amortized cost of an instrument is determined by valuing it at its original cost and thereafter amortizing any discount or premium from its face value at a constant rate until maturity. All remaining Portfolios: (1) an equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), if there were no sales on a given day, the security is valued at the mean between the last reported bid and asked prices; (2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at its latest reported sales price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (3) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the New York Stock Exchange ("NYSE"); (4) futures are valued at the latest price published by the commodities exchange on which they trade; (5) swaps are marked-to-market daily based upon quotations from market makers; (6) listed options are valued at the last reported sales price on the exchange on which they are listed (or at the exchange official closing price if such exchange reports an official closing price). If an official closing price or last reported sales price is unavailable, the listed option should be fair valued at the mean between their latest bid and asked price. Unlisted options are valued by an outside pricing service approved by the Fund's Board of Trustees (the "Trustees") or quotes from a broker or dealer; (7) certain senior collateralized loans ("Senior Loans") are valued based on quotations received from an independent pricing service; (8) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the "Adviser") or Morgan Stanley Investment Management Limited (the "Sub-Adviser"), each a wholly owned subsidiary of Morgan Stanley, determines that the closing price, last sale price or the mean between the last reported bid and asked prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Trustees or by the Adviser using a pricing service and/or procedures approved by the Trustees; (9) certain portfolio securities


59


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

may be valued by an outside pricing service approved by the Trustees. The pricing service may utilize a matrix system or other model incorporating attributes such as security quality, maturity and coupon as the evaluation model parameters, and/or research evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the portfolio securities valued by such pricing service; (10) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (11) short-term taxable debt securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, unless the Adviser determines such price does not reflect the securities' market value, in which case these securities will be valued at their fair market value determined by the Adviser. Other taxable short-term debt securities with maturities of more than 60 days will be valued on a mark-to-market basis until such time as they reach a maturity of 60 days, whereupon they will be valued at amortized cost using their value on the 61st day unless the Adviser determines such price does not reflect the securities' fair value, in which case these securities will be valued at their fair market value as determined by the Adviser.

Under procedures approved by the Trustees, the Fund's Adviser has formed a Valuation Committee. The Valuation Committee provides administration and oversight of the Fund's valuation policies and procedures, which are reviewed at least annually by the Trustees. These procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.


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B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income is accrued daily as earned except where collection is not expected. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income.

C. Repurchase Agreements — The Fund invests directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization.

Repurchase agreements are subject to Master Netting Agreements which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated on the Portfolio of Investments, the cash or securities to be repurchased exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.

D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.

E. Foreign Currency Translation and Foreign Investments — The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:

—  investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;

—  investment transactions and investment income at the prevailing rates of exchange on the dates of  such transactions.

Although the net assets of the Portfolio are presented at the foreign exchange rates and market values at the close of the period, the Portfolio does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Portfolio does not isolate the effect of changes in foreign


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exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. Federal income tax purposes.

Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statements of Assets and Liabilities. The change in unrealized currency gains (losses) on foreign currency translations for the period is reflected in the Statements of Operations.

F. Restricted Securities — Certain Portfolios invest in unregistered or otherwise restricted securities. The term "restricted securities" refers to securities that are unregistered or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale. As a result, restricted securities may be more difficult to value and the Portfolio may have difficulty disposing of such assets either in a timely manner or for a reasonable price. In order to dispose of an unregistered security, the Portfolio, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered so that the Portfolio could sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and acquirer of the securities. The Portfolio would, in either case, bear market risks during that period. Restricted securities are identified in the Portfolio of Investments.

G. Senior Loans — Senior Loans are typically structured by a syndicate of lenders ("Lenders"), one or more of which administers the Senior Loan on behalf of the Lenders ("Agent"). Lenders may sell interests in Senior Loans to third parties ("Participations") or may assign all or a portion of their interest in a Senior Loan to third parties ("Assignments"). Senior Loans are exempt from registration under the Securities Act of 1933. Presently, Senior Loans are not readily marketable and are often subject to restrictions on resale.


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H. Securities Lending — Certain Portfolios may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Portfolio. The Portfolio receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily, by State Street Bank and Trust Company ("State Street"), the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.

Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent, and is recorded as "Income from Securities Loaned-Net" in the Portfolio's Statement of Operations.

A Portfolio has the right under the lending agreement to recover the securities from the borrower on demand.

The following table presents financial instruments that are subject to enforceable netting arrangements as of June 30, 2014.

   

GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES

  

PORTFOLIO

   GROSS ASSET AMOUNTS
PRESENTED IN STATEMENTS
OF ASSETS AND LIABILITIES		   FINANCIAL
INSTRUMENT		   COLLATERAL
RECEIVED		   NET AMOUNT
(NOT LESS THAN $0)		  

European Equity

  

$

701,085

(a)

    

—

    

$

(701,085

)(b)(c)

  

$

0

    

Multi Cap Growth

    

1,338,011

(a)

    

—

      

(1,338,011

)(c)(d)

    

0

    

(a)  Represents market value of loaned securities at period end.

(b)  The Portfolio received cash collateral of $725,363, of which $710,302 was subsequently invested in a Repurchase Agreement and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. As of June 30, 2014 there was uninvested cash of $15,061, which is not reflected in the Portfolio of Investments.

(c)  The actual collateral received is greater than the amount shown here due to overcollateralization.

(d)  The Portfolio received cash collateral of $1,374,020, of which $1,292,432 was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. As of June 30, 2014 there was uninvested cash of $81,588, which is not reflected in the Portfolio of Investments.

I. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually (except for Money Market which declares and pays daily). Net realized capital gains, if any, are distributed at least annually.


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J. Expenses — Direct expenses are charged to the respective Portfolio and general Fund expenses are allocated on the basis of relative net assets or equally among the Portfolios.

K. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

L. Indemnifications — The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

2. Fair Valuation Measurements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures ("ASC 820"), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs); and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's investments. The inputs are summarized in the three broad levels listed below.

•  Level 1 — unadjusted quoted prices in active markets for identical investments

•  Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

•  Level 3 — significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances


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The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

The following is a summary of the inputs used to value each Portfolio's investments as of June 30, 2014.

Investment Type

   Level 1
Unadjusted
Quoted Prices		   Level 2
Other
Significant
Observable
Inputs		   Level 3
Significant
Unobservable
Inputs		  

Total

  

Money Market

  

Assets:

  

Repurchase Agreements

  

$

—

    

$

24,900,000

    

$

—

    

$

24,900,000

    

Certificates of Deposit

    

—

      

14,100,001

      

—

      

14,100,001

    

Commercial Paper

    

—

      

10,944,631

      

—

      

10,944,631

    

Floating Rate Notes

    

—

      

7,849,947

      

—

      

7,849,947

    

Extendible Floating Rate Notes

    

—

      

7,299,957

      

—

      

7,299,957

    

Time Deposit

    

—

      

3,000,000

      

—

      

3,000,000

    

Total Assets

  

$

—

    

$

68,094,536

    

$

—

    

$

68,094,536

    

Limited Duration

  

Assets:

  

Fixed Income Securities

  

Corporate Bonds

  

$

—

    

$

26,281,635

    

$

—

    

$

26,281,635

    

Asset-Backed Securities

    

—

      

7,648,442

      

—

      

7,648,442

    

Agency Adjustable Rate Mortgages

    

—

      

1,925,339

      

—

      

1,925,339

    

U.S. Treasury Security

    

—

      

1,205,484

      

—

      

1,205,484

    
Collateralized Mortgage Obligations —
Agency Collateral Series		    

—

      

964,973

      

—

      

964,973

    

Sovereign

    

—

      

445,958

      

—

      

445,958

    

Mortgage — Other

    

—

      

243,890

      

—

      

243,890

    

Commercial Mortgage-Backed Securities

    

—

      

198,114

      

—

      

198,114

    

Agency Fixed Rate Mortgages

    

—

      

187,632

      

—

      

187,632

    

Total Fixed Income Securities

    

—

      

39,101,467

      

—

      

39,101,467

    

Short-Term Investments

  

U.S. Treasury Securities

    

—

      

139,989

      

—

      

139,989

    

Investment Company

    

190,143

      

—

      

—

      

190,143

    

Total Short-Term Investments

    

190,143

      

139,989

      

—

      

330,132

    

Futures Contracts

    

19,000

      

—

      

—

      

19,000

    

Credit Default Swap Agreements

    

—

      

258

      

—

      

258

    

Interest Rate Swap Agreements

    

—

      

56,476

      

—

      

56,476

    

Total Assets

    

209,143

      

39,298,190

      

—

      

39,507,333

    


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Investment Type

   Level 1
Unadjusted
Quoted Prices		   Level 2
Other
Significant
Observable
Inputs		   Level 3
Significant
Unobservable
Inputs		  

Total

  

Liabilities:

  

Futures Contracts

  

$

(21,727

)

  

$

—

    

$

—

    

$

(21,727

)

  

Credit Default Swap Agreements

    

—

      

(7,698

)

    

—

      

(7,698

)

  

Total Liabilities

    

(21,727

)

    

(7,698

)

    

—

      

(29,425

)

  

Total

  

$

187,416

    

$

39,290,492

    

$

—

    

$

39,477,908

    

Income Plus

  

Assets:

  

Fixed Income Securities

  

Corporate Bonds

  

$

—

    

$

144,705,878

    

$

—

    

$

144,705,878

    

Asset-Backed Securities

    

—

      

1,220,909

      

—

      

1,220,909

    

Variable Rate Senior Loan Interests

    

—

      

672,122

      

—

      

672,122

    

Total Fixed Income Securities

    

—

      

146,598,909

      

—

      

146,598,909

    

Convertible Preferred Stock

    

376,942

      

—

      

—

      

376,942

    

Short-Term Investments

  

U.S. Treasury Securities

    

—

      

1,076,910

      

—

      

1,076,910

    

Investment Company

    

80,208

      

—

      

—

      

80,208

    

Total Short-Term Investments

    

80,208

      

1,076,910

      

—

      

1,157,118

    

Foreign Currency Forward Exchange Contracts

    

—

      

21

      

—

      

21

    

Futures Contracts

    

171,821

      

—

      

—

      

171,821

    

Credit Default Swap Agreements

    

—

      

4,410

      

—

      

