-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8UoRRtYjf2cESopolAE6hQL29lK7sOowgQtwDPgvzxrDFGpzjdPF9pyTb8SPYvX iQ2hLBWf4uwwCSSGMYoolA== 0000912057-02-010125.txt : 20020415 0000912057-02-010125.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-010125 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020315 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-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03692 FILM NUMBER: 02576170 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 70TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123921600 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 70TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 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 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES DATE OF NAME CHANGE: 19980622 N-30D 1 a2071544zn-30d.txt N-30D MORGAN STANLEY VARIABLE INVESTMENT SERIES ANNUAL REPORT ---------------------------------- DECEMBER 31, 2001 Morgan Stanley Variable Investment Series TABLE OF CONTENTS Letter to the Shareholders.................................. 1 Portfolio of Investments: Money Market............................................ 25 Short-Term Bond......................................... 27 Quality Income Plus..................................... 34 High Yield.............................................. 41 Utilities............................................... 51 Income Builder.......................................... 55 Dividend Growth......................................... 59 Capital Growth.......................................... 62 Global Dividend Growth.................................. 65 European Growth......................................... 71 Pacific Growth.......................................... 76 Equity.................................................. 83 S&P 500 Index........................................... 88 Competitive Edge "Best Ideas"........................... 100 Aggressive Equity....................................... 103 Information............................................. 109 Strategist.............................................. 112 Financial Statements: Statements of Assets and Liabilities.................... 122 Statements of Operations................................ 125 Statements of Changes in Net Assets..................... 128 Notes to Financial Statements............................... 140 Financial Highlights........................................ 154 Independent Auditors' Report................................ 166 Trustee and Officer Information............................. 167
Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 Dear Shareholder: In 2001 the U.S. economy experienced its first recession since 1990, while the stock market extended its decline that began in 2000. The September 11 terrorist attacks exacerbated the decline in economic activity and created a low point for the economy from which it could potentially rebound. Both U.S. monetary and fiscal policy during the year aimed to stimulate economic growth. The Federal Reserve Board cut the benchmark federal funds rate by 475 basis points (4.75 percent) during the period. This was the Fed's most aggressive monetary policy adjustment since 1984. As for fiscal policy, Congress passed reductions in personal tax rates as well as a number of economically stimulative spending initiatives after the September attacks. The recession of 2001 was an unusual one along several lines. First, it was led by a turndown in business spending. Investment-led declines have occurred only once before in the postwar era. Also unusual was the fact that consumer spending on such durable goods as housing and autos remained relatively robust -- something that has not occurred in previous recessions. By the end of the year, it appeared that the economy was stabilizing. Equity Overview The U.S. equity markets continued deeper into negative territory as 2001 advanced. By March, the Nasdaq composite index, the Dow Jones Industrial Average and the Standard & Poor's 500 Index (S&P 500) had all crossed the threshold into bear-market territory. Poor performance was heavily concentrated in technology stocks, resulting from companies trimming their spending on information technology. Early in the year, the turmoil spread to old-economy stalwarts as well, leaving very few places in the market to hide. In the second and third quarters, growth began to outpace value for the first time since early 2000. Then the terrorist attacks of September 11 significantly damaged market returns, dragging down most sectors in a relatively uniform fashion. The S&P 500 rebounded in the fourth quarter, advancing 10.69 percent. Despite this strong rebound the Index finished its second consecutive year of double-digit losses, down 11.88 percent. This is only the fourth time since the Depression that the U.S. equity markets have had two consecutive annual losses. All sectors in the Index, with the exception of consumer discretionary and materials, which combined represent only 15 percent of the Index, had negative returns. Despite fears to the contrary, market psychology actually improved during the fourth quarter as news on the progress of the war in Afghanistan remained positive. By late December, this growing optimism was confirmed by surprisingly high consumer confidence numbers. Other economic data such as new-home Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED sales and similar leading economic indicators also suggest that the U.S. economy has maintained its underlying strength. Fixed-Income Overview The U.S. Treasury market responded positively as the economy slowed. With a sharp further drop in interest rates following the attacks, the market reached lower levels than were consistent with an eventual recovery in the economy. Consequently, the market became vulnerable to a decline during the last several weeks of the year as rates rose to levels that anticipated an improving economic outlook. On balance, short-term yields fell sharply while long-term yields were little changed. The two-year Treasury note yield fell by 207 basis points, to 3.03 percent, as the Fed's easing pulled short-term interest rates lower. With many analysts anticipating an economic recovery, the net change in 30-year yields was a scant one-basis-point increase, to 5.47 percent for the year. At the beginning of the period, yields on mortgage-backed securities and corporate securities were near their highest levels relative to Treasury yields in 15 years. These securities performed well relative to Treasuries in the period through September 10, underperformed amid the uncertainty following the attacks, then again performed well as the economic outlook became clearer. The high-yield sector's performance was especially uneven. The economy adversely affected high-yield issuers' business plans and their access to capital markets. Most sectors of the bond market still remain attractively valued relative to Treasury securities. International Overview International stock markets followed the U.S. market to a second year of negative equity returns. The slumping global economy caused markets to decline for most of the year, with the events of September 11resulting in a turbulent sell-off. Against this uncertain backdrop, the markets staged a strong fourth- quarter recovery from their September lows. The European equity markets were negatively influenced by the ongoing deteriorating performance of the world's economies. The sharp slowdown in the U.S. economy and near-recessionary conditions in much of Asia weighed heavily on the European economies, which began to slow sharply during the year. The monetary stimulus provided to the U.S. economy by the U.S. Federal Reserve Board was copied, albeit more modestly, by the European Central Bank and the Bank of England. The combination of this economic environment and the terrorist attacks of September 11 created a very poor environment for 2 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED corporate earnings, which suffered a sharp deterioration during the second half of the year. Good pieces of news were the continued currency stability in the U.S. dollar/euro exchange rate, falling inflation and the problem-free progression to the successful introduction of euro notes and coins in the eurozone economies, which occurred on January 1, 2002. Japan slid back into recession last year for the third time in a decade as third-quarter gross domestic product shrank 0.5 percent. A record high unemployment rate of 5.4 percent dampened consumer spending, and the global slowdown sapped exports. The combination of a weak economy and a fragile banking system put pressure on the yen, which continued falling. The confluence of these factors made the year a challenging one for equities in Japan. Despite showing relatively strong balance sheets and attractive valuations, international blue-chip companies domiciled in Japan were affected negatively by both investor sentiment and perceptions that a slowdown in consumption in the United States and Europe would likely hamper prospects for growth. On a positive note, enthusiastic public support for Prime Minister Junichiro Koizumi has opened an entirely new path for policymaking in Japan. Koizumi's radical plans for the Japanese economy would, if successfully implemented, transform a mercantilist state-centered economy into a new capitalist-based one promoting individuals over big groups and encourage the creation of new companies over the protection of existing big industries. This could provide the foundation for Japanese stocks to make a significant rebound after a decade of stagnation, particularly as valuations there are near 17-year lows. Despite improving liquidity driven by central bank easings, the Asia ex-Japan region fell sharply during the year, partly as a result of concerns over slowing global economic growth and diminishing corporate profits. A prolonged weakness in global demand exacerbated the market decline, specifically for technology-related products, which weighed heavily on Asian export-oriented economies for much of the year. Asia has experienced its worst export slowdown in well over a decade. September, in the wake of the September 11 attacks, marked the low point for most Asian ex-Japan equities, driven by heightened risk aversion and a further deterioration in the global economic outlook. Asia ex-Japan equities rebounded strongly in the fourth quarter, led by strong country returns in South Korea (+56.1 percent), Taiwan (+53.1 percent), and Singapore (+20.1 percent). This surge was driven largely by anticipation of a U.S.-led economic recovery in 2002. 3 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Aggressive Equity Portfolio For the 12-month period ended December 31, 2001, Aggressive Equity Portfolio's Class X shares posted a total return of -28.46 percent compared to -11.88 percent for the S&P 500. For the same period, the Portfolio's Class Y shares returned -28.61 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. The Portfolio was positioned away from economically sensitive groups during the year, because we believed these sectors would lag in terms of relative earnings performance when the economy entered recession. Historically this has been the case. During this cycle, basic commodities and capital goods stocks had underperformed for so long (compared with technology, telecom and media) that these sectors were quite undervalued as economic activity began to slide. As a result, while their earnings declined substantially, the stocks actually outperformed the market. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: AGGRESSIVE EQUITY -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) May 1999 $10,000 $10,000 Jun. 1999 $10,226 $10,329 Sep. 1999 $10,367 $9,683 Dec. 1999 $14,608 $11,124 Mar. 2000 $15,951 $11,379 Jun. 2000 $15,065 $11,077 Sep. 2000 $16,519 $10,969 Dec. 2000 $14,353 $10,110 Mar. 2001 $11,284 $8,912 Jun. 2001 $11,315 $9,433 Sep. 2001 $9,573 $8,049 Dec. 2001 $10,268(2) $8,910
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION CLASS X -28.46%(1) 1.00%(1) CLASS Y -28.61%(1) -20.58%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. For the first time in any postwar recession, consumer spending on durables did not decline. Instead, spending in this area remained steadfast despite record high debt levels and record low savings levels. Even a ratcheting up of unemployment did not deter this spending. As a result, the consumer cyclical area uncharacteristically led both the economy and the stock market in performance. We did not anticipate this rare development and therefore were underweighted in this leading sector. We believe that close attention to absolute and relative valuation analysis will be key in 2002, given that the stock market has bottomed at higher than average valuations. We also believe that identifying earnings opportunities related to economic, industry or company-specific situations will also be a necessary strategy. As a general guide, in the first half of the year we plan to focus our selections on sectors that are more economically sensitive in light of an expected economic rebound. Areas of emphasis will include 4 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED technology, transportation and basic materials. Because we expect that it will become apparent later in the year that the economic recovery will be subpar, we will also maintain exposure to select stable growth areas like pharmaceuticals, health-care services, medical devices and consumer and business services. Positions will be adjusted as valuations or earnings outlooks change. Capital Growth Portfolio For the 12-month period ended December 31, 2001, Capital Growth Portfolio's Class X shares produced a total return of -26.31 percent versus -11.88 percent for the S&P 500. For the same period, the Portfolio's Class Y shares returned - -26.49 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. The Portfolio's performance suffered on both an absolute and a relative basis beginning in early January, when the Fed made its first interest-rate cut of 2001. Since that time we have repositioned the Portfolio in consideration of the Fed's more-accommodative interest-rate policy. Because we believe that the stock market has begun a bottoming process, we have recently reduced some of the Portfolio's positions in energy, health care and consumer staples and have reinvested the proceeds in more-cyclical areas and higher-growth areas, including the retail and technology sectors. The Portfolio continues to invest in companies across the market-cap spectrum. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: CAPITAL GROWTH -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) Dec. 1991 $10,000 $10,000 Dec. 1992 $10,164 $10,762 Dec. 1993 $9,453 $11,846 Dec. 1994 $9,332 $12,003 Dec. 1995 $12,404 $16,513 Dec. 1996 $13,837 $20,303 Dec. 1997 $17,232 $27,077 Dec. 1998 $20,615 $34,813 Dec. 1999 $27,479 $42,139 Dec. 2000 $27,830 $38,298 Dec. 2001 $20,508(2) $33,750