4,410

    

Interest Rate Swap Agreements

    

—

      

575,464

      

—

      

575,464

    

Total Assets

    

628,971

      

148,255,714

      

—

      

148,884,685

    

Liabilities:

  

Foreign Currency Forward Exchange Contracts

    

—

      

(3,133

)

    

—

      

(3,133

)

  

Futures Contracts

    

(178,940

)

    

—

      

—

      

(178,940

)

  

Credit Default Swap Agreements

    

—

      

(77,735

)

    

—

      

(77,735

)

  

Interest Rate Swap Agreements

    

—

      

(211,896

)

    

—

      

(211,896

)

  

Total Liabilities

    

(178,940

)

    

(292,764

)

    

—

      

(471,704

 )  

Total

  

$

450,031

    

$

147,962,950

    

$

—

    

$

148,412,981

    


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Investment Type

   Level 1
Unadjusted
Quoted Prices		   Level 2
Other
Significant
Observable
Inputs		   Level 3
Significant
Unobservable
Inputs		  

Total

  

European Equity

  

Assets:

  

Common Stocks

  
Aerospace & Defense  

$

2,088,980

    

$

—

    

$

—

    

$

2,088,980

    

Automobiles

    

2,883,352

      

—

      

—

      

2,883,352

    

Banks

    

7,013,833

      

—

      

—

      

7,013,833

    

Chemicals

    

903,595

      

—

      

—

      

903,595

    

Construction Materials

    

1,005,309

      

—

      

—

      

1,005,309

    

Electrical Equipment

    

1,300,912

      

—

      

—

      

1,300,912

    

Food Products

    

2,392,105

      

—

      

—

      

2,392,105

    
Health Care Providers & Services    

914,832

      

—

      

—

      

914,832

    
Hotels, Restaurants & Leisure    

1,090,697

      

—

      

—

      

1,090,697

    

Household Products

    

2,241,109

      

—

      

—

      

2,241,109

    

Industrial Conglomerates

    

1,554,717

      

—

      

—

      

1,554,717

    

Information Technology Services

    

1,050,633

      

—

      

—

      

1,050,633

    

Insurance

    

4,872,510

      

—

      

—

      

4,872,510

    

Media

    

2,194,955

      

—

      

—

      

2,194,955

    
Metals & Mining    

1,076,150

      

—

      

—

      

1,076,150

    

Multi-Utilities

    

948,450

      

—

      

—

      

948,450

    
Oil, Gas & Consumable Fuels    

4,730,981

      

—

      

—

      

4,730,981

    

Pharmaceuticals

    

7,692,490

      

—

      

—

      

7,692,490

    

Tobacco

    

2,797,382

      

—

      

—

      

2,797,382

    

Wireless Telecommunication Services

    

2,126,682

      

—

      

—

      

2,126,682

    

Total Common Stocks

    

50,879,674

      

—

      

—

      

50,879,674

    

Short-Term Investments

  

Investment Company

    

1,608,535

      

—

      

—

      

1,608,535

    

Repurchase Agreement

    

—

      

111,308

      

—

      

111,308

    

Total Short-Term Investments

    

1,608,535

      

111,308

      

—

      

1,719,843

    

Total Assets

  

$

52,488,209

    

$

111,308

    

$

—

    

$

52,599,517

    


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Investment Type

   Level 1
Unadjusted
Quoted Prices		   Level 2
Other
Significant
Observable
Inputs		   Level 3
Significant
Unobservable
Inputs		  

Total

  

Multi Cap Growth

  

Assets:

  

Common Stocks

  

Automobiles

  

$

10,185,986

    

$

—

    

$

—

    

$

10,185,986

    

Chemicals

    

5,529,974

      

—

      

—

      

5,529,974

    
Commercial Services & Supplies    

6,514,354

      

—

      

—

      

6,514,354

    

Communications Equipment

    

6,386,127

      

—

      

—

      

6,386,127

    

Diversified Financial Services

    

6,973,968

      

—

      

—

      

6,973,968

    

Electrical Equipment

    

1,338,011

      

—

      

—

      

1,338,011

    

Food Products

    

7,953,736

      

—

      

—

      

7,953,736

    
Health Care Equipment & Supplies    

10,038,449

      

—

      

—

      

10,038,449

    

Health Care Technology

    

9,036,763

      

—

      

—

      

9,036,763

    
Hotels, Restaurants & Leisure    

10,439,411

      

—

      

—

      

10,439,411

    

Information Technology Services

    

15,442,692

      

—

      

—

      

15,442,692

    

Insurance

    

4,162,390

      

—

      

—

      

4,162,390

    
Internet & Catalog Retail    

31,421,599

      

—

      

—

      

31,421,599

    
Internet Software & Services    

60,396,872

      

—

      

—

      

60,396,872

    
Life Sciences Tools & Services    

16,497,989

      

—

      

—

      

16,497,989

    

Media

    

4,293,765

      

—

      

—

      

4,293,765

    
Oil, Gas & Consumable Fuels    

2,751,707

      

—

      

—

      

2,751,707

    

Pharmaceuticals

    

7,674,024

      

—

      

—

      

7,674,024

    

Professional Services

    

15,578,712

      

—

      

—

      

15,578,712

    

Software

    

18,562,600

      

—

      

—

      

18,562,600

    
Tech Hardware, Storage & Peripherals    

7,379,385

      

—

      

—

      

7,379,385

    
Textiles, Apparel & Luxury Goods    

6,807,393

      

—

      

—

      

6,807,393

    

Total Common Stocks

    

265,365,907

      

—

      

—

      

265,365,907

    

Preferred Stocks

    

—

      

—

      

5,146,229

      

5,146,229

    

Call Options Purchased

    

—

      

118,763

      

—

      

118,763

    

Short-Term Investments

  

Investment Company

    

1,549,559

      

—

      

—

      

1,549,559

    

Repurchase Agreements

    

—

      

244,796

      

—

      

244,796

    

Total Short-Term Investments

    

1,549,559

      

244,796

      

—

      

1,794,355

    

Total Assets

  

$

266,915,466

    

$

363,559

    

$

5,146,229

    

$

272,425,254

    

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Fund recognizes transfers between the levels as of the end of the period. As of June 30, 2014, the Fund did not have any investments transfer between investment levels.


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Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

   

Multi Cap Growth

  
   

Preferred Stocks

  

Beginning Balance

  

$

—

    

Purchases

    

5,014,393

    

Sales

    

—

    

Amortization of discount

    

—

    

Transfers in

    

—

    

Transfers out

    

—

    

Corporate Action

    

—

    

Change in unrealized appreciation/depreciation

    

131,836

    

Realized gains (losses)

    

—

    

Ending Balance

  

$

5,146,229

    
Net change in unrealized appreciation/depreciation from
investments still held as of June 30, 2014		  

$

131,836

    

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of June 30, 2014.

Multi-Cap Growth

    Fair Value at
June 30, 2014		  

Valuation Technique

  

Unobservable Input

  

Range

   Selected
Value		   Impact
to
Valuation
from an
Increase
in Input		  
Hotels,
Restaurants &
Leisure		  
Preferred
Stock		  

$

1,789,443

     Market Transaction
Method		   Precedent
Transaction of
Preferred Stock		  

$

14.4692

    

$

14.4692

    

$

14.4692

    

Increase

  
        Discounted Cash
Flow		   Weighted
Average Cost of
Capital		    

17.0

%

    

19.0

%

    

18.0

%

  

Decrease

  
            Perpetual Growth
Rate		    

3.0

%

    

4.0

%

    

3.5

%

  

Increase

  


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    Fair Value at
June 30, 2014		  

Valuation Technique

  

Unobservable Input

  

Range

   Selected
Value		   Impact
to
Valuation
from an
Increase
in Input		  
        Market Comparable
Companies		   Enterprise Value/
Revenue		    

7.9

x

    

12.1

x

    

9.0

x

  

Increase

  
            Discount for Lack
of Marketability		    

15.0

%

    

15.0

%

    

15.0

%

  

Decrease

  
Internet &
Catalog Retail		  
Preferred
Stock		  

$

1,739,138

     Market Transaction
Method		   Precedent
Transaction of
Preferred Stock		  

$

122.1391

    

$

122.1391

    

$

122.1391

    

Increase

  
        Discounted Cash
Flow		   Weighted
Average Cost of
Capital		    

16.5

%

    

18.5

%

    

17.5

%

  

Decrease

  
            Perpetual Growth
Rate		    

3.0

%

    

4.0

%

    

3.5

%

  

Increase

  
        Market Comparable
Companies		   Enterprise Value/
Revenue		    

11.5

x

    

17.1

x

    

15.5

x

  

Increase

  
            Discount for Lack
of Marketability		    

15.0

%

    

15.0

%

    

15.0

%

  

Decrease

  

Software

  
Preferred
Stock		  

$

1,617,648

     Market Transaction
Method		   Precedent
Transaction of
Preferred Stock		  

$

11.4231

    

$

11.4231

    

$

11.4231

     Increase  
        Discounted Cash
Flow		   Weighted
Average Cost of
Capital		    

17.0

%

    

19.0

%

    

18.0

%

   Decrease  

 

      Perpetual Growth
Rate		    

3.0

%

    

4.0

%

    

3.5

%

   Increase  
        Market Comparable
Companies		   Enterprise Value/
Revenue		    

13.9

x

    

23.5

x

    

23.5

x

   Increase  
            Discount for Lack
of Marketability		    

15.0

%

    

15.0

%

    

15.0

%

  

Decrease

  


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Notes to Financial Statements n June 30, 2014 (unaudited) continued

3. Derivatives

Certain Portfolios may, but are not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of a Portfolio's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.

Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and risk of loss. Leverage associated with derivative transactions may cause the Portfolios to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission rules and regulations, or may cause the Portfolios to be more volatile than if the Portfolios had not been leveraged. Although the Adviser and/or Sub-Advisers seek to use derivatives to further the Portfolio's investment objectives, there is no assurance that the use of derivatives will achieve this result.

Following is a description of the derivative instruments and techniques that the Portfolios used during the period and their associated risks:

Options In respect to options, certain Portfolios are subject to equity risk, interest rate risk and foreign currency exchange risk in the normal course of pursuing its investment objectives. If a Portfolio buys an option, it buys a legal contract giving it the right to buy or sell a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed-upon price typically in exchange for a premium paid by a Portfolio. A Portfolio may purchase and/or sell put and call options. Purchasing call options tends to increase a Portfolio's exposure to the underlying (or similar) instrument. Purchasing put


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options tends to decrease a Portfolio's exposure to the underlying (or similar) instrument. When entering into purchased option contracts, a Portfolio bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, a Portfolio may not achieve the anticipated benefits of the purchased option contracts; however the risk of loss is limited to the premium paid. Purchased options are reported as part of "Total Investments in Securities" on the Statements of Assets and Liabilities. Premium paid for purchasing options which expired are treated as realized losses. If a Portfolio sells an option, it sells to another party the right to buy from or sell to a Portfolio a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed upon price typically in exchange for a premium received by a Portfolio. When options are purchased OTC, a Portfolio bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. Options may also be illiquid and a Portfolio may have difficulty closing out its position. A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well-conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.

Foreign Currency Forward Exchange Contracts In connection with its investments in foreign securities, certain Portfolios entered into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forward exchange contract ("currency contract") is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Currency contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. To the extent hedged by the use of currency contracts, the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is additional risk to the extent that currency contracts create exposure to currencies in which a Portfolio's securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for a Portfolio than if it had not entered into such currency contracts. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to the contract or the failure of the counterparty to make payments or otherwise comply with the term of the contract. A currency contract is marked-to-market daily and the change in market value is recorded by a Portfolio as unrealized gain or loss. A Portfolio records


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Notes to Financial Statements n June 30, 2014 (unaudited) continued

realized gains (losses) when the currency contract is closed equal to the difference between the value of the currency contract at the time it was opened and the value at the time it was closed.

Futures A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return, and the potential loss from futures contracts can exceed a Portfolio's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a broker with whom a Portfolio has open positions in the futures contract.

Swaps A Portfolio may enter into OTC swap contracts or cleared swap transactions. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). A Portfolio's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each party. Cleared swap transactions help reduce counterparty credit risk. In a cleared swap, a Portfolio's ultimate counterparty is a clearinghouse rather than a bank, dealer or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by a Portfolio or if the reference index, security or investments do not perform as expected.


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A Portfolio's use of swaps during the period included those based on the credit of an underlying security commonly referred to as credit default swaps. A Portfolio may be either the buyer or seller in a credit default swap. As the buyer in a credit default swap, a Portfolio would pay to the counterparty the periodic stream of payments. If no default occurs, a Portfolio would receive no benefit from the contract. As the seller in a credit default swap, a Portfolio would receive the stream of payments but would be subject to exposure on the notional amount of the swap, which it would be required to pay in the event of default. The use of credit default swaps could result in losses to a Portfolio if the Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation. During the period swap agreements are open, payments are received from or made to the clearinghouse or counterparty based upon changes in the value of the contract (variation margin). The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis.

The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.

When a Portfolio has an unrealized loss on a swap agreement, the Portfolio has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. If applicable, cash collateral is included with "Due from (to) Broker" in the Statements of Assets and Liabilities.

Upfront payments received or paid by a Portfolio will be reflected as an asset or liability in the Statements of Assets and Liabilities.

FASB ASC 815, Derivatives and Hedging: Overall ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why a Portfolio uses derivative instruments, how these derivative instruments are accounted for and their effects on a Portfolio's financial position and results of operations.


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The following table sets forth the fair value of each Portfolio's derivative contracts by primary risk exposure as of June 30, 2014.

PORTFOLIO

   PRIMARY RISK
EXPOSURE		   ASSET DERIVATIVES
STATEMENT OF
ASSETS AND
LIABILITIES LOCATION		  

FAIR VALUE

   LIABILITY DERIVATIVES
STATEMENT OF
ASSETS AND
LIABILITIES LOCATION		  

FAIR VALUE

  

Limited Duration

   Interest Rate
Risk		   Variation margin on
open futures contracts		  

$

19,000

(e)

  Variation margin on
open futures contracts		  

$

(21,727

)(e)

  
        Unrealized appreciation on
open swap agreements		    

56,476

     Unrealized depreciation on
open swap agreements		    

—

   
   

Credit Risk

   Variation margin on
open swap agreements		    

258

(e)

   Variation margin on
open swap agreements		    

—

   
        Unrealized appreciation on
open swap agreements		    

—

     Unrealized depreciation on
open swap agreements		    

(7,698

)

  
           

$

75,734

        

$

(29,425

)

  

Income Plus

   Interest Rate
Risk		   Variation margin on
open futures contracts		  

$

171,821

(e)

   Variation margin on
open futures contracts		  

$

(178,940

)(e)

  
        Variation margin on
open swap agreements		    

—

    Variation margin on
open swap agreements		    

(160,049

)(e)

  
        Unrealized appreciation on
open swap agreements		    

575,464

     Unrealized depreciation on
open swap agreements		    

(51,847

)

  
   

Credit Risk

   Variation margin on
open swap agreements		    

4,410

(e)

   Variation margin on
open swap agreements		    

(50,933

)(e)

  
        Unrealized appreciation on
open swap agreements		    

—

     Unrealized depreciation on
open swap agreements		    

(26,802

)

  
    Foreign
Currency Risk		   Unrealized appreciation on
open foreign currency
forward exchange
contracts		    

21

     Unrealized depreciation on
open foreign currency
forward exchange
contracts		    

(3,133

)

  
           

$

751,716

        

$

(471,704

)

  
Multi Cap
Growth		   Foreign
Currency Risk		   Investments, at Value
(Options Purchased)		  

$

118,763

(f)

   Investments, at Value
(Options Purchased)		  

$

—

    

(e)  Includes cumulative appreciation (depreciation) as reported in the Portfolio of Investments. Only current day's net variation margin is reported within the Statement of Assets and Liabilities.

(f)  Amounts are included in Investments in securities in the Statement of Assets and Liabilities.


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The following tables set forth by primary risk exposure of each Portfolio's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the six months ended June 30, 2014 in accordance with ASC 815.

AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS

PORTFOLIO

   PRIMARY RISK
EXPOSURE		  

FUTURES

   OPTIONS
PURCHASED		   FOREIGN
CURRENCY
FORWARD
EXCHANGE		  

SWAPS

  

Limited Duration

  

Interest Rate Risk

  

$

82,928

    

$

—

    

$

—

    

$

(36,545

)

  
   

Credit Risk

    

—

     

—

      

—

      

(14,357

)

  
   

Total

  

$

82,928

    

$

—

    

$

—

    

$

(50,902

)

  

Income Plus

  

Interest Rate Risk

  

$

1,583,658

    

$

—

    

$

—

    

$

(78,259

)

  
   

Credit Risk

    

—

     

—

      

—

      

(98,240

)

  
   

Foreign Currency Risk

    

—

     

—

      

419

      

—

    
   

Total

  

$

1,583,658

    

$

—

    

$

419

    

$

(176,499

)

  

CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVE CONTRACTS

PORTFOLIO

   PRIMARY RISK
EXPOSURE		  

FUTURES

   OPTIONS
PURCHASED(g) 		   FOREIGN
CURRENCY
FORWARD
EXCHANGE		  

SWAPS

  

Limited Duration

  

Interest Rate Risk

  

$

77,461

    

$

—

    

$

—

    

$

(167,156

)

  
   

Credit Risk

    

—

      

—

      

—

      

6,817

    
   

Total

  

$

77,461

    

$

—

    

$

—

    

$

(160,339

)

  

Income Plus

  

Interest Rate Risk

  

$

79,664

    

$

—

    

$

—

    

$

(1,887,656

)

  
   

Credit Risk

    

—

      

—

      

—

      

(16,377

)

  
   

Foreign Currency Risk

    

—

      

—

      

5,571

      

—

    
   

Total

  

$

79,664

    

$

—

    

$

5,571

    

$

(1,904,033

)

  

Multi Cap Growth

  

Foreign Currency Risk

  

$

—

    

$

(166,636

)

  

$

—

    

$

—

    

(g)  Amounts are included in Investments in the Statement of Operations.


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Notes to Financial Statements n June 30, 2014 (unaudited) continued

At June 30, 2014, each Portfolio's derivative assets and liabilities are as follows:

GROSS AMOUNTS OF ASSETS AND LIABILITIES PRESENTED
IN THE STATEMENT OF ASSETS AND LIABILITIES

PORTFOLIO

  

DERIVATIVES(h)

   ASSETS(i)    LIABILITIES(i)   

Limited Duration

  

Swap Agreements

  

$

56,476

    

$

(7,698

)

  

Income Plus

   Foreign Currency
Forward Exchange Contracts		  

$

21

    

$

(3,133

)

  
   

Swap Agreements

    

575,464

      

(78,649

)

  
   

Total

  

$

575,485

    

$

(81,782

)

  

Multi Cap Growth

  

Options Purchased

  

$

118,763

    

$

—

    

(h)  Excludes exchange traded derivatives.

(i)  Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statements of Assets and Liabilities.

Certain Portfolios typically enter into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, a Portfolio typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potentially deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between a Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event a Portfolio exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master Agreement, the return of collateral with market value in excess of a Portfolio's net liability, may be delayed or denied.


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Notes to Financial Statements n June 30, 2014 (unaudited) continued

The following tables present derivative financial instruments that are subject to enforceable netting arrangements as of June 30, 2014.

GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES

PORTFOLIO

  

COUNTERPARTY

   GROSS
ASSET
DERIVATIVES
PRESENTED IN
STATEMENTS OF
ASSETS AND
LIABILITIES		   FINANCIAL
INSTRUMENT		   COLLATERAL
RECEIVED(j)		   NET AMOUNT
(NOT LESS
THAN $0)		  

Limited Duration

  

Bank of America

  

$

11,988

    

$

—

    

$

—

    

$

11,988

    

  

  

Goldman Sachs International

    

21,061

      

—

      

—

      

21,061

    
   

Royal Bank of Canada

    

23,427

      

—

      

—

      

23,427

    
   

Total

  

$

56,476

    

$

—

    

$

—

    

$

56,476

    

Income Plus

  

Bank of America

  

$

48,344

    

$

—

    

$

—

    

$

48,344

    

  

  

Deutsche Bank

    

527,120

      

—

      

(527,120

)

    

0

    
   

HSBC Bank PLC

    

21

      

—

      

—

      

21

    
   

Total

  

$

575,485

    

$

—

    

$

(527,120

)

  

$

48,365

    

Multi Cap Growth

  

Royal Bank of Scotland

  

$

118,763

    

$

—

    

$

(118,763

)

  

$

0

    

(j)  In some instances, the actual collateral received may be more than the amount shown here due to overcollateralization.