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -26.31%(1) 8.19%(1) 7.45%(1) CLASS Y -26.49%(1) -18.96%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. At the end of December, the Portfolio had 27 percent of its assets in technology, 23 percent in financial services and interest-rate-sensitive stocks, 22 percent in the consumer sector, 15 percent total in capital goods, energy and basic industry, and 9 percent in health care. The Portfolio's 10 largest holdings were Costco, Circuit City, Microsoft, Goldman Sachs, SunGard Data Systems, XL Capital, J. C. Penney, Ace, Kohl's and CSX. 5 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Competitive Edge -- "Best Ideas" Portfolio For the 12-month period ended December 31, 2001, Competitive Edge -- "Best Ideas" Portfolio's Class X shares posted a total return of -23.33 percent versus - -16.82 percent for the Morgan Stanley Capital International (MSCI) World Index. For the same period, the Portfolio's Class Y shares returned -23.53 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the MSCI World Index. The Portfolio invests primarily in stocks compiled by the Morgan Stanley Equity Research department that are believed to demonstrate a long-term sustainable "competitive edge" versus other players in the global arena. As of December 31, 2001, 93.5 percent of the Portfolio's assets were invested in 40 equity positions throughout the world. The remaining 6.5 percent was held in cash and cash equivalents. Equity holdings in the United States accounted for 63.8 percent of the Portfolio's net assets, with the remainder diversified among seven other countries. In descending order beginning with the largest exposure, these were France, the United Kingdom, Japan, the Netherlands, Finland, Germany and Switzerland. Included among the Portfolio's key equity positions were the following holdings: Microsoft (packaged software), American Home Products (pharmaceuticals: major) and Kraft Foods (food: major diversified) in the United States; Suez (electrical utilities) and Groupe Danone (food: major diversified) in France; and Heineken NV (beverages: alcoholic) in the Netherlands. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: COMPETITIVE EDGE "BEST IDEAS" -- CLASS X SHARES ($ in Thousands)
FUND MSCI(3) May. 1998 $10,000 $10,000 Jun. 1998 $9,860 $10,227 Sep. 1998 $8,290 $9,001 Dec. 1998 $9,810 $10,902 Mar. 1999 $9,980 $11,291 Jun. 1999 $10,485 $11,830 Sep. 1999 $10,495 $11,654 Dec. 1999 $12,447 $13,620 Mar. 2000 $12,779 $13,760 Jun. 2000 $12,101 $13,272 Sep. 2000 $11,637 $12,605 Dec. 2000 $10,283 $11,825 Mar. 2001 $8,566 $10,307 Jun. 2001 $8,698 $10,578 Sep. 2001 $7,378 $9,058 Dec. 2001 $7,884(2) $9,836
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION CLASS X -23.33%(1) -6.35%(1) CLASS Y -23.53%(1) -24.10%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 6 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Dividend Growth Portfolio For the 12-month period ended December 31, 2001, Dividend Growth Portfolio's Class X shares posted a total return of -5.20 percent versus -11.88 percent for the S&P 500. For the same period, the Portfolio's Class Y shares returned -5.42 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. The Portfolio's performance outpaced that of the S&P 500 in 2001, due in part to its low exposure to high technology and other stocks with high price-to-earnings ratios, many of which underperformed during the period. The Portfolio's screening process led to overweightings in basic materials, capital goods, energy and utilities, which enjoyed strong cash flows and attractive dividend yields during the year. On December 31, 2001, the Portfolio was relatively fully invested. We maintained the Portfolio's stated intention of focusing its investments in traditional companies with viable e-commerce strategies. Portfolio transactions during the period included a reallocation of assets to reflect a more accurate use of the dividend-growth discipline. As a result, holdings in Ryder, Aetna, Phelps Dodge, Enron and Zimmer Holdings (a spinoff from Bristol-Myers Squibb) were liquidated. Additionally, the acquisition of GPU by First Energy was completed. At the end of December, the Portfolio was invested in 67 common stocks spread among 35 different industry groups. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: DIVIDEND GROWTH -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) Dec. 1991 $10,000 $10,000 Dec. 1992 $10,816 $10,762 Dec. 1993 $12,368 $11,846 Dec. 1994 $11,963 $12,003 Dec. 1995 $16,315 $16,513 Dec. 1996 $20,225 $20,303 Dec. 1997 $25,404 $27,077 Dec. 1998 $29,030 $34,813 Dec. 1999 $28,336 $42,139 Dec. 2000 $29,837 $38,298 Dec. 2001 $28,285(2) $33,750
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -5.20%(1) 6.94%(1) 10.96%(1) CLASS Y -5.42%(1) 1.15%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 7 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Equity Portfolio For the 12-month period ended December 31, 2001, Equity Portfolio's Class X shares posted a total return of -26.87 percent versus -11.88 percent for the S&P 500. For the same period, the Portfolio's Class Y shares returned -27.07 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. For most of 2001 we had taken a "barbell" approach, with a balance between cyclicals and growth stocks. We have now positioned the Portfolio more aggressively for an economic rebound, with an overweighting in cyclical sectors, including technology and consumer cyclicals, and an underweighting in steady growth sectors. We are in agreement with the consensus view that the market's valuation is expensive and that the economic rebound is likely to be muted, leading to a relatively modest earnings recovery and tempered appreciation in the stock market. However, we expect inflation to remain quite low in coming years, which should allow high valuations to be sustained. We are focusing the Portfolio on industries and stocks that we expect to achieve above-average earnings growth in this subdued environment. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: EQUITY -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) Dec. 1991 $10,000 $10,000 Dec. 1992 $10,005 $10,762 Dec. 1993 $11,979 $11,846 Dec. 1994 $11,390 $12,003 Dec. 1995 $16,234 $16,513 Dec. 1996 $18,241 $20,303 Dec. 1997 $25,069 $27,077 Dec. 1998 $32,703 $34,813 Dec. 1999 $51,865 $42,139 Dec. 2000 $45,458 $38,298 Dec. 2001 $33,244(2) $33,750
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -26.87%(1) 12.75%(1) 12.76%(1) CLASS Y -27.07%(1) -20.29%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. One important theme that is influencing our stock selection is the growth of the U.S. echo boomers (20 to 30 year olds). This demographic group is going to grow at an above-average rate for the next decade. We are focusing on companies in the housing-related and consumer-goods industries that will benefit from the growth in this group, in particular as they start new families. We expect technology to enjoy a rebound in spending as corporations look to improve their productivity. We also have an overweighting in Internet-related companies that have earnings, cash flow and healthy cash 8 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED positions on their balance sheets. We believe that companies selling services over the Internet will thrive over time. Evidence supporting such a trend came this holiday season, when online retail sales increased over 70 percent and online travel sales increased forty percent. We have also changed the Portfolio's exposure to the health-care sector to a market-weighted position. We had been overweighted in this group because of its steady earnings growth and because many companies within the sector were benefiting from increased government funding of hospitals. There are three reasons why we are now neutral on the area. First, we expect the 2002 election season to bring with it political proposals regarding health-care benefits that may have a negative effect on the group. Second, now that state and federal budgets are moving from surplus to deficit positions, we believe that the potential for improved government funding of health-care benefits is limited in the near term. Finally, corporations are expected to tighten their spending on health-care benefits. In essence, we do not expect that health-care spending will be immune to the impact of a low-growth, low-inflation environment. European Growth Portfolio For the 12-month period ended December 31, 2001, European Growth Portfolio's Class X shares produced a total return of -17.76 percent versus -16.82 percent for the MSCI World Index. For the same period, the Portfolio's Class Y shares returned -17.92 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the MSCI World Index. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: EUROPEAN GROWTH -- CLASS X SHARES ($ in Thousands)
FUND MSCI(3) MSCI EUROPE(4) Dec. 1991 $10,000 $10,000 $10,000 Dec. 1992 $10,399 $9,477 $10,588 Dec. 1993 $14,651 $11,610 $14,791 Dec. 1994 $15,876 $12,199 $13,758 Dec. 1995 $19,986 $14,727 $16,020 Dec. 1996 $25,980 $16,712 $19,851 Dec. 1997 $30,156 $19,346 $27,930 Dec. 1998 $37,382 $24,055 $33,648 Dec. 1999 $48,265 $30,053 $45,681 Dec. 2000 $45,891 $26,093 $44,678 Dec. 2001 $37,742(2) $21,703 $37,736
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -17.76%(1) 7.75%(1) 14.20%(1) CLASS Y -17.92%(1) -16.01%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. (4) The Morgan Stanley Capital International (MSCI) Europe Index measures the performance for a diverse range of global stock markets within Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland, Ireland, Portugal, and the United Kingdom. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. The Index does not include any expenses, or charges. The Index is unmanaged and should not be considered an investment. 9 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED During the fiscal year, the Portfolio maintained its concentration in mid- and large-capitalization growth stocks, continuing to use a bottom-up investment process. The Portfolio invests primarily in the developed economies of western Europe. Its emphasis on defensive growth sectors, such as food, beverage and tobacco manufacturers, pharmaceutical companies and high-quality financial companies was moderated during the year. The dramatic declines in many sectors, such as telecommunications services, information technology, advertising and temporary employment, gave rise to opportunities to add stocks in those areas at highly attractive prices. The emphasis has been on increasing exposure to companies whose franchises or business models remain robust and are believed to be in a position to repair their earnings over the coming years. On December 31, 2001, the Portfolio's regional weightings were as follows: approximately 45.4 percent in the eurozone (the 12 countries that have adopted the euro as a common currency), 38.2 percent in the United Kingdom, 9.8 percent in Switzerland, 3.7 percent in Sweden, 0.5 percent in Norway and the remainder in cash. In terms of sector weightings, the Portfolio had 22.6 percent in financials, 14.2 percent in consumer discretionary, 14 percent in healthcare, 12.4 percent in telecommunications services, 11.5 percent in consumer staples, 8.0 percent in industrials, 6.9 percent in energy, 5.0 percent in information technology, 1.6 percent in materials, 1.0 percent in utilities and 2.8 percent in cash. These weightings do not differ markedly from the sector weightings in the MSCI Europe Index. Global Dividend Growth Portfolio For the 12-month period ended December 31, 2001, Global Dividend Growth Portfolio's Class X shares produced a total return of -6.25 percent versus - -16.82 percent for the MSCI World EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: GLOBAL DIVIDEND GROWTH -- CLASS X SHARES ($ in Thousands)
FUND MSCI(3) Feb. 1994 $10,000 $10,000 Feb. 1994 $10,020 $10,076 Mar. 1994 $9,576 $9,639 Jun. 1994 $10,031 $9,928 Sep. 1994 $10,224 $10,141 Dec. 1994 $10,027 $10,067 Mar. 1995 $10,565 $10,538 Jun. 1995 $11,126 $10,988 Sep. 1995 $11,645 $11,601 Dec. 1995 $12,236 $12,153 Mar. 1996 $12,784 $12,648 Jun. 1996 $13,258 $13,014 Sep. 1996 $13,529 $13,187 Dec. 1996 $14,388 $13,791 Mar. 1997 $14,442 $13,831 Jun. 1997 $16,399 $15,913 Sep. 1997 $16,913 $16,368 Dec. 1997 $16,121 $15,965 Mar. 1998 $17,898 $18,251 Jun. 1998 $17,685 $18,622 Sep. 1998 $15,486 $16,390 Dec. 1998 $18,141 $20,559 Mar. 1999 $18,162 $19,851 Jun. 1999 $20,003 $21,540 Sep. 1999 $19,742 $21,221 Dec. 1999 $20,799 $24,800 Mar. 2000 $19,784 $25,054 Jun. 2000 $19,627 $24,166 Sep. 2000 $18,942 $22,952 Dec. 2000 $20,280 $21,532 Mar. 2001 $18,958 $18,767 Jun. 2001 $19,526 $19,261 Sep. 2001 $17,189 $16,493 Dec. 2001 $19,013(2) $17,909