GROSS AMOUNTS NOT OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES

PORTFOLIO

  

COUNTERPARTY

   GROSS
LIABILITIES
DERIVATIVES
PRESENTED IN
STATEMENTS OF
ASSETS AND
LIABILITIES		   FINANCIAL
INSTRUMENT		   COLLATERAL
PLEDGED		   NET AMOUNT
(NOT LESS
THAN $0)		  

Limited Duration

  

Barclays Bank PLC

  

$

7,698

    

$

—

    

$

—

    

$

7,698

    

Income Plus

  

Barclays Bank PLC

  

$

26,802

    

$

—

    

$

—

    

$

26,802

    

  

  

Goldman Sachs International

    

34,052

      

—

      

—

      

34,052

    
   

JPMorgan Chase Bank NA

    

17,795

      

—

      

—

      

17,795

    
   

UBS AG

    

3,133

      

—

      

—

      

3,133

    
   

Total

  

$

81,782

    

$

—

    

$

—

    

$

81,782

    


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Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

For the six months ended June 30, 2014, the average monthly amount outstanding for each derivative type is as follows:

Limited Duration:

  

Futures Contracts:

  

Average monthly original value

  

$

18,100,143

    

Swap Agreements:

  

Average monthly notional amount

  

$

3,345,000

    

Income Plus:

  

Foreign Currency Forward Exchange Contracts:

  

Average monthly principal amount

  

$

2,378,407

    

Futures Contracts:

  

Average monthly original value

  

$

106,005,033

    

Swap Agreements:

  

Average monthly notional amount

  

$

30,141,417

    

Multi Cap Growth:

  

Options Purchased:

  

Average monthly notional amount

    

96,420,055

    

4. Advisory/Administration and Sub-Advisory Agreements

Pursuant to an Investment Advisory Agreement with the Adviser and Sub-Adviser, the Fund pays an advisory fee, accrued daily and payable monthly, by applying the annual rates listed below to each Portfolio's net assets determined at the close of each business day.

Money Market — 0.45% to the portion of the daily net assets not exceeding $250 million; 0.375% to the portion of the daily net assets exceeding $250 million but not exceeding $750 million; 0.325% to the portion of the daily net assets exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion; and 0.275% to the portion of the daily net assets in excess of $1.5 billion. For the six months ended June 30, 2014, the advisory fee rate (net of waivers) was equivalent to an annual effective rate of 0.00% of the Portfolio's daily net assets.

Limited Duration — 0.30%.

Income Plus — 0.42% to the portion of the daily net assets not exceeding $500 million; 0.35% to the portion of the daily net assets exceeding $500 million but not exceeding $1.25 billion; and 0.22% to the portion of the daily net assets in excess of $1.25 billion. For the six months ended June 30, 2014, the advisory fee rate (net of rebate) was equivalent to an annual effective rate of 0.42% of the Portfolio's daily net assets.

European Equity — 0.87% to the portion of the daily net assets not exceeding $500 million; 0.82% to the portion of the daily net assets exceeding $500 million but not exceeding $2 billion; 0.77% to the portion of


79


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

the daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.745% to the portion of the daily net assets in excess of $3 billion. For the six months ended June 30, 2014, the advisory fee rate (net of waivers/rebate) was equivalent to an annual effective rate of 0.65% of the Portfolio's daily net assets.

Multi Cap Growth — 0.42% to the portion of the daily net assets not exceeding $1 billion; 0.395% to the portion of the daily net assets exceeding $1 billion but not exceeding $2 billion; and 0.37% to the portion of the daily net assets in excess of $2 billion. For the six months ended June 30, 2014, the advisory fee rate (net of waivers/rebate) was equivalent to an annual effective rate of 0.42% of the Portfolio's daily net assets.

Under the Sub-Advisory Agreement between the Adviser and Sub-Adviser, the Sub-Adviser provides European Equity Portfolio with advisory services subject to the overall supervision of the Adviser and the Fund's Officers and Trustees. The Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser receives from the Portfolio.

Morgan Stanley Services Company Inc. was the Fund's Administrator. Effective January 1, 2014, the Adviser also serves as the Administrator to the Fund and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% (Money Market Portfolio's rate is 0.05%) to each Portfolio's daily net assets.

The Adviser/Administrator has agreed to reduce its advisory fee, its administration fee and/or reimburse European Equity Portfolio so that total annual Portfolio operating expenses, excluding certain investment related expenses, 12b-1 fees, taxes, interest and other extraordinary expenses (including litigation), will not exceed 1.00%. The fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Trustees act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the six months ended June 30, 2014, approximately $58,379 of advisory fees were waived pursuant to this arrangement.

Pursuant to the Reorganization (defined herein, page 88), the Adviser/Administrator has agreed to reduce its advisory fee, its administration fee and/or reimburse Multi Cap Growth Portfolio so that total Portfolio operating expenses, excluding certain investment related expenses, 12b-1 fees, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.57%. The fee waivers and/or expense reimbursements will continue for at least two years from the date of the Reorganization or until such time that the Trustees act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the six months ended June 30, 2014, approximately $1,397 of advisory fees were waived pursuant to this arrangement.

Pursuant to an Administration Agreement with the Adviser/Administrator, each Portfolio pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% (Money Market 0.05%) to the Portfolio's daily net assets.


80


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

Under a Sub-Administration agreement between the Administrator and State Street, State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from each Portfolio.

5. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distribution, Inc. (the "Distributor"), an affiliate of the Adviser, Administrator and Sub-Adviser. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. Under the Plan, Class Y shares of each Portfolio bear a distribution fee which is accrued daily and paid monthly at the annual rate of 0.25% of the average daily net assets of the class.

The Distributor, Adviser, and Administrator have agreed to waive/reimburse all or a portion of the Money Market Portfolio's distribution fee, advisory fee and administration fee, respectively, to the extent that total expenses exceed total income of the Money Market Portfolio on a daily basis. For the six months ended June 30, 2014, the Distributor waived $47,073, the Adviser waived $158,296 and the Administrator waived $14,695. For the six months ended June 30, 2014, the Adviser waived additional fees and/or reimbursed expenses to the extent the Portfolio's total expenses exceeded total income on a daily basis in the amount of $1,567. The fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Trustees act to discontinue all or a portion of such waivers and/or expense reimbursements when they deem such action is appropriate.

6. Dividend Disbursing and Transfer Agent

The Fund's dividend disbursing and transfer agent is Boston Financial Data Services, Inc. ("BFDS"). Pursuant to a Transfer Agency Agreement, the Fund pays BFDS a fee based on the number of classes, accounts and transactions relating to the Portfolios of the Fund.

7. Security Transactions and Transactions with Affiliates

For the six months ended June 30, 2014, purchases and sales of investment securities, excluding short-term investments, were as follows:

   

U.S. GOVERNMENT SECURITIES

  

OTHER

  

PORTFOLIO

  

PURCHASES

  

SALES

  

PURCHASES

  

SALES

  

Limited Duration

  

$

1,004,875

    

$

4,003,216

    

$

8,929,386

    

$

7,444,889

    

Income Plus

    

—

      

—

      

36,354,686

      

45,527,869

    

European Equity

    

—

      

—

      

7,602,170

      

10,884,500

    

Multi Cap Growth

    

—

      

—

      

36,000,985

      

52,006,959

    


81


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

Each Portfolio (except Money Market) invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly, and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of advisory and administrative fees paid by the Fund due to its investment in the Liquidity Funds.

A summary of each Portfolio's transactions in shares of the Liquidity Funds during the six months ended June 30, 2014 is as follows:

PORTFOLIO

   VALUE
DECEMBER 31, 2013		   PURCHASES
AT COST		  

SALES

   DIVIDEND
INCOME		   VALUE
JUNE 30, 2014		  

Limited Duration

  

$

1,468,944

    

$

6,408,712

    

$

7,687,513

    

$

159

    

$

190,143

    

Income Plus

    

4,473,538

      

21,057,183

      

25,450,513

      

582

      

80,208

    

European Equity

    

2,104,199

      

7,226,015

      

7,721,679

      

248

      

1,608,535

    

Multi Cap Growth

    

25,988,819

      

33,523,103

      

57,962,363

      

2,215

      

1,549,559

    

In addition, the table also identifies the income distributions earned, if any, by each Portfolio for that Portfolio's investment in the Liquidity Funds.

Income distributions are included in "Interest and dividends from affiliates" in the Statements of Operations.

PORTFOLIO

   ADVISORY FEE
REDUCTION		  

Limited Duration

  

$

358

    

Income Plus

    

1,209

    

European Equity

    

557

    

Multi Cap Growth

    

4,644

    

The following Portfolios had transactions with the following affiliates of the Fund:

PORTFOLIO

  

ISSUER

   VALUE
DECEMBER 31,
2013		   PURCHASES
AT COST		  

SALES

   NET
REALIZED
GAIN		   INTEREST
INCOME		   VALUE
JUNE 30,
2014		  
Limited
Duration		   Metropolitan Life
Global Funding I		  

$

267,725

    

$

—

    

$

—

    

$

—

    

$

2,062

    

$

273,270

    
Income
Plus		   MetLife Capital
Trust IV		    

691,500

      

—

      

—

      

—

      

23,625

      

748,500

    

The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of


82


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

retirement. Benefits under this plan are based on factors which include years of service and compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003.

Aggregate pension costs for the six months ended June 30, 2014, included in Trustees' fees and expenses" in the Statements of Operations and the accrued pension liability included in "accrued expenses and other payables" in the Statements of Assets and Liabilities are as follows:

   

AGGREGATE PENSION COSTS

  
EUROPEAN
EQUITY		   MULTI CAP
GROWTH		  
$

212

    

$

3,958

    

 

   

AGGREGATE PENSION LIABILITY

  
MONEY
MARKET		   LIMITED
DURATION		   INCOME
PLUS		   EUROPEAN
EQUITY		   MULTI CAP
GROWTH		  
$

3,832

    

$

2,089

    

$

7,851

    

$

2,770

    

$

15,618

    

The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.