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS SINCE INCEPTION CLASS X -6.25%(1) 5.73%(1) 8.53%(1) CLASS Y -6.44%(1) -4.11%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 10 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Index. For the same period, the Portfolio's Class Y shares returned -6.44 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the MSCI World Index. Consistent with our expectation of continued weakness in the U.S. equity markets, we targeted just 33 percent of the Portfolio's net assets toward U.S. equities throughout the year. This level of exposure to the United States, a significant underweighting relative to that of the MSCI World Index (56.3 percent), has helped protect investors from the extreme volatility in the U.S. equity markets of late. Japan's economic growth is still anemic, constrained in part by its dependence on high-priced imported oil. Even as the price of oil has declined, however, the economy there has struggled to find the confidence it once had. We are currently targeting 10 percent of the Portfolio's net assets toward Japan, slightly more than that market's 8.3 percent weighting in the MSCI World Index. European markets underperformed the U.S. market during the period. While the Portfolio's limited exposure to technology and telecommunications helped its relative performance considerably, its overweighted stance in Europe detracted from its return. We are currently targeting 34 percent of the Portfolio's net assets toward continental European markets and 11.0 percent toward the United Kingdom, versus the MSCI World Index's weightings of 19.7 percent and 10.4 percent, respectively. Hong Kong and Singapore are the only Asian markets outside Japan that the Portfolio has exposure to. During 2001, the region gave back some of the strong gains it had made following the Asian currency crisis more than two years ago. The Portfolio is currently targeting 4.0 percent of net assets toward investments in Hong Kong and Singapore, versus a 1.2 percent weighting for those two markets combined in the MSCI World Index. At current prices, an Asian recovery seems well discounted, but we remain optimistic about further strength in economic activity, corporate profits and share prices. The Portfolio also remains exposed to the resource-oriented markets of Australia (4.0 percent) and Canada (3.0 percent), where economic fundamentals continue to be strong. During this period, we liquidated positions in Qantas Airways, Seat-Pagine Gialle SpA, Portugal Telecom, British Telecom, Telus Corporation, Massey Energy and Agilent Technologies. 11 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED High Yield Portfolio For the 12-month period ended December 31, 2001, High Yield Portfolio's Class X shares posted a total return of -33.75 percent versus 5.28 percent for the Lehman Brothers High Yield Index. For the same period, the Portfolio's Class Y shares returned -33.92 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the Lehman index. The Portfolio's underperformance relative to its benchmark resulted primarily from the poor performance of its core holdings in the B-rated sector in general and its telecommunications and technology holdings in particular. While performance appeared to be stabilizing prior to the September terrorist attacks, the resulting contraction in the economy and worsening of credit conditions caused further price declines and additional defaults. While some sectors of the high-yield market improved during the period, B-rated and lower-rated securities continued to experience difficulty. Moreover, industries in the telecommunications and technology sectors, which collectively are both the market's and the Portfolio's largest weightings, remained under pressure as companies announced shortfalls in their sales and income projections and as credit conditions remained restrictive. Against this backdrop, default levels increased for both the market and the Portfolio. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: HIGH YIELD -- CLASS X SHARES ($ in Thousands)
FUND LEHMAN(3) Dec. 1991 $10,000 $10,000 Dec. 1992 $11,835 $11,575 Dec. 1993 $14,690 $13,556 Dec. 1994 $14,327 $13,417 Dec. 1995 $16,467 $15,989 Dec. 1996 $18,440 $17,804 Dec. 1997 $20,628 $20,077 Dec. 1998 $19,349 $20,451 Dec. 1999 $19,091 $20,941 Dec. 2000 $12,939 $19,714 Dec. 2001 $8,572(2) $20,755
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -33.75%(1) -14.20%(1) -1.53%(1) CLASS Y -33.92%(1) -38.78%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Lehman Brothers U.S. Corporate High Yield Index tracks the performance of all below investment-grade securities which have at least $100 million in outstanding issuance, a maturity greater than one year, and are issued in fixed-rate U.S. dollar denominations. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. As previously announced, a new investment team assumed responsibility for the Portfolio in January 2001. The team immediately undertook a rigorous review of the Portfolio's holdings. Based on their bottom-up analysis, the new management team redeployed a portion of the Portfolio's assets into securities that it 12 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED believed offered better investment potential. The team also retained a number of securities that it considered to have good recovery value. In each instance the team took account of the need to balance the risks inherent in the high-yield market with the Portfolio's investment objectives. In the months ahead, the new management team will continue to work toward restructuring the Portfolio. We believe that the progress made over the past year has afforded the Portfolio greater flexibility to respond proactively to emerging opportunities in the market. We continue to believe that the high-yield sector currently represents unusual value, with many high-yield securities offering attractive yields and the potential for price appreciation as the economy recovers. Income Builder Portfolio For the 12-month period ended December 31, 2001, Income Builder Portfolio's Class X shares posted a total return of 2.30 percent versus -11.88 percent for the S&P 500. For the same period, the Portfolio's Class Y shares returned 2.10 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. The Portfolio's outperformance relative to its benchmark can be attributed largely to its lack of exposure to technology stocks, which generally pay little if any dividends. Because the Portfolio's primary objective is to provide reasonable income, these stocks are typically not included among its holdings. The Portfolio's value-oriented style of stock selection also benefited its performance relative to the S&P 500. During the period, consumer cyclicals and energy stocks were positive contributors to the Portfolio's performance, while investments in health care and utilities had a negative effect. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: INCOME BUILDER -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) Jan. 1997 $10,000 $10,000 Mar. 1997 $9,830 $9,708 Jun. 1997 $10,801 $11,401 Sep. 1997 $11,885 $12,255 Dec. 1997 $12,238 $12,607 Mar. 1998 $12,977 $14,367 Jun. 1998 $12,843 $14,841 Sep. 1998 $11,499 $13,364 Dec. 1998 $12,632 $16,210 Mar. 1999 $12,442 $17,017 Jun. 1999 $13,767 $18,217 Sep. 1999 $12,794 $17,079 Dec. 1999 $13,524 $19,620 Mar. 2000 $13,166 $20,070 Jun. 2000 $12,970 $19,537 Sep. 2000 $13,248 $19,346 Dec. 2000 $13,547 $17,832 Mar. 2001 $13,793 $15,718 Jun. 2001 $14,210 $16,638 Sep. 2001 $13,175 $14,196 Dec. 2001 $13,859(2) $15,714
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION CLASS X 2.30%(1) 6.83%(1) CLASS Y 2.10%(1) 2.02%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 13 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED The real estate investment trust (REIT) component of the Portfolio was another major contributor to its performance. This sector outperformed the S&P 500 in an environment of deteriorating fundamentals. However, we believe that the stability of the dividends in this sector brought many investors to this group as a safe haven. We expect modest returns from REITs in the year ahead, as real estate tends to be a lagging economic sector. Convertible securities were on average negative overall for the year but had a strong fourth quarter. Dragged downward by the Enron debacle, utilities convertibles fell 38.2 percent for the year, causing this group to have the largest negative impact on the performance of that asset class. For most of the year, the Portfolio benefited from its exposure to less-equity-sensitive convertible issues, which provided a better return relative to their underlying equities. At the start of the market turn, we began to shift this component toward more equity-sensitive names to participate in the upward move. On December 31, 2001, the Portfolio's large-cap stock segment was relatively fully invested, as it has been since its inception. Portfolio transactions during the period included the purchase of Burlington Resources, Pitney Bowes, Sears, Sprint, United Technologies, Nokia, Marathon Oil, Merck and Keycorp and the elimination of AT&T, Ryder, Supervalu, Rockwell Collins, Whirlpool, Anheuser-Busch, Reliant and Ford. Information Portfolio For the 12-month period ended December 31, 2001, Information Portfolio's Class X shares posted a total return of -42.87 percent versus -11.88 percent for the S&P 500 and -21.05 percent for the Nasdaq composite index. For the same period, the Portfolio's Class Y shares returned -42.99 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: INFORMATION -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) Nov. 2000 $10,000 $10,000 Dec. 2000 $9,310 $9,236 Mar. 2001 $5,730 $8,142 Jun. 2001 $6,140 $8,618 Sep. 2001 $4,016 $7,353 Dec. 2001 $5,318(2) $8,139
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION CLASS X -42.87%(1) -42.25%(1) CLASS Y -42.99%(1) -42.35%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 14 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED The year was characterized by sustained volatility in the information technology sector. The first half of 2001 was marked by the continuation of deteriorating company fundamentals and falling stock prices. Just as business and visibility seemed to be improving, the terrorist attacks of September 11 sent a shock of uncertainty through the market and the economy. This sell-off was relatively short-lived, however, and the market rallied for the final three months of the year, led by the technology sector. To take advantage of this strength, we increased the Portfolio's exposure to more-volatile subsectors such as semiconductors and storage. Entering 2002, we are cautiously optimistic that the worst is behind us. Many technology companies feel that the third quarter of 2001 was the trough for their respective businesses and are now continuing to implement cost-cutting efficiencies aimed at maximizing profits. Inventory levels are relatively lean across the technology sector, allowing changes in end demand to be more rapidly realized in individual company performance. We are committed to identifying the subsectors and companies best poised to take advantage of the ensuing recovery. Money Market Portfolio As of December 31, 2001, Money Market Portfolio had net assets of approximately $559 million, with an average life of 51 days. For the seven-day period ended December 31, 2001, the Portfolio's Class X provided an effective yield of 1.71 percent and a current yield of 1.69 percent, while its 30-day moving average yield for December was 1.85 percent. For the 12-month period ended December 31, 2001, the Portfolio's Class X shares provided a total return of 3.94 percent. For the seven-day period ended December 31, 2001, the Portfolio's Class Y shares provided an effective yield of 1.45 percent and a current yield of 1.44 percent, while its 30-day moving average yield for December was 1.60 percent. For the 12-month period ended December 31, 2001, the Portfolio's Class Y shares provided a total return of 3.68 percent. The performance of the Portfolio's two share classes varies because each has different expenses. On December 31, 2001, approximately 58 percent of the Portfolio was invested in high-quality commercial paper, 36 percent in federal agency obligations and the remaining 6 percent in short-term bank notes and a certificate of deposit issued by a financially strong commercial bank. At the end of the fiscal period, approximately 89 percent of the Portfolio's holdings were due to mature in less than four months. We believe that the Portfolio is well positioned for stability of value with a high degree of liquidity. 15 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED As always, we attempt to operate the Portfolio in a conservative manner without the use of derivatives or structured notes that might fluctuate excessively with changing interest rates. The Portfolio continues to serve as a useful investment for liquidity, preservation of capital and a yield that reflects prevailing money market conditions. We expect the pace of economic activity during the first six months of 2002 to begin to reflect some improvement as the economy regains its footing. Barring further significant terrorist activity in the world, we believe that consumer and business confidence should continue to improve, resulting in a return to economic expansion. Such a recovery would likely lead to moderately higher levels of short-term interest rates, which could potentially materialize during the second half of 2002. Pacific Growth Portfolio For the 12-month period ended December 31, 2001, Pacific Growth Portfolio's Class X shares produced a total return of -27.42 percent compared to -16.82 percent for the MSCI World Index. For the same period, the Portfolio's Class Y shares returned -27.26 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the MSCI World Index. Poor stock selection in India and Hong Kong detracted from the Portfolio's performance, offsetting positive stock selection gains in Taiwan, Japan and Singapore. On a country allocation basis, the Portfolio's underweighted position in Malaysia had a negative effect, while its allocations in South Korea, Japan and Taiwan proved beneficial. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: PACIFIC GROWTH -- CLASS X SHARES ($ in Thousands)
FUND MSCI(3) Feb. 1994 $10,000 $10,000 Mar. 1994 $8,984 $9,639 Jun. 1994 $9,380 $9,928 Sep. 1994 $10,211 $10,141 Dec. 1994 $9,327 $10,067 Mar. 1995 $9,007 $10,538 Jun. 1995 $9,701 $10,988 Sep. 1995 $9,801 $11,601 Dec. 1995 $9,862 $12,153 Mar. 1996 $10,513 $12,648 Jun. 1996 $10,554 $13,014 Sep. 1996 $10,184 $13,187 Dec. 1996 $10,246 $13,791 Mar. 1997 $9,762 $13,831 Jun. 1997 $10,440 $15,913 Sep. 1997 $8,813 $16,368 Dec. 1997 $6,383 $15,965 Mar. 1998 $6,529 $18,251 Jun. 1998 $4,958 $18,622 Sep. 1998 $4,553 $16,390 Dec. 1998 $5,720 $20,559 Mar. 1999 $6,119 $19,851 Jun. 1999 $7,461 $21,540 Sep. 1999 $7,819 $21,221 Dec. 1999 $9,500 $24,800 Mar. 2000 $9,578 $25,054 Jun. 2000 $8,902 $24,166 Sep. 2000 $7,572 $22,952 Dec. 2000 $6,321 $21,532 Mar. 2001 $5,650 $18,767 Jun. 2001 $5,556 $19,261 Sep. 2001 $4,346 $16,493 Dec. 2001 $4,588(2) $17,909
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS SINCE INCEPTION CLASS X -27.42%(1) -14.85%(1) -9.45%(1) CLASS Y -27.26%(1) -32.99%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 16 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Morgan Stanley Investment Management Inc., the Portfolio's sub-advisor, is currently pursuing a defensive strategy in Japan because of its concerns about medium-term market fundamentals. In the sub-advisor's opinion, Japanese banks appear to have zero tolerance for nonperforming loans in the current global and domestic economic environment; consequently, it expects several large corporate bankruptcies in early 2002, before Japan's fiscal year-end in March. In the last three months of 2001, the sub-advisor cautiously began to steer the Portfolio's Asia ex-Japan holdings in a more aggressive direction. The Portfolio currently has overweightings in select cyclical stocks in that region in the semiconductor, electronics manufacturing, consumer discretionary and real-estate sectors. In making investment decisions, the sub-advisor has continued to emphasize stock-specific decisions over big sector calls. At year-end, the sub-advisor was focusing on companies that have increased their global market shares (Hyundai Motors), restructured their balance sheets (LG Electronics, Keppel Corp., Fubon Holdings), are survivors geared to cyclical recovery (Samsung, TSMC, Qantas, Henderson Land) or appear to be positioned for secular growth over the next two to three years (Hero Honda, Humax). Quality Income Plus Portfolio For the 12-month period ended December 31, 2001, Quality Income Plus Portfolio's Class X shares posted a total return of 9.57 percent versus 8.44 percent for the Lehman Brothers Aggregate Bond Index. For the same period, the Portfolio's Class Y shares returned 9.33 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the Lehman index. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: QUALITY INCOME PLUS -- CLASS X SHARES ($ in Thousands)
FUND LEHMAN(3) Dec. 1991 $10,000 $10,000 Dec. 1992 $10,826 $10,740 Dec. 1993 $12,232 $11,787 Dec. 1994 $11,422 $11,443 Dec. 1995 $14,197 $13,558 Dec. 1996 $14,418 $14,050 Dec. 1997 $16,018 $15,406 Dec. 1998 $17,406 $16,744 Dec. 1999 $16,655 $16,607 Dec. 2000 $18,502 $18,538 Dec. 2001 $20,272(2) $20,103
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X 9.57%(1) 7.05%(1) 7.32%(1) CLASS Y 9.33%(1) 11.35%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-based securities. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. At the beginning of the period, yields for most U.S. fixed-income securities were the most generous relative to U.S. Treasury and agency securities that they have been in more than 15 years. This represented an 17 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED unusual opportunity to build positions in investment-grade corporate securities and mortgage-backed securities. Thus, we increased the Portfolio's allocations to corporate and other non-U.S. government investments and repositioned the corporate portion of the Portfolio to take advantage of what we deemed to be the best values within the investment-grade universe. By the end of the period, 72 percent of the Portfolio was invested in corporate securities and 18 percent was in mortgage-backed securities. The remainder of the Portfolio was invested 5 percent each in U.S. Treasury notes and short-term investments. Although yields on nongovernment securities fell relative to government securities during the period, they remained generous relative to historical norms and continued to offer good value for investors. S&P 500 Index Portfolio For the 12-month period ended December 31, 2001, S&P 500 Index Portfolio's Class X shares produced a total return of -12.23 percent compared to -11.88 percent for the S&P 500. For the same period, the Portfolio's Class Y shares returned -12.53 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. The Portfolio seeks to deliver investment performance that corresponds before expenses to the total return of the S&P 500 by investing in substantially all the stocks in the S&P 500 in approximately the same weightings as they are represented in the Index. As of December 31, 2001, the top five positions in the S&P 500 were General Electric (3.67 percent), Microsoft (3.30 percent), Exxon Mobil (2.48 percent), Citigroup (2.40 percent) and Wal-Mart (2.37 percent). EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: S&P 500 INDEX -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) May. 1998 $10,000 $10,000 Jun. 1998 $10,270 $10,275 Sep. 1998 $9,250 $9,253 Dec. 1998 $11,220 $11,223 Mar. 1999 $11,750 $11,782 Jun. 1999 $12,556 $12,613 Sep. 1999 $11,762 $11,825 Dec. 1999 $13,490 $13,585 Mar. 2000 $13,802 $13,896 Jun. 2000 $13,411 $13,527 Sep. 2000 $13,269 $13,395 Dec. 2000 $12,224 $12,347 Mar. 2001 $10,774 $10,883 Jun. 2001 $11,384 $11,520 Sep. 2001 $9,705 $9,830 Dec. 2001 $10,729(2) $10,880
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION CLASS X -12.23%(1) 1.96%(1) CLASS Y -12.53%(1) -13.95%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 18 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Short-Term Bond Portfolio For the 12-month period ended December 31, 2001, Short-Term Bond Portfolio's Class X shares posted a total return of 6.72 percent compared to 9.73 percent for the Lehman Brothers U.S. Credit Index (1-5 Year). For the same period, the Portfolio's Class Y shares returned 6.49 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the Lehman index. The Portfolio's underperformance relative to its benchmark resulted primarily from not being well positioned in January when the Fed started cutting rates. As previously announced, a new investment team assumed responsibility for the Portfolio in early February and began to reposition the Portfolio at that time. At the beginning of the period, yields for most U.S. fixed-income securities were the most generous relative to U.S. Treasury and agency securities that they have been in more than 15 years. This represented an opportunity to build positions in investment-grade corporate securities and mortgage-backed securities. We therefore increased corporate and other non-U.S. government investments to 29 percent of the Portfolio. With interest-rate levels having fallen to levels inconsistent with the outlook for an economic recovery, short-term securities (including cash equivalents) were increased to 56 percent of the Portfolio, with the remaining 15 percent invested in government securities. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: SHORT-TERM BOND -- CLASS X SHARES ($ in Thousands)
FUND LEHMAN(3) May. 1999 $10,000 $10,000 Jun. 1999 $9,973 $9,969 Sep. 1999 $10,093 $10,063 Dec. 1999 $10,156 $10,125 Mar. 2000 $10,261 $10,240 Jun. 2000 $10,397 $10,398 Sep. 2000 $10,582 $10,706 Dec. 2000 $10,749 $10,983 Mar. 2001 $10,940 $11,385 Jun. 2001 $11,017 $11,544 Sep. 2001 $11,415 $12,001 Dec. 2001 $11,472(2) $12,052
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION CLASS X 6.72%(1) 5.30%(1) CLASS Y 6.49%(1) 6.60%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Lehman Brothers U.S. Credit Index (1-5 Year) (formerly Lehman Brother Mutual Fund Short (1-5) Investment Grade Debt Index) includes U.S. corporate and specified foreign debentures and secured notes with maturities of one to five years. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. Although yields on nongovernment securities fell relative to government securities during the period, they remained historically generous and continued to offer good value for investors. We expect to use short-term investments as a source of liquidity for building the Portfolio's non-government position as opportunities arise. 19 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Strategist Portfolio For the 12-month period ended December 31, 2001, Strategist Portfolio's Class X shares posted a total return of -10.18 percent versus -11.88 percent for the S&P 500 and 8.50 percent for the Lehman Brothers U.S. Government/Credit Index. For the same period, the Portfolio's Class Y shares returned -10.40 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of both its benchmark indexes. The Portfolio's return closely tracked that of the S&P 500, its equity benchmark, but was considerably lower than that of the Lehman index, its fixed-income benchmark. Throughout the year, the Portfolio maintained an average allocation of 25 percent in bonds, because our analysis indicated that fixed-income valuations were expensive relative to equities. As bonds proved to be 2001's winning asset class, this allocation hindered the Portfolio's performance. The Portfolio is managed with the goal of maximizing total returns while lessening volatility through the combination of various asset classes, primarily stocks, bonds and cash equivalents. Our analysis can lead to adjustments in the Portfolio's asset allocation over the course of an investment cycle. A portfolio allocation of 55 percent equities, 35 percent bonds and 10 percent cash is generally considered to be neutral. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: STRATEGIST -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) LEHMAN(4) Dec. 1991 $10,000 $10,000 $10,000 Dec. 1992 $10,724 $10,762 $10,758 Dec. 1993 $11,837 $11,846 $11,945 Dec. 1994 $12,303 $12,003 $11,526 Dec. 1995 $13,459 $16,513 $13,744 Dec. 1996 $15,481 $20,303 $14,143 Dec. 1997 $17,604 $27,077 $15,523 Dec. 1998 $22,277 $34,813 $16,993 Dec. 1999 $26,143 $42,139 $16,628 Dec. 2000 $26,572 $38,298 $18,599 Dec. 2001 $23,867(2) $33,750 $20,180
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -10.18%(1) 9.04%(1) 9.09%(1) CLASS Y -10.40%(1) -6.76%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. (4) The Lehman Brothers U.S. Government/Credit Index (formerly Lehman Brothers Government/Corporate Index) tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. During 2001 we made two asset allocation changes to take advantage of buying opportunities in first bonds, then stocks. In April, in response to a sell-off in long-bond prices, we shifted our Portfolio's asset allocation target from 55 percent equity, 20 percent fixed income and 25 percent cash to 55 percent equity, 20 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED 30 percent fixed income and 15 percent cash. Later, in December, we took advantage of equity valuations, increasing the equity allocation target to 65 percent and reducing the fixed-income target to 20 percent. The cash equivalent target remained at 15 percent of assets. In early December we changed the sector allocation within the Portfolio's equity segment. For the bulk of the year we had emphasized defensive industries, such as foods and consumer products, health-care services, diversified financials and gold-mining companies. At year-end, however, we shifted the focus toward cyclical sectors, such as steel and paper companies, heavy industrials, appliances and auto parts. We maintained the Portfolio's position in gold, which doubles as an inflation hedge. The portion of the Portfolio allocated to fixed-income investments is diversified among various debt instruments. Corporate issues represent about 43 percent of the total, mortgage-backed securities 42 percent and U.S. government securities about 7 percent, with the balance in cash equivalents. The Portfolio's yield to maturity stood at 5.84 percent at year-end, while its effective duration was 5.1 years. Utilities Portfolio For the 12-month period ended December 31, 2001, Utilities Portfolio's Class X shares produced a total return of -25.75 percent versus -11.88 percent for the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned - -25.98 percent. The performance of the two share classes varies because each has different expenses. The accompanying chart compares the Portfolio's performance to that of the S&P 500. The primary reason for the Portfolio's underperformance relative to that of the S&P 500 was weakness in the energy sector, particularly among natural gas companies, which declined 28.93 percent EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000: UTILITIES -- CLASS X SHARES ($ in Thousands)