8. Federal Income Tax Status

It is the Portfolios' intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements.

A Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.


83


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

FASB ASC 740-10, Income Taxes — Overall, sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Portfolios recognize interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statements of Operations. The Portfolios file tax returns with the U.S. Internal Revenue Service, New York and various states. Each of the tax years in the four-year period ended December 31, 2013, remains subject to examination by taxing authorities.

The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2013 and 2012 was as follows:

   

2013 DISTRIBUTIONS PAID FROM:

  

2012 DISTRIBUTIONS PAID FROM:

  

PORTFOLIO

   ORDINARY
INCOME		   LONG-TERM
CAPITAL GAIN		   ORDINARY
INCOME		   LONG-TERM
CAPITAL GAIN		  

Money Market

  

$

8,318

    

$

—

    

$

10,504

    

$

—

    

Limited Duration

    

1,067,043

      

—

      

1,503,210

      

—

    

Income Plus

    

8,060,938

      

—

      

10,700,252

      

—

    

European Equity

    

1,517,812

      

—

      

1,421,625

      

—

    

Multi Cap Growth

    

951,967

      

3,478,094

      

—

      

4,886,471

    

The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.

Temporary differences are primarily due to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.

Permanent differences, primarily due to differing treatments of gains (losses) related to foreign currency transactions, swap transactions, paydown adjustments, expiring capital losses, net operating losses, partnership basis adjustments, distribution redesignations, book amortization of premium on debt securities,


84


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

nondeductible expenses and expenses and merger adjustments, resulted in the following reclassifications among the Portfolio's components of net assets at December 31, 2013:

PORTFOLIO

   ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS OF)
NET INVESTMENT INCOME		   ACCUMULATED
NET REALIZED GAIN (LOSS)		  

PAID-IN-CAPITAL

  

Money Market

  

$

(107

)

  

$

107

    

$

—

    

Limited Duration

    

143,120

      

1,124,249

      

(1,267,369

)

  

Income Plus

    

(225,235

)

    

225,235

      

—

    

European Equity

    

(1,450

)

    

1,450

      

—

    

Multi Cap Growth

    

444,999

      

(501,796

)

    

56,797

    

At December 31, 2013, the components of distributable earnings on a tax basis were as follows:

PORTFOLIO

   UNDISTRIBUTED
ORDINARY
INCOME		   UNDISTRIBUTED
LONG-TERM
CAPITAL GAIN		  

Money Market

  

$

4,572

    

$

—

    

Limited Duration

    

614,378

      

—

    

Income Plus

    

5,980,746

      

—

    

European Equity

    

1,189,628

      

—

    

Multi Cap Growth

    

4,912,282

      

29,304,421

    

At June 30, 2014, cost, gross unrealized appreciation (depreciation) and net unrealized appreciation (depreciation) of the investments of each of the Portfolios were:

PORTFOLIO

  

COST

  

APPRECIATION

  

DEPRECIATION

   NET APPRECIATION
(DEPRECIATION)		  

Money Market

  

$

68,094,536

    

$

—

    

$

—

    

$

—

    

Limited Duration

    

38,987,232

      

573,404

      

129,037

      

444,367

    

Income Plus

    

137,508,238

      

11,180,376

      

555,645

      

10,624,731

    

European Equity

    

36,143,159

      

17,485,680

      

1,029,322

      

16,456,358

    

Multi Cap Growth

    

150,015,857

      

124,597,379

      

2,187,982

      

122,409,397

    

At December 31, 2013, the following Portfolios had available for Federal income tax purposes unused short term and/or long term capital losses that will not expire:

PORTFOLIO

   SHORT TERM LOSSES
(NO EXPIRATION)		   LONG TERM LOSSES
(NO EXPIRATION)		  

Money Market

  

$

1,647

    

$

—

    

Limited Duration

    

732

      

338,635

    


85


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

In addition, At December 31, 2013, the following Portfolios had available capital loss carryforwards to offset future net capital gains, to the extent provided by regulations, through the indicated expiration dates:

   

AMOUNTS IN THOUSANDS AVAILABLE THROUGH DECEMBER 31,

  

PORTFOLIO

  

2014

  

2015

  

2016

  

2017

  

2018

  

2019

  

TOTAL

  

Limited Duration

  

$

2,233

    

$

1,063

    

$

17,119

    

$

8,980

    

$

—

    

$

—

    

$

29,395

    

Income Plus

    

—

      

—

      

7,196

      

—

      

—

      

—

      

7,196

    

European Equity

    

—

      

—

      

—

      

8,281

      

3,315

      

—

      

11,596

    

During the year ended December 31, 2013, the following Portfolio expired capital loss carryforwards for U.S. Federal income tax purposes as follows:

PORTFOLIO

   EXPIRED CAPITAL
LOSS CARRYFORWARDS		  

Limited Duration

  

$

1,267,369

    

To the extent that capital loss carryforwards are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by a Portfolio for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders.

During the year ended December 31, 2013, the following Portfolios utilized capital loss carryforwards for U.S. Federal income tax purposes as follows:

PORTFOLIO

   UTILIZED CAPITAL
LOSS CARRYFORWARDS		  

Money Market

  

$

288

    

Income Plus

    

3,153,122

    

European Equity

    

2,344,666

    

9. Purposes of and Risks Relating to Certain Financial Instruments

Certain Portfolios may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.

Certain Portfolios may invest in mortgage securities, including securities issued by the Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"). These are fixed income securities that derive their value from or represent interests in a pool of mortgages or mortgage


86


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

securities. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage-backed security and could result in losses to the Portfolios. The risk of such defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. Sub-prime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their mortgages. The securities issued by FNMA and FHLMC that are held by the Portfolios are not backed by sub-prime mortgages.

Additionally, securities issued by FNMA and FHLMC are not backed by or entitled to the full faith and credit of the United States; rather, they are supported by the right of the issuer to borrow from the U.S. Department of the Treasury.

The Federal Housing Finance Agency ("FHFA") serves as conservator of FNMA and FHLMC and the U.S. Department of the Treasury has agreed to provide capital as needed to ensure FNMA and FHLMC continue to provide liquidity to the housing and mortgage markets.

The Money Market Portfolio may enter into repurchase agreements under which the Portfolio sends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In the event of default on the obligation to repurchase, the Portfolio has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral proceeds may be subject to certain costs and delays.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

At June 30, 2014, European Equity Portfolio's investments in securities of issuers in the United Kingdom, Switzerland, Germany and France represented 34.9%, 17.5%, 15.5% and 16.8%, respectively of the Portfolio's net assets. These investments, as well as other non-U.S. investments, which involve risks and considerations not present with respect to U.S. securities, may be affected by economic or political developments in these countries.

10. Regulatory Matters

On July 23, 2014, the Securities and Exchange Commission voted to amend Rule 2a-7, which governs money market funds. The majority of these amendments, except for certain disclosure enhancements, will not take effect for two years. The most significant change is a requirement that institutional prime and institutional


87


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

municipal money market funds move to a floating net asset value. Government, treasury, retail prime and retail municipal money market funds will continue to transact at a stable $1.00 share price. At this time, the Fund's management is evaluating the implications and its impact to the Fund.

11. Portfolio Reorganizations

On April 29, 2013, the Multi Cap Growth Portfolio (the "Portfolio") acquired the net assets of Morgan Stanley Variable Investment Series Aggressive Equity Portfolio ("Aggressive Equity Portfolio"), an open-end investment company, based on the respective valuations as of the close of business on April 26, 2013, pursuant to a Plan of Reorganization approved by the shareholders of Aggressive Equity Portfolio on February 21, 2013 ("Reorganization"). The purpose of the transaction was to combine two portfolios managed by Morgan Stanley Investment Management Inc. with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 249,276 Class X shares of the Portfolio at a net asset value of $44.02 per share for 592,874 Class X shares of Aggressive Equity Portfolio; 360,951 Class Y shares of the Portfolio at a net asset value of $43.50 for 875,713 Class Y shares of Aggressive Equity Portfolio. The net assets of Aggressive Equity Portfolio before the Reorganization were $26,674,482, including unrealized appreciation of $7,944,634 at April 26, 2013. The investment portfolio of Aggressive Equity Portfolio, with a fair value of $26,791,965 and identified cost of $18,847,335 on April 26, 2013, was the principal asset acquired by the Portfolio. For financial reporting purposes, assets received and shares issued by the Portfolio were recorded at fair value; however, the cost basis of the investments received from Aggressive Equity Portfolio was carried forward to align ongoing reporting of the Portfolio's realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the Reorganization, the net assets of the Portfolio were $213,552,626. Immediately after the merger, the net assets of the Portfolio were $240,227,108.

Upon closing of the Reorganization, shareholders of Aggressive Equity Portfolio received shares of the Portfolio as follows:

AGGRESSIVE
EQUITY PORTFOLIO		   MULTI CAP
GROWTH PORTFOLIO		  
Class X  

Class X

  
Class Y  

Class Y

  


88


Morgan Stanley Variable Investment Series

Notes to Financial Statements n June 30, 2014 (unaudited) continued

Assuming the acquisition had been completed on January 1, 2013, the beginning of the annual reporting period of the Portfolio, the Portfolio's pro forma results of operations for the period ended December 31, 2013, are as follows:

Net investment income(1)

  

$

5,039

    

Net gain realized and unrealized gain(2)

  

$

106,904,086

    

Net increase (decrease) in net assets resulting from operations

  

$

106,909,125

    

(1)  $(279,819) as reported, plus $37,505 Aggressive Equity Portfolio premerger, plus $247,353 of estimated pro-forma eliminated expenses.

(2)  $105,695,600 as reported, plus $1,208,486 Aggressive Equity Portfolio premerger.

Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Aggressive Equity Portfolio that have been included in the Portfolio's Statement of Operations since April 29, 2013.