FUND S&P 500(3) Dec. 1991 $10,000 $10,000 Dec. 1992 $11,264 $10,762 Dec. 1993 $13,032 $11,846 Dec. 1994 $11,856 $12,003 Dec. 1995 $15,253 $16,513 Dec. 1996 $16,577 $20,303 Dec. 1997 $21,078 $27,077 Dec. 1998 $26,086 $34,813 Dec. 1999 $29,403 $42,139 Dec. 2000 $30,295 $38,298 Dec. 2001 $22,495(2) $33,750
AVERAGE ANNUAL TOTAL RETURNS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS X -25.75%(1) 6.30%(1) 8.44%(1) CLASS Y -25.98%(1) -16.34%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. (1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Closing value on December 31, 2001 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 21 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED (as measured by the AMEX Natural Gas Index). In addition, uncertainty surrounding the California power situation, Enron and the tempering of overly enthusiastic earnings projections weighed on the power sector as a whole. For reference, the Dow Jones Utilities Average posted a return of -26.25 percent for the calendar year. As a result, many utility and utility-related companies did not display their traditional defensive characteristics because these events affected investor confidence. During the year, the Portfolio maintained a prudent defensive strategy, focusing mainly on more-traditional electric utilities with attractive dividend yields. While electric utilities performed admirably during the frequent periods of severe market volatility, the performance of the power sector overall was hindered by concerns surrounding California's flawed deregulation plan. In addition, widespread fears of industry reregulation and electric power overcapacity contributed to the group's lagging performance. Furthermore, wholesale power companies, or independent power producers (IPPs), suffered from exposure to the California crisis and debt downgrades by Moody's, as well as from the impact of a weak economy that crimped power prices and sales. Despite the difficulties of the past year, we believe that many utility and IPP companies are positioned to benefit as electric power fundamentals strengthen within a revitalizing economy. With respect to integrated gas companies, 2001 was very challenging as demand and commodity prices softened and the industry's largest player, Enron, fell under intense investor and regulatory scrutiny related to company-specific financial disclosures. The Portfolio's gas holdings remain balanced between larger integrated services players and local distribution companies, the latter group displaying solid relative performance during the year. We believe that local distribution companies currently offer attractive dividend-income characteristics and a more conservative growth platform for investors. Within the telecommunications sector, the Portfolio avoided much of the downturn in the manufacturing companies that resulted from lower capital expenditures by the carriers. Instead, the Portfolio favored both the Regional Bell Operating Companies and selective independent telephone service providers. The telecom services component of the Portfolio performed well on a relative basis, given its emphasis on companies with defensive qualities and attractive local telecom assets. We believe that, when the economy begins to regain momentum, the telecom market will likely benefit from an acceleration in both wireless and data usage as well as subscriber growth. On December 31, 2001, 83 percent of the Portfolio's net assets were allocated to utility and utility-related equities, 7 percent to high-quality fixed-income securities and 10 percent to cash and cash equivalents. Within the equity component, 55 percent was allocated to electric power, 29 percent to telecommunications and 16 percent to natural gas. Adding a further degree of diversification to the 22 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Portfolio were selective international securities (5 percent of net assets), which focused on telecommunications holdings. The fixed-income portion of the Portfolio remains well diversified, with a weighted average credit rating on December 31, 2001, of A3 and A-, as measured by Moody's Investors Service and Standard & Poor's, respectively. While challenges abound for the economy, the broad market and the utilities sector, we believe that a more-favorable investment climate should materialize during 2002 as investors anticipate and benefit from a long-awaited economic recovery. In an effort to capitalize on several attractively valued growth situations within the United States, we anticipate expanding the Portfolio's communications component while maintaining a prudent complement of electric power and energy-related equities. In addition, we expect widespread consolidation across virtually every utility sector in the near future, which could provide a meaningful catalyst for positive share-price performance in 2002. Going forward, the Portfolio will continue to invest prudently while seeking to provide competitive total returns for shareholders. Additionally, in a continuing effort to mitigate risk and maximize investment return we anticipate maintaining a widely diversified, high-quality portfolio of electric, energy and communications companies that we believe have clearly defined growth strategies and good earnings visibility. Finally, we believe that the Portfolio is positioned to meet its long-term objectives of providing shareholders with relatively low volatility, above-average income and attractive long-term growth. Looking Ahead Recent economic evidence suggests that the recession has ended and recovery has begun. The challenge now becomes one of assessing how much vigor the recovery will have. In our estimation the economic rebound will be less than that of prior recoveries, because of the continued headwinds that face the economy. It is true that very strong fiscal and monetary stimuli have been applied to the economy, which have together caused it to bottom sooner than expected and will perhaps lead to more vibrancy than expected in the first half of 2002. This impetus, together with an anticipated swing in inventories from liquidation to accumulation and along with strong government spending, should spur growth early in the year. However, we believe that in the second half of the year the effects of monetary stimulus will begin to wane and the extended positions of consumers and difficult earnings comparisons will weigh on consumer cyclical earnings. By the second part of the year, it may become more apparent that excess corporate manufacturing capacity and relatively new capital stock will restrain a material capital spending recovery until 2003. 23 Morgan Stanley Variable Investment Series LETTER TO THE SHAREHOLDERS / / DECEMBER 31, 2001 CONTINUED Regarding the domestic stock market, there are both positive and negative considerations. The good news is that the economy has bottomed and earnings comparisons are the easiest to make in fifty years. The problematic side is that while stocks have bottomed, valuations remain near record levels relative to very depressed earnings. Relative to interest rates, stocks are only modestly overvalued at the time of this writing. As a result, stock returns are likely to be average at best. At the same time, fixed-income instruments, with their very low current yields, are unlikely to provide much competition. Our outlook for European equities remains mixed, given the ongoing weakness in the region's economies and the lack of visibility on corporate earnings. However, the central banks in the United States, United Kingdom and Europe appear to stand ready to respond to any further economic weakness with additional cuts in interest rates. Moreover, the effects of the substantial easing of monetary policy around the world should become evident in the coming quarters. In Japan, we are encouraged by signs that restructuring is gaining momentum, as evidenced by announcements of substantial job cuts that were made in the second half of 2001. Although the next several months may produce headline-worthy business failures, we believe important steps are being taken by the Koizumi administration to revitalize the economy. Elsewhere in Asia, we anticipate that the pace of the recent rally will slow, and potentially even reverse, as stock prices fall in line with fundamentals. Nevertheless, this near-term trading environment does not change our positive long-term outlook on this region. We appreciate your ongoing support of Morgan Stanley Variable Investment Series and look forward to continuing to serve your investment needs. Very truly yours, /s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin Charles A. Fiumefreddo Mitchell M. Merin CHAIRMAN OF THE BOARD PRESIDENT
24 Morgan Stanley Variable Investment Series - Money Market PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - -------------------------------------------------------------------------------------------- COMMERCIAL PAPER (56.6%) BANKING (4.1%) $10,000 Bank of New York Co., Inc..... 2.01% 01/28/02 $ 9,985,000 13,000 J.P. Morgan Chase & Co........ 1.89 - 2.01 01/17/02 - 01/30/02 12,984,691 ------------ 22,969,691 ------------ COMPUTER PROCESSING HARDWARE (1.3%) 7,000 IBM Credit Corp............... 2.10 01/02/02 6,999,592 ------------ FINANCE - AUTOMOTIVE (1.3%) 7,000 American Honda Finance Corp......................... 2.06 01/28/02 6,989,237 ------------ FINANCE - CONSUMER (10.6%) 27,500 FCAR Owner Trust.............. 1.77 - 2.34 01/09/02 - 02/15/02 27,462,229 26,500 New Center Asset Trust........ 1.78 - 1.92 01/10/02 - 03/21/02 26,447,160 5,500 Wells Fargo Financial Inc..... 2.31 03/13/02 5,475,160 ------------ 59,384,549 ------------ FINANCE - CORPORATE (3.4%) 19,000 Ciesco, L.P................... 2.01 - 2.23 01/08/02 - 02/05/02 18,973,410 ------------ FINANCIAL CONGLOMERATES (4.7%) 26,500 General Electric Capital Corp......................... 2.05 - 2.47 01/18/02 - 03/27/02 26,421,486 ------------ INSURANCE (3.4%) 19,000 American General Corp......... 1.84 - 1.92 01/14/02 - 01/30/02 18,981,348 ------------ INTEGRATED OIL (4.5%) 9,000 ChevronTexaco Corp............ 1.84 02/19/02 8,977,582 16,350 Texaco, Inc................... 1.88 - 1.94 01/03/02 - 01/09/02 16,346,068 ------------ 25,323,650 ------------ INTERNATIONAL BANKS (22.2%) 7,000 A N Z (DE) Inc................ 1.88 02/11/02 6,985,092 14,000 Abbey National North America Corp......................... 1.80 - 2.04 01/04/02 - 02/21/02 13,978,819 7,000 Barclays U.S. Funding Corp.... 2.10 01/07/02 6,997,556 6,000 CBA (Delaware) Finance Inc.... 2.39 01/07/02 5,997,630 24,500 Dresdner U.S. Finance Inc..... 1.88 - 2.30 01/11/02 - 02/07/02 24,468,606 10,000 Halifax PLC................... 1.79 01/15/02 9,993,039 11,000 KFW International Finance Inc.......................... 1.89 - 2.29 02/06/02 - 04/25/02 10,956,772 7,000 Societe Generale N.A. Inc..... 1.90 01/08/02 6,997,414 16,000 Toronto-Dominion Holdings USA Inc.......................... 2.03 - 2.04 01/02/02 - 02/22/02 15,981,843 14,869 UBS Finance (Delaware) LLC.... 1.70 - 1.81 01/02/02 - 03/28/02 14,838,129 7,000 Westpac Capital Corp.......... 1.88 02/12/02 6,984,728 ------------ 124,179,628 ------------
SEE NOTES TO FINANCIAL STATEMENTS 25 Morgan Stanley Variable Investment Series - Money Market PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - -------------------------------------------------------------------------------------------- INVESTMENT BANKERS/BROKERS (1.1%) $ 6,000 Goldman Sachs Group Inc....... 1.83% 02/08/02 $ 5,988,410 ------------ TOTAL COMMERCIAL PAPER (COST $316,211,001)............................................... 316,211,001 ------------ U.S. GOVERNMENT AGENCIES (35.5%) 10,000 Federal Farm Credit Banks..... 1.70 01/23/02 9,989,611 28,350 Federal Home Loan Banks....... 1.77 - 2.36 01/04/02 - 04/17/02 28,242,549 69,600 Federal Home Loan Mortgage Corp......................... 1.70 - 4.16 01/03/02 - 07/19/02 69,211,288 91,314 Federal National Mortgage Assoc........................ 1.71 - 4.01 01/25/02 - 05/31/02 90,714,966 ------------ TOTAL U.S. GOVERNMENT AGENCIES (COST $198,158,414)............................................... 198,158,414 ------------ SHORT-TERM BANK NOTES (4.5%) 6,000 Bank of America, N.A.......... 2.47 01/10/02 6,000,000 12,000 U.S. Bank N.A. Cincinnati..... 2.13 01/31/02 - 02/04/02 12,000,000 7,000 LaSalle Bank N.A.............. 2.11 02/01/02 7,000,000 ------------ TOTAL SHORT-TERM BANK NOTES (COST $25,000,000)................................................ 25,000,000 ------------ CERTIFICATE OF DEPOSIT (1.2%) 7,000 Chase Manhattan Bank (USA), N.A. (COST $7,000,000)............ 1.75 03/15/02 7,000,000 ------------
TOTAL INVESTMENTS (COST $546,369,415) (a)...... 97.8% 546,369,415 OTHER ASSETS IN EXCESS OF LIABILITIES.................. 2.2 12,348,512 ----- ------------ NET ASSETS.................... 100.0% $558,717,927 ===== ============
- --------------------- (a) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES. SEE NOTES TO FINANCIAL STATEMENTS 26 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------- CORPORATE BONDS (26.1%) AEROSPACE & DEFENSE (1.1%) $ 160 Lockheed Martin Corp.......... 6.50% 04/15/03 $ 165,288 275 Northrop Grumman Corp......... 7.00 03/01/06 287,795 50 Raytheon Co................... 6.75 08/15/07 51,777 65 Raytheon Co................... 8.20 03/01/06 70,455 ----------- 575,315 ----------- AIRLINES (0.1%) 45 Southwest Airlines Co......... 5.496 11/01/06 44,309 ----------- AUTO PARTS: O.E.M. (0.6%) 80 Delphi Auto Systems Corp...... 6.125 05/01/04 81,430 125 Johnson Controls Inc.......... 5.00 11/15/06 121,675 115 TRW Inc....................... 7.625 03/15/06 118,438 ----------- 321,543 ----------- BROADCASTING (0.3%) 140 Clear Channel Communications Corp......................... 7.25 09/15/03 144,786 ----------- CABLE/SATELLITE (1.7%) 360 Comcast Cable................. 6.375 01/30/06 365,793 290 Cox Communications Inc........ 7.50 08/15/04 309,433 165 TCI Communications Inc........ 6.375 05/01/03 169,554 ----------- 844,780 ----------- DEPARTMENT STORES (0.5%) 180 Federated Department Stores Co........................... 8.50 06/15/03 190,845 40 May Department Stores Co...... 6.875 11/01/05 42,214 ----------- 233,059 ----------- DISCOUNT STORES (0.7%) 100 Target Corp................... 7.50 02/15/05 109,236 230 Wal-Mart Stores, Inc.......... 5.45 08/01/06 235,384 ----------- 344,620 ----------- DRUGSTORE CHAINS (0.2%) 115 CVS Corp...................... 5.625 03/15/06 115,824 ----------- ELECTRIC UTILITIES (0.8%) 225 DTE Energy Co................. 6.45 06/01/06 230,932 170 Progressive Energy Inc........ 6.75 03/01/06 176,519 ----------- 407,451 -----------