On February 21, 2013, shareholders of the Strategist Portfolio (the "Portfolio") approved an Agreement and Plan of Reorganization by and between Morgan Stanley Variable Investment Series (the "Fund"), on behalf of the Portfolio, and The Universal Institutional Funds, Inc., on behalf of the Global Tactical Asset Allocation Portfolio ("Global Tactical Asset Allocation"), pursuant to which substantially all of the assets and liabilities of the Portfolio would be transferred to Global Tactical Asset Allocation in exchange for shares of Global Tactical Asset Allocation and pursuant to which the Portfolio will be liquidated and terminated (the "Reorganization"). Each Class X shareholder of the Portfolio received Class I shares of Global Tactical Asset Allocation and each Class Y shareholder of the Portfolio received Class II shares of the Global Tactical Asset Allocation. The Reorganization was consummated on April 29, 2013.

On March 17, 2014, shareholders of the Global Infrastructure Portfolio (the "Portfolio") approved an Agreement and Plan of Reorganization by and between Morgan Stanley Variable Investment Series, on behalf of the Portfolio and The Universal Institutional Funds, Inc., on behalf of its newly created series Global Infrastructure Portfolio ("UIF Global Infrastructure"), pursuant to which substantially all of the assets and liabilities of the Portfolio would be transferred to UIF Global Infrastructure in exchange for shares of UIF Global Infrastructure and pursuant to which the Portfolio would be liquidated and terminated (the "Reorganization"). Each Class X shareholder of the Portfolio received Class I shares of UIF Global Infrastructure and each Class Y shareholder of the Portfolio received Class II shares of UIF Global Infrastructure. The Reorganization was consummated on April 28, 2014.


89



Morgan Stanley Variable Investment Series

Financial Highlights

                               
FOR THE YEAR
ENDED
DECEMBER 31		   NET ASSET
VALUE
BEGINNING
OF PERIOD		   NET
INVESTMENT
INCOME(a)		   NET REALIZED
AND
UNREALIZED
GAIN (LOSS)		   TOTAL FROM
INVESTMENT
OPERATIONS		   DIVIDENDS
TO
SHAREHOLDERS		   DISTRIBUTIONS
TO
SHAREHOLDERS		   TOTAL
DIVIDENDS
AND
DISTRIBUTIONS		  
MONEY MARKET
CLASS X SHARES		      
2009^  

$

1.00

    

$

0.000

(d)

    

—

    

$

0.000

(d)

  

$

(0.000

)(d)

    

—

    

$

(0.000

)(d)

  
2010^    

1.00

      

0.000

(d)

    

—

      

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

2011

    

1.00

      

0.000

(d)

  

$

(0.000

)(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

2012

    

1.00

      

0.000

(d)

    

0.000

(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

2013

    

1.00

      

0.000

(d)

    

0.000

(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  
2014^^    

1.00

      

0.000

(d)

    

0.000

(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

CLASS Y SHARES

      
2009^    

1.00

      

0.000

(d)

    

—

      

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  
2010^    

1.00

      

0.000

(d)

    

—

      

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

2011

    

1.00

      

0.000

(d)

    

(0.000

)(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

2012

    

1.00

      

0.000

(d)

    

0.000

(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  

2013

    

1.00

      

0.000

(d)

    

0.000

(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  
2014^^    

1.00

      

0.000

(d)

    

0.000

(d)

    

0.000

(d)

    

(0.000

)(d)

    

—

      

(0.000

)(d)

  
LIMITED DURATION
CLASS X SHARES		      
2009^    

7.76

      

0.20

      

0.24

      

0.44

      

(0.36

)

    

—

      

(0.36

)

  
2010^    

7.84

      

0.18

      

0.00

      

0.18

      

(0.28

)

    

—

      

(0.28

)

  

2011

    

7.74

      

0.17

      

0.04

      

0.21

      

(0.26

)

    

—

      

(0.26

)

  

2012

    

7.69

      

0.12

      

0.13

      

0.25

      

(0.23

)

    

—

      

(0.23

)

  

2013

    

7.71

      

0.10

      

(0.07

)

    

0.03

      

(0.20

)

    

—

      

(0.20

)

  
2014^^    

7.54

      

0.04

      

0.05

      

0.09

      

(0.14

)

    

—

      

(0.14

)

  

CLASS Y SHARES

      
2009^    

7.73

      

0.18

      

0.24

      

0.42

      

(0.34

)

    

—

      

(0.34

)

  
2010^    

7.81

      

0.16

      

0.01

      

0.17

      

(0.26

)

    

—

      

(0.26

)

  

2011

    

7.72

      

0.15

      

0.04

      

0.19

      

(0.24

)

    

—

      

(0.24

)

  

2012

    

7.67

      

0.10

      

0.13

      

0.23

      

(0.21

)

    

—

      

(0.21

)

  

2013

    

7.69

      

0.08

      

(0.07

)

    

0.01

      

(0.18

)

    

—

      

(0.18

)

  
2014^^    

7.52

      

0.03

      

0.05

      

0.08

      

(0.11

)

    

—

      

(0.11

)

  

See Notes to Financial Statements
90


                RATIO TO AVERAGE
NET ASSETS(c)		          
FOR THE YEAR
ENDED
DECEMBER 31		   NET ASSET
VALUE
END OF
PERIOD		   TOTAL
RETURN(b)		   NET ASSETS
END OF
PERIOD
(000'S)		  

EXPENSES

   NET
INVESTMENT
INCOME		   REBATE FROM
MORGAN STANLEY
AFFILIATE		   PORTFOLIO
TURNOVER
RATE		  
MONEY MARKET
CLASS X SHARES		  
2009^  

$

1.00

      

0.03

%

  

$

84,486

      

0.40

%(e)(f)

    

0.03

%(e)(f)

    

—

      

N/A

    
2010^    

1.00

      

0.01

      

59,932

      

0.29

(f)

    

0.00

(f)(g)

    

—

      

N/A

    

2011

    

1.00

      

0.01

      

51,431

      

0.22

(f)

    

0.01

(f)

    

—

      

N/A

    

2012

    

1.00

      

0.01

      

42,267

      

0.27

(f)

    

0.01

(f)

    

—

      

N/A

    

2013

    

1.00

      

0.01

      

33,951

      

0.19

(f)

    

0.01

(f)

    

—

      

N/A

    
2014^^    

1.00

      

0.00

(g)(k)

    

31,129

      

0.18

(f)(l)

    

0.01

(f)(l)

    

—

      

N/A

    

CLASS Y SHARES

  
2009^    

1.00

      

0.01

      

81,145

      

0.41

(e)(f)

    

0.01

(e)(f)

    

—

      

N/A

    
2010^    

1.00

      

0.01

      

67,139

      

0.29

(f)

    

0.00

(f)(g)

    

—

      

N/A

    

2011

    

1.00

      

0.01

      

55,849

      

0.22

(f)

    

0.01

(f)

    

—

      

N/A

    

2012

    

1.00

      

0.01

      

48,565

      

0.27

(f)

    

0.01

(f)

    

—

      

N/A

    

2013

    

1.00

      

0.01

      

39,351

      

0.19

(f)

    

0.01

(f)

    

—

      

N/A

    
2014^^    

1.00

      

0.00

(g)(k)

    

37,049

      

0.18

(f)(l)

    

0.01

(f)(l)

    

—

      

N/A

    
LIMITED DURATION
CLASS X SHARES		  
2009^    

7.84

      

5.76

      

16,889

      

0.49

(h)

    

2.61

(h)

    

0.00

%(g)

    

105

%

  
2010^    

7.74

      

2.35

      

14,921

      

0.55

(h)

    

2.25

(h)

    

0.00

(g)

    

88

    

2011

    

7.69

      

2.75

      

12,693

      

0.60

(h)

    

2.15

(h)

    

0.00

(g)

    

45

    

2012

    

7.71

      

3.34

      

10,628

      

0.63

(h)

    

1.52

(h)

    

0.00

(g)

    

58

    

2013

    

7.54

      

0.39

      

9,346

      

0.75

(h)

    

1.27

(h)

    

0.00

(g)

    

53

    
2014^^    

7.49

      

1.13

(k)

    

8,794

      

0.77

(h)(l)

    

1.08

(h)(l)

    

0.00

(g)(l)

    

25

(k)

  

CLASS Y SHARES

  
2009^    

7.81

      

5.56

      

60,753

      

0.74

(h)

    

2.36

(h)

    

0.00

(g)

    

105

    
2010^    

7.72

      

2.22

      

53,760

      

0.80

(h)

    

2.00

(h)

    

0.00

(g)

    

88

    

2011

    

7.67

      

2.45

      

44,085

      

0.85

(h)

    

1.90

(h)

    

0.00

(g)

    

45

    

2012

    

7.69

      

3.05

      

38,736

      

0.88

(h)

    

1.27

(h)

    

0.00

(g)

    

58

    

2013

    

7.52

      

0.09

      

32,974

      

1.00

(h)

    

1.02

(h)

    

0.00

(g)

    

53

    
2014^^    

7.49

      

1.11

(k)

    

30,772

      

1.02

(h)(l)

    

0.83

(h)(l)

    

0.00

(g)(l)

    

25

(k)

  


91


Morgan Stanley Variable Investment Series

Financial Highlights continued

                               
FOR THE YEAR
ENDED
DECEMBER 31		   NET ASSET
VALUE
BEGINNING
OF PERIOD		   NET
INVESTMENT
INCOME
(LOSS)(a)		   NET REALIZED
AND
UNREALIZED
GAIN (LOSS)		   TOTAL FROM
INVESTMENT
OPERATIONS		   DIVIDENDS
TO
SHAREHOLDERS		   DISTRIBUTIONS
TO
SHAREHOLDERS		   TOTAL
DIVIDENDS
AND
DISTRIBUTIONS		  
INCOME PLUS
CLASS X SHARES		      
2009^  

$

9.45

    

$

0.57

    

$

1.50

    

$

2.07

    

$

(0.53

)

    

—

    

$

(0.53

)

  
2010^    

10.99

      

0.58

      

0.39

      

0.97

      

(0.70

)

    

—

      

(0.70

)

  

2011

    

11.26

      

0.57

      

(0.02

)

    

0.55

      

(0.68

)

    

—

      

(0.68

)

  

2012

    

11.13

      

0.48

      

1.04

      

1.52

      

(0.68

)

    

—

      

(0.68

)

  

2013

    

11.97

      

0.45

      

(0.35

)

    

0.10

      

(0.59

)

    

—

      

(0.59

)

  
2014^^    

11.48

      

0.20

      

0.54

      

0.74

      

(0.51

)

    

—

      

(0.51

)

  

CLASS Y SHARES

      
2009^    

9.42

      

0.55

      

1.49

      

2.04

      

(0.51

)

    

—

      

(0.51

)

  
2010^    

10.95

      

0.55

      

0.39

      

0.94

      

(0.67

)

    

—

      

(0.67

)

  

2011

    

11.22

      

0.54

      

(0.02

)

    

0.52

      

(0.65

)

    

—

      

(0.65

)

  

2012

    

11.09

      

0.45

      

1.04

      

1.49

      

(0.65

)

    

—

      

(0.65

)

  

2013

    

11.93

      

0.41

      

(0.33

)

    

0.08

      

(0.56

)

    

—

      

(0.56

)

  
2014^^    

11.45

      

0.19

      

0.52

      

0.71

      

(0.47

)

    

—

      

(0.47

)

  
EUROPEAN EQUITY
CLASS X SHARES		      
2009^    

13.32

      

0.36

      

3.01

      

3.37

      

(0.56

)

  

$

(0.71

)

    

(1.27

)

  
2010^    

15.42

      

0.26

      

0.76

      

1.02

      

(0.39

)

    

—

      

(0.39

)

  

2011

    

16.05

      

0.41

      

(1.90

)

    

(1.49

)

    

(0.37

)

    

—

      

(0.37

)

  

2012

    

14.19

      

0.53

      

2.03

      

2.56

      

(0.43

)

    

—

      

(0.43

)

  

2013

    

16.32

      

0.42

      

3.95

      

4.37

      

(0.53

)

    

—

      

(0.53

)

  
2014^^    

20.16

      

0.76

      

(0.35

)

    

0.41

      

(0.48

)

    

—

      

(0.48

)

  

CLASS Y SHARES

      
2009^    

13.24

      

0.32

      

3.00

      

3.32

      

(0.50

)

    

(0.71

)

    

(1.21

)

  
2010^    

15.35

      

0.22

      

0.76

      

0.98

      

(0.35

)

    

—

      

(0.35

)

  

2011

    

15.98

      

0.37

      

(1.90

)

    

(1.53

)

    

(0.33

)

    

—

      

(0.33

)

  

2012

    

14.12

      

0.49

      

2.03

      

2.52

      

(0.38

)

    

—

      

(0.38

)

  

2013

    

16.26

      

0.33

      

3.98

      

4.31

      

(0.48

)

    

—

      

(0.48

)

  
2014^^    

20.09

      

0.73

      

(0.34

)

    

0.39

      

(0.43

)

    

—

      

(0.43

)

  
MULTI CAP GROWTH
CLASS X SHARES		      
2009^    

18.41

      

0.11

      

12.99

      

13.10

      

(0.09

)

    

—

      

(0.09

)

  
2010^    

31.42

      

0.06

      

8.65

      

8.71

      

(0.06

)

    

—

      

(0.06

)

  

2011

    

40.07

      

0.01

      

(2.70

)

    

(2.69

)

    

(0.07

)

    

—

      

(0.07

)

  

2012

    

37.31

      

0.20

      

4.40

      

4.60

      

—

      

(0.90

)

    

(0.90

)

  

2013

    

41.01

      

(0.03

)

    

20.55

      

20.52

      

(0.20

)

    

(0.66

)

    

(0.86

)

  
2014^^    

60.67

      

0.01

      

1.14

      

1.15

      

—

      

(7.79

)

    

(7.79

)

  

See Notes to Financial Statements
92


                RATIO TO AVERAGE
NET ASSETS(c)		          
FOR THE YEAR
ENDED
DECEMBER 31		   NET ASSET
VALUE
END OF
PERIOD		   TOTAL
RETURN(b)		   NET ASSETS
END OF
PERIOD
(000'S)		  

EXPENSES

   NET
INVESTMENT
INCOME (LOSS)		   REBATE FROM
MORGAN STANLEY
AFFILIATE		   PORTFOLIO
TURNOVER
RATE		  
INCOME PLUS
CLASS X SHARES		  
2009^  

$

10.99

      

22.57

%

  

$

114,488

      

0.56

%(h)

    

5.64

%(h)

    

0.00

%(g)

    

75

%

  
2010^    

11.26

      

9.28

      

106,363

      

0.59

(h)

    

5.23

(h)

    

0.00

(g)

    

53

    

2011

    

11.13

      

5.01

      

90,876

      

0.59

(h)

    

5.01

(h)

    

0.00

(g)

    

43

    

2012

    

11.97

      

14.09

      

86,765

      

0.61

(h)

    

4.14

(h)

    

0.00

(g)

    

68

    

2013

    

11.48

      

1.03

      

73,998

      

0.62

(h)

    

3.82

(h)

    

0.00

(g)

    

55

    
2014^^    

11.71

      

6.42

(k)

    

72,684

      

0.63

(h)(l)

    

3.47

(h)(l)

    

0.00

(g)(l)

    

24

(k)

  

CLASS Y SHARES

  
2009^    

10.95

      

22.29

      

148,108

      

0.81

(h)

    

5.39

(h)

    

0.00

(g)

    

75

    
2010^    

11.22

      

9.01

      

124,322

      

0.84

(h)

    

4.98

(h)

    

0.00

(g)

    

53

    

2011

    

11.09

      

4.71

      

102,948

      

0.84

(h)

    

4.76

(h)

    

0.00

(g)

    

43

    

2012

    

11.93

      

13.82

      

97,579

      

0.86

(h)

    

3.89

(h)

    

0.00

(g)

    

68

    

2013

    

11.45

      

0.81

      

82,429

      

0.87

(h)

    

3.57

(h)

    

0.00

(g)

    

55

    
2014^^    

11.69

      

6.22

(k)

    

76,417

      

0.88

(h)(l)

    

3.22

(h)(l)

    

0.00

(g)(l)

    

24

(k)

  
EUROPEAN EQUITY
CLASS X SHARES		  
2009^    

15.42

      

27.73

      

61,197

      

1.00

(h)(i)

    

2.67

(h)(i)

    

0.00

(g)

    

26

    
2010^    

16.05

      

7.23

(j)

    

54,824

      

1.00

(h)(i)

    

1.81

(h)(i)

    

0.00

(g)

    

22

    

2011

    

14.19

      

(9.64

)

    

41,181

      

1.00

(h)(i)

    

2.56

(h)(i)

    

0.00

(g)

    

11

    

2012

    

16.32

      

18.51

      

40,141

      

1.00

(h)(i)

    

3.50

(h)(i)

    

0.00

(g)

    

11

    

2013

    

20.16

      

27.50

      

43,414

      

1.00

(h)(i)

    

2.32

(h)(i)

    

0.00

(g)

    

10

    
2014^^    

20.09

      

2.04

(k)

    

41,297

      

1.00

(h)(i)(l)

    

7.54

(h)(i)(l)

    

0.00

(g)(l)

    

14

(k)

  

CLASS Y SHARES

  
2009^    

15.35

      

27.41

      

19,323

      

1.25

(h)(i)

    

2.42

(h)(i)

    

0.00

(g)

    

26

    
2010^    

15.98

      

6.96

(j)

    

17,821

      

1.25

(h)(i)

    

1.56

(h)(i)

    

0.00

(g)

    

22

    

2011

    

14.12

      

(9.85

)

    

11,668

      

1.25

(h)(i)

    

2.31

(h)(i)

    

0.00

(g)

    

11

    

2012

    

16.26

      

18.16

      

11,773

      

1.25

(h)(i)

    

3.25

(h)(i)

    

0.00

(g)

    

11

    

2013

    

20.09

      

27.20

      

11,807

      

1.25

(h)(i)

    

2.07

(h)(i)

    

0.00

(g)

    

10

    
2014^^    

20.05

      

1.92

(k)

    

10,746

      

1.25

(h)(i)(l)

    

7.29

(h)(i)(l)

    

0.00

(g)(l)

    

14

(k)

  
MULTI CAP GROWTH
CLASS X SHARES		  
2009^    

31.42

      

71.32

      

202,279

      

0.55

(h)

    

0.44

(h)

    

0.00

(g)

    

23

    
2010^    

40.07

      

27.76

      

220,553

      

0.58

(h)

    

0.19

(h)

    

0.00

(g)

    

29

    

2011

    

37.31

      

(6.74

)

    

173,284

      

0.56

(h)

    

0.03

(h)

    

0.00

(g)

    

24

    

2012

    

41.01

      

12.37

      

164,917

      

0.58

(h)

    

0.48

(h)

    

0.00

(g)

    

44

    

2013

    

60.67

      

50.76

      

223,689

      

0.57

(h)

    

(0.06

)(h)

    

0.00

(g)

    

34

    
2014^^    

54.03

      

1.90

(k)

    

210,317

      

0.57

(h)(l)

    

0.03

(h)(l)

    

0.00

(g)(l)

    

13

(k)

  


93


Morgan Stanley Variable Investment Series

Financial Highlights continued

                               
FOR THE YEAR
ENDED
DECEMBER 31		   NET ASSET
VALUE
BEGINNING
OF PERIOD		   NET
INVESTMENT
INCOME
(LOSS)(a)		   NET REALIZED
AND
UNREALIZED
GAIN (LOSS)		   TOTAL FROM
INVESTMENT
OPERATIONS		   DIVIDENDS
TO
SHAREHOLDERS		   DISTRIBUTIONS
TO
SHAREHOLDERS		   TOTAL
DIVIDENDS
AND
DISTRIBUTIONS		  

CLASS Y SHARES

      
2009^  

$

18.29

    

$

0.05

    

$

12.90

    

$

12.95

    

$

(0.03

)

    

—

    

$

(0.03

)

  
2010^    

31.21

      

(0.02

)

    

8.58

      

8.56

      

—

      

—

      

—

    

2011

    

39.77

      

(0.09

)

    

(2.68

)

    

(2.77

)

    

—

      

—

      

—

    

2012

    

37.00

      

0.09

      

4.37

      

4.46

      

—

    

$

(0.90

)

    

(0.90

)

  

2013

    

40.56

      

(0.15

)

    

20.32

      

20.17

      

(0.11

)

    

(0.66

)

    

(0.77

)

  
2014^^    

59.96

      

(0.07

)

    

1.13

      

1.06

      

—

      

(7.79

)

    

(7.79

)

  

^^  For the six months ended June 30, 2014 (unaudited).