SEE NOTES TO FINANCIAL STATEMENTS 27 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------- ENVIROMENTAL SERVICES (0.6%) $ 60 USA Waste Services Inc........ 7.125% 10/01/07 $ 61,271 215 WMX Technologies Inc.......... 7.00 10/15/06 220,975 ----------- 282,246 ----------- FINANCE/RENTAL/LEASING (2.4%) 180 American General Finance Corp......................... 5.875 07/14/06 182,645 100 Associates Corp. North America...................... 6.50 07/15/02 102,213 90 CIT Group Inc................. 5.625 05/17/04 92,729 304 Ford Motor Credit Co.......... 6.875 02/01/06 305,440 305 Household Finance Corp........ 6.50 01/24/06 312,609 100 IBM Credit Corp............... 7.00 01/28/02 100,336 110 MBNA America Bank N.A......... 6.50 06/20/06 107,942 ----------- 1,203,914 ----------- FINANCIAL CONGLOMERATES (0.2%) 95 General Motors Acceptance Corp......................... 7.50 07/15/05 99,871 ----------- FINANCIAL PUBLISHING/SERVICES (0.1%) 60 Reed Elsevier Capital......... 6.125 08/01/06 61,067 ----------- FOOD RETAIL (0.8%) 285 Kroger Co. (Fred Meyer Inc.)........................ 7.375 03/01/05 300,947 80 Safeway Inc................... 6.15 03/01/06 82,133 ----------- 383,080 ----------- FOODS: MAJOR DIVERSIFIED (0.4%) 170 Unilever Capital Corp......... 6.75 11/01/03 179,505 ----------- FOODS: MEAT/FISH/DAIRY (0.1%) 65 Conagra Foods Inc............. 6.00 09/15/06 66,515 ----------- GAS DISTRIBUTORS (0.7%) 165 Consolidated Natural Gas Co........................... 5.375 11/01/06 162,700 110 Nisource Finance Corp......... 7.625 11/15/05 114,952 95 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A* (Qatar)..... 7.628 09/15/06 99,870 ----------- 377,522 ----------- HOME BUILDING (0.2%) 115 Centex Corp................... 9.75 06/15/05 127,222 ----------- HOME IMPROVEMENT CHAINS (0.7%) 330 Lowe's Companies Inc.......... 7.50 12/15/05 353,694 ----------- HOSPITAL/NURSING MANAGEMENT (0.3%) 165 Tenet Healthcare Corp. - 144A*........................ 5.375 11/15/06 161,388 -----------
SEE NOTES TO FINANCIAL STATEMENTS 28 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------- HOTELS/RESORTS/CRUISELINES (0.1%) $ 50 Marriott International Inc. (Series D)................... 8.125% 04/01/05 $ 53,760 ----------- INDUSTRIAL CONGLOMERATES (1.0%) 275 Honeywell International....... 5.125 11/01/06 271,297 250 Tyco International Group S.A. (Luxembourg)................. 6.375 02/15/06 255,334 ----------- 526,631 ----------- INTEGRATED OIL (0.4%) 175 Conoco Inc.................... 5.90 04/15/04 181,746 ----------- INVESTMENT BANKS/BROKERS (0.7%) 230 Credit Suisse FB USA Inc...... 5.875 08/01/06 233,971 90 Goldman Sachs Group Inc....... 7.625 08/17/05 97,393 ----------- 331,364 ----------- LIFE/HEALTH INSURANCE (1.4%) 200 John Hancock Global Funding - 144A*........................ 5.625 06/27/06 201,966 250 Metropolitan Life Insurance Co. - 144A*.................. 6.30 11/01/03 260,207 165 Nationwide Mutual Insuance Co. - 144A*.................. 6.50 02/15/04 171,938 100 Prudential Insurance Co - 144A*........................ 6.375 07/23/06 103,390 ----------- 737,501 ----------- MAJOR BANKS (0.2%) 100 First Union Corp.............. 8.00 11/15/02 104,338 ----------- MAJOR TELECOMMUNICATIONS (3.1%) 200 AT&T Corp. - 144A*............ 6.50 11/15/06 203,321 205 Bell South Corp............... 5.00 10/15/06 203,483 170 British Telecom PLC (United Kingdom)..................... 7.875 12/15/05 182,105 215 Deutsche Telekom International Finance (Netherlands)........ 7.75 06/15/05 232,810 195 Sprint Capital Corp. - 144A*........................ 6.00 01/15/07 193,611 230 Telus Corp.................... 7.50 06/01/07 242,045 65 WorldCom, Inc................. 6.25 08/15/03 66,630 210 WorldCom, Inc................. 6.50 05/15/04 215,774 50 WorldCom, Inc................. 7.875 05/15/03 52,273 ----------- 1,592,052 ----------- MANAGED HEALTH CARE (0.5%) 105 Aetna Inc..................... 7.375 03/01/06 105,279 65 United Health Group Inc....... 7.50 11/15/05 69,179 95 WellPoint Health Network...... 6.375 06/15/06 96,880 ----------- 271,338 -----------
SEE NOTES TO FINANCIAL STATEMENTS 29 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------- MEDIA CONGLOMERATES (1.0%) $ 310 AOL Time Warner............... 6.125% 04/15/06 $ 316,643 185 Viacom Inc.................... 6.40 01/30/06 190,875 ----------- 507,518 ----------- MOTOR VEHICLES (0.6%) 175 DaimlerChrysler North American Holdings Co.................. 6.40 05/15/06 175,018 125 Ford Motor Credit Co.......... 6.50 01/25/07 122,291 ----------- 297,309 ----------- MULTI-LINE INSURANCE (1.5%) 250 AIG SunAmerica Global Finance - 144A*.............. 5.20 05/10/04 257,471 240 Hartford Financial Service Group Inc.................... 7.75 06/15/05 257,253 250 Farmer Insurance Exchange - 144A*........................ 8.50 08/01/04 264,214 ----------- 778,938 ----------- OIL & GAS PIPELINES (0.3%) 145 Williams Companies, Inc....... 6.50 08/01/06 144,620 ----------- PHARMACEUTICALS: MAJOR (0.7%) 70 American Home Products Corp......................... 6.25 03/15/06 72,482 290 Bristol-Myers Squibb.......... 4.75 10/01/06 287,656 ----------- 360,138 ----------- RAILROADS (0.4%) 100 Norfolk Southern Corp......... 7.875 02/15/04 107,263 85 Union Pacific Corp............ 5.84 05/25/04 87,587 ----------- 194,850 ----------- SPECIALTY TELECOMMUNICATIONS (0.3%) 170 Qwest Capital Funding......... 7.75 08/15/06 174,789 ----------- WIRELESS COMMUNICATIONS (1.4%) 355 AT&T Wireless Group........... 7.35 03/01/06 375,536 70 Nextel Communications Inc..... 9.375 11/15/09 55,300 250 Vodafone Group PLC............ 7.625 02/15/05 269,297 ----------- 700,133 ----------- TOTAL CORPORATE BONDS (COST $13,198,324)............................................... 13,284,736 -----------
SEE NOTES TO FINANCIAL STATEMENTS 30 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS (15.9%) $ 75 Federal Home Loan Banks....... 4.875% 01/22/02 $ 75,114 1,100 Federal National Mortgage Assoc.+...................... 5.75 - 6.29 02/11/02 - 04/15/03 1,137,216 6,465 U.S. Treasury Notes+.......... 5.75 - 7.50 01/31/02 - 05/15/05 6,849,908 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $7,911,704)................................................ 8,062,238 ----------- ASSET-BACKED SECURITIES (5.2%) FINANCE/RENTAL/LEASING 250 American Express Credit Account...................... 6.40 04/15/05 256,971 100 Connecticut RRB Special....... 5.36 03/30/07 103,020 175 Chase Credit Card Master Trust........................ 5.50 11/17/08 178,203 129 Daimler-Benz Vehicle Trust.... 5.22 12/22/03 130,686 155 Daimler Chrysler Auto Trust... 6.82 09/06/04 160,574 120 Ford Credit Auto Owner Trust........................ 6.74 06/15/04 123,979 80 Honda Auto Receivable Owner Trust........................ 6.62 07/15/04 82,461 250 Honda Auto Receivable Owner Trust........................ 2.76 02/18/04 250,478 400 Household Automotive Trust.... 3.68 04/17/06 398,635 325 MBNA Master Credit Card Trust........................ 2.015 02/15/07 325,350 150 MMCA Automobile Trust......... 7.00 06/15/04 153,954 160 Nissan Auto Receivables Owner Trust........................ 6.72 08/16/04 165,492 75 Nissan Auto Receivables Owner Trust........................ 4.80 02/15/07 75,915 200 Nordstrom Private Label Credit - 144A*............... 4.82 04/15/10 194,802 55 Residential Funding Mortgage Securities................... 7.39 04/25/11 55,644 ----------- TOTAL ASSET-BACKED SECURITIES (COST $2,654,080)................................................ 2,656,164 ----------- FOREIGN GOVERNMENT OBLIGATION (0.3%) ELECTRIC UTILITIES 160 Hydro-Quebec (Canada) (COST $159,621).............. 5.50 04/11/06 162,856 ----------- MORTGAGE-BACKED SECURITY (0.6%) 300 Federal Home Loan Mortgage Corp. Gold** (COST $302,813).............. 6.00 301,031 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS (1.5%) 248 Federal Home Loan Mortgage Corp......................... 6.50 03/15/29 254,516
SEE NOTES TO FINANCIAL STATEMENTS 31 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------- $ 512 Federal Home Loan Mortgage Corp......................... 6.60% 03/15/29 $ 524,757 1 Federal National Mortgage Assoc........................ 2.08 10/25/24 813 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $774,397).................................................. 780,086 ----------- SHORT-TERM INVESTMENTS (48.7%) U.S. GOVERNMENT & AGENCY OBLIGATIONS (A) (47.4%) 9,600 Federal Home Loan Banks....... 1.74 - 2.03 01/04/01 - 03/08/02 9,587,999 7,000 Federal Home Loan Mortgage Corp......................... 1.70 - 2.00 01/15/02 - 03/07/02 6,985,254 4,600 Federal National Mortgage Assoc........................ 1.685 03/07/02 4,585,859 3,000 U.S. Treasury Bill............ 1.725 03/07/02 2,990,800 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $24,149,768)............................................... 24,149,912 ----------- REPURCHASE AGREEMENT (1.3%) 645 The Bank of New York (dated 12/31/01; proceeds $645,167 (b) (COST $645,135).............. 0.875 01/02/02 645,135 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $24,794,903)............................................... 24,795,047 -----------
TOTAL INVESTMENTS (COST $49,795,842) (c)....... 98.3% 50,042,158 OTHER ASSETS IN EXCESS OF LIABILITIES.................. 1.7 865,587 ----- ----------- NET ASSETS.................... 100.0% $50,907,745 ===== ===========
- ------------------------ * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. ** SECURITY WAS PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT. + SOME OR ALL OF THESE SECURITIES HAVE BEEN SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS AND/OR SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS. (A) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (B) COLLATERALIZED BY $654,456 FEDERAL HOME LOAN MORTGAGE CORP., 5.775%, DUE 06/26/06, VALUED AT $658,038. (C) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $308,862 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $62,546, RESULTING IN NET UNREALIZED APPRECIATION OF $246,316. SEE NOTES TO FINANCIAL STATEMENTS 32 Morgan Stanley Variable Investment Series - Short-Term Bond PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2001: UNREALIZED NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/ CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE (DEPRECIATION) - ------------------------------------------------------------------------------------------------- 35 Long U.S. Treasury Notes March 2002 $ 3,703,985 $(46,062) 27 Long U.S. Treasury Future March 2002 5,642,578 26,123 22 Short U.S. Treasury Notes March 2002 (2,313,094) 20,710 -------- Net unrealized appreciation................................................ $ 771 ========
SEE NOTES TO FINANCIAL STATEMENTS 33 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- CORPORATE BONDS (65.9%) AEROSPACE & DEFENSE (1.8%) $ 2,500 Lockheed Martin Corp.......... 7.75% 05/01/26 $ 2,696,528 2,000 Northrop Grumman Corp......... 7.75 02/15/31 2,165,916 2,645 Systems 2001 Asset Trust -144A*....................... 6.664 09/15/13 2,726,512 1,640 Systems 2001 Asset Trust -144A*....................... 7.156 12/15/11 1,687,876 ------------ 9,276,832 ------------ AIR FREIGHT/COURIERS (1.0%) 4,683 Federal Express Corp.......... 7.50 01/15/18 4,849,193 ------------ AIRLINES (2.2%) 4,527 America West Airlines (Class A).................... 6.85 07/02/09 4,400,364 1,780 America West Airlines -144A*....................... 7.10 04/02/21 1,783,731 3,000 Continental Airlines, Inc..... 7.056 09/15/09 2,716,800 1,353 Continental Airlines, Inc..... 6.90 01/02/18 1,188,765 1,005 Southwest Airlines Co......... 5.496 11/01/06 989,564 ------------ 11,079,224 ------------ CABLE/SATELLITE TV (1.7%) 5,295 Comcast Cable Communications Inc.......................... 6.75 01/30/11 5,318,028 1,945 Comcast Cable Communications Inc.......................... 8.375 05/01/07 2,144,551 1,020 TCI Communications Inc........ 7.875 02/15/26 1,053,970 ------------ 8,516,549 ------------ COMPUTER PROCESSING HARDWARE (0.2%) 885 Sun Microsystems Inc.......... 7.65 08/15/09 898,325 ------------ DEPARTMENT STORES (0.5%) 1,690 May Department Stores Co., Inc..................... 5.95 11/01/08 1,695,592 630 May Department Stores Co., Inc..................... 6.70 09/15/28 602,889 ------------ 2,298,481 ------------ DISCOUNT STORES (0.5%) 2,281 Wal-Mart Stores, Inc.......... 7.49 06/21/07 2,364,904 ------------ DRUGSTORES CHAINS (0.3%) 1,725 CVS Corp...................... 5.625 03/15/06 1,737,358 ------------ ELECTRIC UTILITIES (3.4%) 2,540 American Electric Power (Series A)................... 6.125 05/15/06 2,514,394 5,000 Consolidated Edison Co. ***... 7.50 09/01/10 5,323,455 2,250 Detroit Edison Co............. 6.125 10/01/10 2,209,793 3,500 Oklahoma Gas & Electric Co.... 6.50 07/15/17 3,640,805
SEE NOTES TO FINANCIAL STATEMENTS 34 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- $ 2,500 Public Service Electric & Gas Co........................... 6.75% 03/01/06 $ 2,572,410 1,000 Tampa Electric Co............. 7.75 11/01/22 952,055 ------------ 17,212,912 ------------ FINANCIAL CONGLOMERATES (6.8%) 4,585 American Express Co........... 6.875 11/01/05 4,849,715 3,785 American Express Co........... 5.50 09/12/06 3,787,952 1,235 General Motors Acceptance Corp......................... 6.875 09/15/11 1,209,755 2,920 General Motors Acceptance Corp......................... 8.00 11/01/31 2,971,932 8,200 J.P. Morgan Chase & Co. Inc.......................... 6.75 02/01/11 8,394,143 1,890 Prudential Holdings LLC -144A*....................... 7.245 12/18/23 1,935,190 5,950 Prudential Holdings LLC -144A*....................... 8.695 12/18/23 6,189,012 5,000 State Street Boston Corp. ***.......................... 5.95 09/15/03 5,212,215 ------------ 34,549,914 ------------ FINANCE/RENTAL/LEASING (2.7%) 4,400 American General Finance Corp......................... 5.875 07/14/06 4,464,662 600 Ford Motor Credit Co.......... 7.25 10/25/11 583,876 3,000 Ford Capital B.V.............. 9.50 06/01/10 3,311,625 5,000 Household Finance Corp........ 8.00 05/09/05 5,361,750 250 Household Finance Corp........ 6.75 05/15/11 248,588 215 MBNA American General Finance...................... 6.50 06/20/06 210,978 ------------ 14,181,479 ------------ FINANCIAL PUBLISHING/SERVICES (0.2%) 1,045 Reed Elsevier Capital......... 6.75 08/01/11 1,060,038 ------------ FOOD: RETAIL (0.4%) 1,715 Kroger Co..................... 7.70 06/01/29 1,840,219 ------------ GAS DISTRIBUTORS (0.3%) 540 Consolidated Natural Gas Co........................... 6.25 11/01/11 528,483 1,000 Keyspan Corp.................. 7.625 11/15/10 1,082,412 ------------ 1,610,895 ------------ HOME IMPROVEMENT CHAINS (1.5%) 5,000 Home Depot Real Estate Funding Corp. II - 144A*............. 5.95 10/15/08 4,938,380 2,325 Lowe's Companies Inc.......... 6.50 03/15/29 2,246,015 705 Lowe's Companies Inc.......... 6.875 02/15/28 705,312 ------------ 7,889,707 ------------ HOSPITAL/NURSING MANAGEMENT (0.3%) 1,540 Tenent Healthcare Corp........ 6.875 11/15/31 1,417,211 ------------ HOTELS/RESORTS/CRUISELINES (0.1%) 565 Marriott International - 144A*........................ 7.00 01/15/08 568,388 ------------
SEE NOTES TO FINANCIAL STATEMENTS 35 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (3.7%) $ 6,260 Honeywell International....... 6.125% 11/01/11 $ 6,194,045 4,170 Hutchison Whampoa Finance Ltd. (Hong Kong) - 144A*.......... 7.50 08/01/27 3,934,562 3,585 Tyco International Group S.A. (Luxembourg)................. 6.375 10/15/11 3,502,287 5,245 Tyco International Group S.A. (Luxembourg)................. 6.875 01/15/29 5,031,702 260 Tyco International Group S.A. (Luxembourg)................. 7.00 06/15/28 251,541 ------------ 18,914,137 ------------ INTEGRATED OIL (0.9%) 3,000 BP Amoco PLC.................. 5.90 04/15/09 3,021,495 1,000 Texaco Capital, Inc........... 9.75 03/15/20 1,350,282 ------------ 4,371,777 ------------ INVESTMENT BANKS/BROKERS (2.8%) 4,600 Credit Suisse F/B USA, Inc..................... 5.875 08/01/06 4,679,428 5,650 Goldman Sachs Group Inc....... 6.875 01/15/11 5,786,651 3,750 Lehman Brothers Holdings, Inc. ***........... 8.75 03/15/05 4,135,028 ------------ 14,601,107 ------------ LIFE/HEALTH INSURANCE (1.9%) 400 Hartford Life................. 7.375 03/01/31 412,584 4,945 John Hancock.................. 7.375 02/15/24 4,946,024 1,215 Metropolitan Life Insurance Co........................... 7.80 11/01/25 1,238,398 1,260 Nationwide Mutual Insurance - 144A*........................ 7.50 02/15/24 1,133,706 1,705 New England Mutual Life Insurance Co................. 7.875 02/15/24 1,746,863 ------------ 9,477,575 ------------ MAJOR BANKS (3.1%) 1,055 Bank One Corp................. 8.00 04/29/27 1,169,545 330 Bank One Corp................. 6.00 02/17/09 325,977 5,000 First Union National Bank ***.......................... 7.80 08/18/10 5,489,465 3,000 Mellon Bank N.A............... 7.625 09/15/07 3,320,316 5,000 Wells Fargo & Co.............. 7.55 06/21/10 5,472,940 ------------ 15,778,243 ------------ MAJOR TELECOMMUNICATIONS (7.1%) 470 AT&T Corp. - 144A*............ 7.30 11/15/11 481,479 5,750 AT&T Corp. - 144A*............ 8.00 11/15/31 6,017,761 2,845 BellSouth Telecommunications Inc.......................... 6.375 06/01/28 2,747,960 360 Deutsche Telekom International Finance Corp. (Netherlands)................ 8.25 06/15/30 399,555 1,000 GTE Corp...................... 7.90 02/01/27 1,036,979 2,155 GTE Corp...................... 6.94 04/15/28 2,137,734 3,000 Verizon Global Funding Corp. - 144A*................ 7.75% 12/01/30 3,338,973
SEE NOTES TO FINANCIAL STATEMENTS 36 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- $ 2,000 Worldcom, Inc................. 8.00 % 05/15/06 $ 2,128,958 16,745 Worldcom, Inc................. 8.25 05/15/31 17,700,386 ------------ 35,989,785 ------------ MANAGED HEALTH CARE (2.3%) 1,020 Aetna, Inc.................... 7.375 03/01/06 1,022,708 1,095 Aetna, Inc.................... 7.875 03/01/11 1,078,439 4,540 Cigna Corp.................... 6.375 10/15/11 4,457,953 885 Healthnet Inc................. 8.375 04/15/11 912,431 1,565 UnitedHealth Group Inc........ 7.50 11/15/05 1,665,609 1,530 News America Holding Corp..... 8.875 04/26/23 1,654,332 960 Wellpoint Health Network...... 6.375 06/15/06 979,001 ------------ 11,770,473 ------------ MEDIA CONGLOMERATES (2.3%) 6,087 AOL Time Warner Inc........... 7.625 04/15/31 6,438,658 5,015 Viacom Inc. - 144A*........... 6.625 05/15/11 5,098,229 ------------ 11,536,887 ------------ MEDICAL SPECIALTIES (0.9%) 4,000 Becton Dickinson & Co. ***.... 8.70 01/15/25 4,502,140 ------------ MOTOR VEHICLES (2.1%) 2,100 DaimlerChrysler North American Holdings Co.................. 8.00 06/15/10 2,201,491 1,540 DaimlerChrysler North American Holdings Co.................. 8.50 01/18/31 1,643,967 235 Ford Motor Co................. 6.625 10/01/28 194,923 6,960 Ford Motor Co................. 7.45 07/16/31 6,376,668 ------------ 10,417,049 ------------ MULTI-LINE INSURANCE (3.1%) 2,255 Farmers Exchange Capital -144A*....................... 7.05 07/15/28 1,791,223 3,860 Farmers Insurance Capital -144A*....................... 8.625 05/01/24 3,695,209 4,900 Hartford Financial Services Group, Inc................... 7.90 06/15/10 5,363,310 5,000 Nationwide Financial Services, Inc................ 8.00 03/01/27 4,842,450 ------------ 15,692,192 ------------ OIL & GAS PIPELINES (0.4%) 1,885 Williams Companies, Inc....... 7.50 01/15/31 1,836,390 ------------ OIL & GAS PRODUCTION (0.4%) 2,000 Anadarko Petroleum Corp....... 7.73 09/15/96 2,078,212 ------------ PHARMACEUTICALS: MAJOR (1.6%) 1,855 American Home Products Corp......................... 6.70 03/15/11 1,922,051
SEE NOTES TO FINANCIAL STATEMENTS 37 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- $ 5,000 Johnson & Johnson ***......... 8.72% 11/01/24 $ 5,691,905 360 Marion Merrell Corp........... 9.11 08/01/05 393,947 ------------ 8,007,903 ------------ PROPERTY - CASUALTY INSURERS (1.0%) 570 Florida Windstorm -144A*...... 7.125 02/25/19 584,480 5,000 Progressive Corp.............. 6.625 03/01/29 4,539,450 ------------ 5,123,930 ------------ RAILROADS (0.9%) 4,078 Burlington Northern Santa Fe Corp. ***.................... 7.97 01/01/15 4,407,127 ------------ REGIONAL BANKS (0.4%) 2,000 M&T Bank Corp................. 8.00 10/01/10 2,185,442 ------------ REAL ESTATE DEVELOPMENT (0.1%) 572 World Financial PropertyTowers (Class B) - 144A*............ 6.91 09/01/13 576,638 ------------ SERVICE TO THE HEALTH INDUSTRY (0.4%) 1,010 Anthem Insurance -144A*....... 9.125 04/01/10 1,085,363 850 Anthem Insurance -144A*....... 9.00 04/01/27 855,550 ------------ 1,940,913 ------------ SPECIALTY TELECOMMUNICATIONS (2.8%) 1,960 PCCW Capital Ltd. -144A* (Hong Kong)........................ 7.75 11/15/11 1,955,449 9,750 Qwest Capital Funding Inc..... 7.25 02/15/11 9,501,102 2,865 Qwest Capital Funding Inc..... 7.75 02/15/31 2,748,887 ------------ 14,205,438 ------------ TELECOMMUNICATIONS EQUIPMENT (0.1%) 950 Corning Inc. (Conv.).......... 0.00 11/08/15 491,625 ------------ TOBACCO (1.1%) 5,000 Philip Morris Companies, Inc. ***.......................... 7.125 10/01/04 5,336,035 ------------ TRUCKS/CONSTRUCTION/FARM MACHINERY (0.7%) 3,000 Caterpillar Inc............... 9.375 08/15/11 3,707,076 ------------ WIRELESS COMMUNICATIONS (1.9%) 4,885 AT&T Wireless Services Inc.... 8.75 03/01/31 5,536,600 3,765 Vodafone AirTouch PLC (United Kingdom)..................... 7.75 02/15/10 4,135,084 ------------ 9,671,684 ------------ TOTAL CORPORATE BONDS (COST $326,546,748)........................................ 333,971,407 ------------ U.S. GOVERNMENT & AGENCY OBLIGATIONS (26.0%) 4 Federal Home Loan Mortgage Corp......................... 11.50 05/01/19 5,044
SEE NOTES TO FINANCIAL STATEMENTS 38 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- $ 613 Federal Home Loan Mortgage Corp. PC Gold................ 8.50% 01/01/22 - 12/01/24 $ 649,004 Federal National Mortgage Assoc. 2,800 **............................ 6.00 2,731,751 19,042 .............................. 6.50 05/01/31 19,042,029 12,500 **............................ 6.50 12,500,000 1,205 .............................. 7.50 06/01/28 - 09/01/29 1,242,578 1,200 **............................ 7.50 1,237,875 7,595 .............................. 8.00 08/01/29 - 08/01/31 7,950,866 26,450 **............................ 8.00 27,689,843 178 .............................. 9.00 06/01/21 - 02/01/25 189,172 Government National Mortgage Assoc. 7,829 .............................. 6.00 04/15/28 - 12/15/28 7,677,540 16,184 .............................. 6.50 08/15/27 - 07/15/29 16,229,352 12 .............................. 7.50 04/15/24 - 09/15/27 12,009 7,369 .............................. 8.00 10/15/24 - 11/15/29 7,705,298 987 .............................. 8.50 01/15/17 - 03/01/28 1,044,828 853 .............................. 9.00 07/15/24 - 12/15/24 906,263 77 .............................. 10.00 05/15/16 - 04/15/19 82,313 5,895 U.S. Treasury Note ***........ 6.75 05/15/05 6,409,433 3,000 ***........................... 7.00 07/15/06 3,323,907 8,800 ***........................... 7.50 02/15/05 9,749,098 15,000 U.S. Treasury Note Strips ***.......................... 0.00 02/15/19 - 08/15/19 5,249,590 ------------ TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $130,110,398)........................................ 131,627,793 ------------ FOREIGN GOVERNMENT OBLIGATIONS (3.6%) 5,000 Hydro-Quebec (Canada) ***..... 9.50 11/15/30 6,840,840 5,000 Manitoba (Province of) (Canada)..................... 7.75 07/17/16 5,904,030 5,000 Province of New Brunswick (Canada)..................... 7.625 06/29/04 5,430,405 ------------ TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST $15,896,050)......................................... 18,175,275 ------------ ASSET-BACKED SECURITIES (0.7%) FINANCE/RENTAL/LEASING (0.7%) 1,800 American Express Credit Account...................... 5.53 10/15/08 1,840,033 1,650 Connecticut RRB Special....... 6.21 12/30/11 1,687,580 ------------ TOTAL ASSET-BACKED SECURITIES (COST $3,449,343).......................................... 3,527,613 ------------
SEE NOTES TO FINANCIAL STATEMENTS 39 Morgan Stanley Variable Investment Series - Quality Income Plus PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (a) (10.9%) U.S. GOVERNMENT & AGENCY OBLIGATIONS $55,000 Federal Home Loan Mortgage Corp......................... 1.51% 01/02/02 $ 54,997,693 100 U.S. Treasury Bill ***........ 1.73 04/18/02 99,491 300 U.S. Treasury Bill ***........ 1.822 04/18/02 298,391 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $55,395,564)......................................... 55,395,575 ------------
TOTAL INVESTMENTS (COST $531,398,103) (b)...... 107.1% 542,697,663 LIABILITIES IN EXCESS OF OTHER ASSETS....................... (7.1) (35,825,059) ----- ------------ NET ASSETS.................... 100.0% $506,872,604 ===== ============
- ------------------------ * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. ** SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT. *** SOME OR ALL OF THESE SECURITIES HAVE BEEN SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS AND/OR SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS. PC PARTICIPATION CERTIFICATE. (A) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $14,580,334 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,280,774, RESULTING IN NET UNREALIZED APPRECIATION OF $11,299,560.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2001: NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE APPRECIATION - ------------------------------------------------------------------------------------ 75 Long U.S. Treasury Notes, March 2002 $ 7,937,109 $ 19,622 145 Long U.S. Treasury Notes, March 2002 30,302,736 132,892 ---------- 80 Short U.S. Treasury Notes, March 2002 (8,411,250) (99,856) ---------- 391 Short U.S. Treasury Bond, March 2002 (39,698,719) 1,408,454 ---------- Total unrealized appreciation................................... $1,461,112 ==========