^  Beginning with the year ended December 31, 2011, the Fund was audited by Ernst & Young LLP. The previous years were audited by another independent registered public accounting firm.

(a)  The per share amounts were computed using an average number of shares outstanding during the period.

(b)  Calculated based on the net asset value as of the last business day of the period. Performance shown does not reflect fees and expenses imposed by your insurance company. If performance information included the effect of these additional charges, the total returns would be lower.

(c)  Reflects overall Portfolio ratios for investment income and non-class specific expenses.

(d)  Amount is less than $0.001.

(e)  Reflects fees paid in connection with the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. This fee had an effect of 0.04% for the year ended 2009.

(f)  If the Portfolio had borne all of its expenses that were reimbursed or waived by the Distributor, Adviser and Administrator, the annualized expense and net investment loss ratios, would have been as follows:

PERIOD ENDED

   EXPENSE
RATIO		   NET INVESTMENT LOSS
RATIO		  

June 30, 2014

                  

Class X

    

0.67

%

    

(0.48

)%

  

Class Y

    

0.92

      

(0.73

)

  

December 31, 2013

                  

Class X

    

0.66

      

(0.46

)

  

Class Y

    

0.91

      

(0.71

)

  

December 31, 2012

                  

Class X

    

0.63

      

(0.35

)

  

Class Y

    

0.88

      

(0.60

)

  

December 31, 2011

                  

Class X

    

0.60

      

(0.37

)

  

Class Y

    

0.85

      

(0.62

)

  

December 31, 2010

                  

Class X

    

0.62

      

(0.33

)

  

Class Y

    

0.87

      

(0.58

)

  

December 31, 2009

                  

Class X

    

0.59

      

(0.16

)

  

Class Y

    

0.84

      

(0.42

)

  

See Notes to Financial Statements
94


                RATIO TO AVERAGE
NET ASSETS(c)		          
FOR THE YEAR
ENDED
DECEMBER 31		   NET ASSET
VALUE
END OF
PERIOD		   TOTAL
RETURN(b)		   NET ASSETS
END OF
PERIOD
(000'S)		  

EXPENSES

   NET
INVESTMENT
INCOME (LOSS)		   REBATE FROM
MORGAN STANLEY
AFFILIATE		   PORTFOLIO
TURNOVER
RATE		  

CLASS Y SHARES

  
2009^  

$

31.21

      

70.85

%

  

$

64,122

      

0.80

%(h)

    

0.19

%(h)

    

0.00

%(g)

    

23

%

  
2010^    

39.77

      

27.43

      

67,303

      

0.83

(h)

    

(0.06

)(h)

    

0.00

(g)

    

29

    

2011

    

37.00

      

(6.97

)

    

49,678

      

0.81

(h)

    

(0.22

)(h)

    

0.00

(g)

    

24

    

2012

    

40.56

      

12.09

      

45,556

      

0.83

(h)

    

0.23

(h)

    

0.00

(g)

    

44

    

2013

    

59.96

      

50.37

      

72,135

      

0.82

(h)

    

(0.31

)(h)

    

0.00

(g)

    

34

    
2014^^    

53.23

      

1.77

(k)

    

60,240

      

0.82

(h)(l)

    

(0.22

)(h)(l)

    

0.00

(g)(l)

    

13

(k)

  

(g)  Amount is less than 0.005%.

(h)  The ratios reflect the rebate of certain Portfolio expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as "Rebate from Morgan Stanley affiliate."

(i)  If the Portfolio had borne all of its expenses that were reimbursed or waived by the Adviser and Administrator, the annualized expense and net investment income ratios, would have been as follows:

PERIOD ENDED

   EXPENSE
RATIO		   NET INVESTMENT INCOME
RATIO		  

June 30, 2014

                  

Class X

    

1.22

%

    

7.32

%

  

Class Y

    

1.47

      

7.07

    

December 31, 2013

                  

Class X

    

1.22

      

2.10

    

Class Y

    

1.47

      

1.85

    

December 31, 2012

                  

Class X

    

1.22

      

3.28

    

Class Y

    

1.47

      

3.03

    

December 31, 2011

                  

Class X

    

1.17

      

2.39

    

Class Y

    

1.42

      

2.14

    

December 31, 2010

                  

Class X

    

1.16

      

1.65

    

Class Y

    

1.41

      

1.40

    

December 31, 2009

                  

Class X

    

1.12

      

2.55

    

Class Y

    

1.37

      

2.30

    

(j)  During the year ended December 31, 2010, the Portfolio received a regulatory settlement from an unaffiliated third party which had an impact of approximately 0.14% and 0.14% for Class X and Y, respectively, on the total return. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had this settlement not occurred, the total return for Class X and Y shares would have been approximately 7.09% and 6.82%, respectively.

(k)  Not annualized.

(l)  Annualized.


95



Morgan Stanley Variable Investment Series

Results of Special Shareholder Meeting (unaudited)

On May 17, 2014, a Special Meeting of Shareholders of Global Infrastructure Portfolio (the "Portfolio") was held in order to consider and vote upon a proposal to approve an Agreement and Plan of Reorganization. The voting results were as follows:

   

Number of Shares

  
   

For

  

Against

  

Abstain

  
         

6,384,187

      

219,758

      

929,893

    


96



Trustees

  
Frank L. Bowman  

Joseph J. Kearns

  
Michael Bozic  

Michael F. Klein

  
Kathleen A. Dennis  

Michael E. Nugent

  
James F. Higgins  

W. Allen Reed

  
Dr. Manuel H. Johnson  

Fergus Reid

  

Officers

  
Michael E. Nugent
Chairperson of the Board		  
John H. Gernon
President and Principal Executive Officer		  
Stefanie V. Chang Yu
Chief Compliance Officer		  
Joseph C. Benedetti
Vice President		  
Francis J. Smith
Treasurer and Principal Financial Officer		  
Mary E. Mullin
Secretary		  
Transfer Agent  

Custodian

  
Boston Financial Data Services, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169		   State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111		  
Independent Registered Public Accounting Firm  

Legal Counsel

  
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116		   Dechert LLP
1095 Avenue of the Americas
New York, New York 10036		  
Counsel to the Independent Trustees  

Adviser

  
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036		   Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036		  

Sub-Adviser

  
Morgan Stanley Investment Management Limited
25 Cabot Square, Canary Wharf
London, E14 4QA, England		  

This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available without charge, by calling (800) 548-7786.

This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing.

Morgan Stanley Distribution, Inc., member FINRA.


#40113A

VARINSAN
976270 EXP 08.31.15



 

Item 2.  Code of Ethics.

 

Not applicable for semiannual reports.

 

Item 3.  Audit Committee Financial Expert.

 

Not applicable for semiannual reports.

 

Item 4. Principal Accountant Fees and Services

 

Not applicable for semiannual reports.

 

Item 5. Audit Committee of Listed Registrants.

 

Not applicable for semiannual reports.

 

Item 6.

 

(a) Refer to Item 1.

 

(b) Not applicable.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable for semiannual reports.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies

 

Applicable only to annual reports filed by closed-end funds.

 

Item 9. Closed-End Fund Repurchases

 

Applicable to reports filed by closed-end funds.

 

Item 10. Submission of Matters to a Vote of Security Holders

 

Not applicable.

 


 

Item 11. Controls and Procedures

 

(a)  The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

 

(b)  There were no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12. Exhibits

 

(a) Code of Ethics — Not applicable for semiannual reports.

 

(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Morgan Stanley Variable Investment Series

 

/s/ John H. Gernon

 

John H. Gernon

 

Principal Executive Officer

 

August 19, 2014

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ John H. Gernon

 

John H. Gernon

 

Principal Executive Officer

 

August 19, 2014

 

 

 

/s/ Francis Smith

 

Francis Smith

 

Principal Financial Officer

 

August 19, 2014

 

 

 EX-99.CERT 2 a14-17300_1ex99dcert.htm EX-99.CERT

Exhibit 99.CERT

 

EXHIBIT 12 B1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

CERTIFICATIONS

 

I, John H. Gernon, certify that:

 

1.              I have reviewed this report on Form N-CSR of Morgan Stanley Variable Investment Series;

 

2.              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.              Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.              The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a)             designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)             designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)              evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d)             disclosed in this report any change 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; and

 

5.              The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 


 

a)             all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date: August 19, 2014

 

/s/ John H. Gernon

 

John H. Gernon

 

Principal Executive Officer

 


 

EXHIBIT 12 B2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

CERTIFICATIONS

 

I, Francis Smith, certify that:

 

1.              I have reviewed this report on Form N-CSR of Morgan Stanley Variable Investments Series ;

 

2.              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.              Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.              The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a)             designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)             designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)              evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d)            disclosed in this report any change 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; and

 

5.              The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 


 

a)             all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date: August 19, 2014

 

/s/ Francis Smith

 

Francis Smith

 

Principal Financial Officer

 

 EX-99.906CERT 3 a14-17300_1ex99d906cert.htm EX-99.906CERT

Exhibit 99.906CERT

 

SECTION 906 CERTIFICATION

 

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

Morgan Stanley Variable Investment Series

 

                                                In connection with the Report on Form N-CSR (the “Report”) of the above-named issuer for the period ended June 30, 2014 that is accompanied by this certification, the undersigned hereby certifies that:

 

1.                                      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                                      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

 

 

Date: August 19, 2014

/s/ John H. Gernon

 

John H. Gernon

 

Principal Executive Officer

 

 

A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Variable Investment Series and will be retained by Morgan Stanley Variable Investment Series and furnished to the Securities and Exchange Commission or its staff upon request.

 


 

SECTION 906 CERTIFICATION

 

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

Morgan Stanley Variable Investment Series

 

                                                In connection with the Report on Form N-CSR (the “Report”) of the above-named issuer for the period ended June 30, 2014 that is accompanied by this certification, the undersigned hereby certifies that:

 

1.                                      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                                      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

 

 

Date: August 19, 2014

/s/ Francis Smith

 

Francis Smith

 

Principal Financial Officer

 

 

A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Variable Investment Series and will be retained by Morgan Stanley Variable Investment Series and furnished to the Securities and Exchange Commission or its staff upon request.

 

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