SEE NOTES TO FINANCIAL STATEMENTS 40 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- CORPORATE BONDS (91.9%) ADVERTISING/MARKETING SERVICES (1.2%) $ 807 Interep National Radio Sales, Inc. (Series B).............. 10.00% 07/01/08 $ 524,550 6,853 Next Generation Network, Inc. (Series C)................... 14.00+ 02/01/03 351,216 ----------- 875,766 ----------- AEROSPACE & DEFENSE (1.0%) 1,300 Loral Space & Communications Ltd.......................... 9.50 01/15/06 715,000 ----------- AIRLINES (0.8%) 945 Air Canada Corp............... 10.25 03/15/11 603,619 ----------- ALTERNATIVE POWER GENERATION (0.8%) 620 Calpine Corp.................. 8.50 02/15/11 564,180 ----------- AUTO PARTS: O.E.M. (1.3%) 95 Collins & Aikman Products..... 11.50 04/15/06 92,625 305 Collins & Aikman Products - 144A*........................ 10.75 12/31/11 305,762 515 Dana Corp. - 144A*............ 9.00 08/15/11 478,837 625 Hayes Lemmerz International, Inc. (Series B) (a).......... 9.125 07/15/07 28,125 650 Hayes Lemmerz International, Inc. (Series B) (a).......... 8.25 12/15/08 29,250 ----------- 934,599 ----------- BROADCAST/MEDIA (1.2%) 1,265 Tri-State Outdoor Media Group, Inc. (b)..................... 11.00 05/15/08 887,081 ----------- BROADCASTING (2.5%) 350 Radio One Inc. (Series B)..... 8.875 07/01/11 361,375 600 Salem Communications Holdings Corp. (Series B)............. 9.00 07/01/11 620,250 365 XM Satellite Radio Holdings Inc.......................... 14.00 03/15/10 288,806 520 Young Broadcasting Inc........ 10.00 03/01/11 483,600 ----------- 1,754,031 ----------- CABLE/SATELLITE TV (11.8%) 1,060 Adelphia Communications Corp. (Series B)................... 10.50 07/15/04 1,063,975 3,750 Australis Holdings Ltd. (Australia) (a)(b)........... 15.00 11/01/02 -- 1,100 British Sky Broadcasting Group PLC (United Kingdom)......... 6.875 02/23/09 1,053,523 675 British Sky Broadcasting Group PLC (United Kingdom)......... 8.20 07/15/09 694,685 1,000 Callahan Nordhein Westfalen (Germany).................... 14.00 07/15/10 660,000 1,525 Charter Communications Holdings/Charter Capital..... 11.75++ 05/15/11 937,875 685 CSC Holdings Inc. (Series B)................... 7.625 04/01/11 685,944 625 Echostar DBS Corp. - 144A*.... 9.125 01/15/09 626,562 2,525 Knology Holdings, Inc......... 11.875++ 10/15/07 1,129,937 705 ONO Finance PLC (United Kingdom)..................... 14.00 02/15/11 556,069 95 Pegasus Communications Corp. (Series B)................... 9.625 10/15/05 85,500
SEE NOTES TO FINANCIAL STATEMENTS 41 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- $ 980 Telewest Communications PLC (United Kingdom)............. 9.875% 02/01/10 $ 686,000 1,335 United Pan-Europe Communications NV (Series B) (Netherlands)................ 10.875 08/01/09 173,550 ----------- 8,353,620 ----------- CASINO/GAMING (2.1%) 4,485 Aladdin Gaming Holdings/Capital Corp. (Series B)................... 13.50++ 03/01/10 140,156 250 Harrah's Operating Co., Inc.......................... 8.00 02/01/11 257,528 7,210 Resorts At Summerlin (Series B) (a)(b)............ 13.00 12/15/07 -- 220 Station Casinos, Inc.......... 8.875 12/01/08 215,600 850 Station Casinos, Inc.......... 9.875 07/01/10 863,812 ----------- 1,477,096 ----------- CELLULAR TELEPHONE (2.4%) 200 Dobson/Sygnet Communications............... 12.25 12/15/08 214,000 5,500 Dolphin Telecom PLC (Series B) (United Kingdom) (a).......................... 14.00++ 05/15/09 550 5,130 McCaw International Ltd....... 13.00++ 04/15/07 256,500 925 Nextel Communications, Inc.... 9.95++ 02/15/08 635,937 675 Tritel PCS Inc................ 12.75++ 05/15/09 573,750 ----------- 1,680,737 ----------- CHEMICALS: MAJOR DIVERSIFIED (0.3%) 245 Equistar Chemical/Funding..... 10.125 09/01/08 246,225 ----------- CHEMICALS: SPECIALTY (1.7%) 230 Acetex Corp. - 144A* (Canada)..................... 10.875 08/01/09 230,000 75 ISP Chemco - 144A*............ 10.25 07/01/11 78,375 530 ISP Holdings Inc. - 144A*..... 10.625 12/15/09 530,000 175 Millennium America Inc........ 9.25 06/15/08 178,500 160 OM Group Inc. - 144A*......... 9.25 12/15/11 163,200 ----------- 1,180,075 ----------- COMMERCIAL PRINTING/FORMS (1.2%) 2,500 Premier Graphics Inc. (b)..... 11.50 12/01/05 78,125 695 Quebecor Media Inc. (Canada)..................... 11.125 07/15/11 741,912 70 Quebecor Media Inc. (Canada)..................... 13.75++ 07/15/11 42,437 ----------- 862,474 ----------- CONSUMER/BUSINESS SERVICES (4.7%) 500 Anacomp, Inc. (b)............. 10.875 04/01/04 110,000 1,800 Anacomp, Inc. (Series B) (b)............... 10.875 04/01/04 396,000 5,690 Comforce Corp. (Series B)..... 15.00+ 12/01/09 1,706,887 745 MDC Communication Corp. (Canada)..................... 10.50 12/01/06 543,850 620 Muzak LLC/Muzak Finance....... 9.875 03/15/09 545,600 ----------- 3,302,337 -----------
SEE NOTES TO FINANCIAL STATEMENTS 42 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- CONTAINERS/PACKAGING (1.9%) $ 1,300 Owens-Illinois, Inc........... 7.80% 05/15/18 $ 1,124,500 195 Riverwood International Corp......................... 10.875 04/01/08 197,925 ----------- 1,322,425 ----------- DIVERSIFIED MANUFACTURING (1.4%) 800 Eagle-Picher Industries, Inc.......................... 9.375 03/01/08 440,000 4,525 Jordan Industries, Inc. (Series B)................... 11.75++ 04/01/09 588,250 ----------- 1,028,250 ----------- DRUGSTORE CHAINS (1.0%) 1,000 Rite Aid Corp................. 7.70 02/15/27 690,000 ----------- ELECTRIC UTILITIES (1.3%) 75 CMS Energy Corp............... 7.50 01/15/09 73,414 415 Mirant Americas General LLC... 8.30 05/01/11 383,839 410 PG&E National Energy Corp..... 10.375 05/16/11 432,304 ----------- 889,557 ----------- ELECTRONIC COMPONENTS (0.1%) 85 Flextronics International Ltd. (Singapore).................. 9.875 07/01/10 89,250 ----------- ELECTRONIC DISTRIBUTORS (1.0%) 610 BRL Universal Equipment Corp......................... 8.875 02/15/08 634,400 6,000 CHS Electronics, Inc. (a)(b).................. 9.875 04/15/05 52,500 ----------- 686,900 ----------- ELECTRONIC EQUIPMENT/INSTRUMENTS (0.4%) 820 High Voltage Engineering, Inc.......................... 10.75 08/15/04 278,800 ----------- ELECTRONICS/APPLIANCES (0.0%) 12,000 International Semi-Tech Microelectronics, Inc. (Canada) (a)(b).............. 11.50 08/15/03 7,500 ----------- ENGINEERING & CONSTRUCTION (1.1%) 525 Encompass Services Corp. - 144A*........................ 10.50 05/01/09 341,250 1,500 Metromedia Fiber Network, Inc.......................... 10.00 12/15/09 435,000 ----------- 776,250 ----------- ENVIRONMENTAL SERVICES (2.3%) 675 Allied Waste North America, Inc. (Series B).............. 10.00 08/01/09 695,250 875 Waste Management, Inc......... 7.375 08/01/10 894,700 ----------- 1,589,950 ----------- FINANCE/RENTAL/LEASING (0.2%) 175 Ford Motor Credit Co.......... 7.25 10/25/11 170,297 ----------- FINANCIAL CONGLOMERATES (0.3%) 195 Case Credit Corp.............. 6.125 02/15/03 183,823 -----------
SEE NOTES TO FINANCIAL STATEMENTS 43 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- FOOD DISTRIBUTORS (1.1%) $ 800 Volume Services America, Inc.......................... 11.25% 03/01/09 $ 780,000 ----------- FOOD: MEAT/FISH/DAIRY (1.6%) 485 Michael Foods Inc............. 11.75 04/01/11 523,800 530 Smithfield Foods Inc.......... 7.625 02/15/08 519,400 90 Smithfield Foods Inc. - 144A*........................ 8.00 10/15/09 92,700 ----------- 1,135,900 ----------- FOREST PRODUCTS (2.5%) 505 Louisiana Pacific Corp........ 10.875 11/15/08 484,800 170 Louisiana Pacific Corp........ 8.875 08/15/10 164,799 1,050 Tembec Industries Inc. (Canada)..................... 8.50 02/01/11 1,086,750 ----------- 1,736,349 ----------- HOME BUILDING (5.1%) 765 Beazer Homes USA, Inc......... 8.625 05/15/11 789,863 1,110 Centex Corp................... 7.875 02/01/11 1,130,814 655 Schuler Homes, Inc. - 144A*... 9.375 07/15/09 677,925 40 Schuler Homes, Inc. - 144A*... 10.50 07/15/11 41,700 970 Toll Corp..................... 8.25 02/01/11 960,300 ----------- 3,600,602 ----------- HOSPITAL/NURSING MANAGEMENT (1.7%) 1,200 HCA Inc....................... 7.875 02/01/11 1,224,000 ----------- HOTELS/RESORTS/CRUISELINES (1.3%) 3,000 Epic Resorts LLC (Series B) (a)(b)............ 13.00 06/15/05 450,000 485 HMH Properties (Series B)..... 7.875 08/01/08 447,413 ----------- 897,413 ----------- INDUSTRIAL SPECIALTIES (0.8%) 700 International Wire Group, Inc.......................... 11.75 06/01/05 574,000 ----------- INTERNET SOFTWARE/SERVICES (0.9%) 1,290 Exodus Communications Inc. (a)(b).................. 11.625 07/15/10 232,200 1,270 Globix Corp................... 12.50 02/01/10 254,000 1,700 PSINet, Inc. (a)(b)........... 11.00 08/01/09 127,500 ----------- 613,700 ----------- MANAGED HEALTH CARE (1.7%) 840 Aetna, Inc.................... 7.875 03/01/11 827,296 365 Health Net, Inc............... 8.375 04/15/11 376,313 ----------- 1,203,609 ----------- MEDIA CONGLOMERATES (0.7%) 455 Nextmedia Operating, Inc. - 144A*........................ 10.75 07/01/11 469,788 -----------
SEE NOTES TO FINANCIAL STATEMENTS 44 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- MEDICAL DISTRIBUTORS (0.2%) $ 135 Amerisource Bergen Corp. - 144A*........................ 8.125% 09/01/08 $ 138,375 ----------- MEDICAL SPECIALTIES (0.1%) 5,100 MEDIQ/PPN Life Support Services, Inc. (b)........... 11.00 06/01/08 51,000 ----------- MEDICAL/NURSING SERVICES (1.2%) 850 Fresenius Medical Capital Trust........................ 7.875 06/15/11 845,750 ----------- MOTOR VEHICLES (0.5%) 410 Ford Motor Co................. 7.45 07/16/31 375,637 ----------- MOVIES/ENTERTAINMENT (1.2%) 810 Alliance Atlantis Communications, Inc. (Canada)..................... 13.00 12/15/09 874,800 ----------- OFFICE EQUIPMENT/SUPPLIES (0.0%) 6,500 Mosler, Inc. (a)(b)........... 11.00 04/15/03 -- ----------- OIL & GAS PRODUCTION (1.8%) 1,075 Chesapeake Energy Corp........ 8.125 04/01/11 1,042,750 245 Stone Energy Corp. - 144A*.... 8.25 12/15/11 248,675 ----------- 1,291,425 ----------- OILFIELD SERVICES/EQUIPMENT (0.4%) 125 Hanover Equipment Trust - 144A*........................ 8.75 09/01/11 129,375 120 Hanover Equipment Trust - 144A*........................ 8.50 09/01/08 124,800 ----------- 254,175 ----------- OTHER CONSUMER SPECIALTIES (0.7%) 730 Samsonite Corp................ 10.75 06/15/08 509,175 ----------- OTHER METALS/MINERALS (1.1%) 355 Murrin Murrin Holdings Property Ltd. (Australia).... 9.375 08/31/07 259,150 520 Phelps Dodge Corp............. 8.75 06/01/11 509,359 ----------- 768,509 ----------- PUBLISHING: BOOKS/MAGAZINES (1.1%) 855 PRIMEDIA, Inc................. 8.875 05/15/11 769,500 ----------- PUBLISHING: NEWSPAPERS (0.7%) 200 Belo Corp..................... 8.00 11/01/08 204,269 385 Hollinger Participation - 144A* (Canada)............... 12.125+ 11/15/10 320,031 ----------- 524,300 ----------- PULP & PAPER (0.7%) 500 Norske Skog - 144A*........... 8.625 06/15/11 518,750 ----------- REAL ESTATE DEVELOPMENT (0.7%) 545 CB Richard Ellis Services Inc.......................... 11.25 06/15/11 465,975 ----------- RECREATIONAL PRODUCTS (1.0%) 675 International Game Technology................... 8.375 05/15/09 710,438 -----------
SEE NOTES TO FINANCIAL STATEMENTS 45 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- RESTAURANTS (1.0%) $ 20,351 American Restaurant Group Holdings, Inc. - 144A* (c).................... 0.00% 12/15/05 $ 622,750 5,000 FRD Acquisition Corp. (a)(b)................. 12.50 07/15/04 62,500 ----------- 685,250 ----------- RETAIL - SPECIALTY (1.1%) 775 Pantry, Inc................... 10.25 10/15/07 761,438 ----------- SEMICONDUCTORS (0.3%) 230 Fairchild Semi Conductors..... 10.50 02/01/09 244,375 ----------- SERVICES TO THE HEALTH INDUSTRY (1.3%) 350 Anthem Insurance - 144A**..... 9.125 04/01/10 376,116 550 Omnicare, Inc. (Series B)..... 8.125 03/15/11 569,250 ----------- 945,366 ----------- SPECIALTY STORES (0.5%) 335 Autonation, Inc. - 144A*...... 9.00 08/01/08 340,863 ----------- SPECIALTY TELECOMMUNICATIONS (5.0%) 6,500 Birch Telecom Inc............. 14.00 06/15/08 1,560,000 1,800 DTI Holdings, Inc. (Series B) (a).......................... 12.50++ 03/01/08 33,750 3,000 Esprit Telecom Group PLC (United Kingdom) (b)......... 11.50 12/15/07 7,500 1,800 Esprit Telecom Group PLC (United Kingdom) (b)......... 10.875 06/15/08 4,500 16,520 Firstworld Communications, Inc.......................... 13.00++ 04/15/08 1,652 1,000 Global Crossing Holdings, Ltd. (Bermuda).................... 8.70 08/01/07 90,000 585 Global Crossing Holdings, Ltd. (Bermuda).................... 9.50 11/15/09 64,350 2,500 GT Group Telecom Inc. (Canada)..................... 13.25++ 02/01/10 325,000 305 McLeodUSA Inc................. 11.375 01/01/09 68,625 1,150 McLeodUSA, Inc................ 11.50 05/01/09 253,000 955 Pac-West Telecom Inc. (Series B)................... 13.50 02/01/09 296,050 1,950 Primus Telecommunication Group, Inc. (Series B)....... 9.875 05/15/08 331,500 1,300 Versatel Telecom International NV (Netherlands)............. 13.25 05/15/08 455,000 3,031 Viatel Inc. (a)(b)............ 11.25 04/15/08 3,789 800 Viatel Inc. (a)(b)............ 11.50 03/15/09 1,000 3,410 World Access, Inc (a)(b)(c)................ 13.25 01/15/08 34,100 1,300 Worldwide Fiber Inc. (Canada) (a)(b).............. 12.00 08/01/09 1,625 ----------- 3,531,441 ----------- TELECOMMUNICATIONS (5.1%) 5,500 e. Spire Communications, Inc. (a)(b).................. 13.75 07/15/07 715,000 1,901 Focal Communications, Corp. (Series B)................... 12.125++ 02/15/08 532,280 1,300 Hyperion Telecommunication, Inc. (Series B).............. 12.25 09/01/04 156,000 1,000 MGC Communications, Inc....... 13.00 04/01/10 152,500 800 NEXTLINK Communications, Inc.......................... 9.00 03/15/08 96,000 875 NEXTLINK Communications, Inc. (b).......................... 10.75 06/01/09 109,375 1,795 NTL Communications Corp. (Series B)................... 11.875 10/01/10 628,250
SEE NOTES TO FINANCIAL STATEMENTS 46 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------- $ 5,400 Rhythms Netconnections, Inc. (a)(b).................. 12.75% 04/15/09 $ 810,000 1,200 Startec Global Communications Corp. (a)(b)................. 12.00 05/15/08 18,000 560 Talton Holdings, Inc. (Series B)................... 11.00 06/30/07 358,400 ----------- 3,575,805 ----------- TRUCKS/CONSTRUCTION/FARM MACHINERY (1.9%) 200 Case Corp. (Series B)......... 6.25 12/01/03 186,351 1,415 J.B. Poindexter & Co., Inc.... 12.50 05/15/04 1,144,381 ----------- 1,330,732 ----------- WHOLESALE DISTRIBUTORS (0.6%) 415 Burhmann US Inc............... 12.25 11/01/09 415,000 ----------- WIRELESS COMMUNICATIONS (2.3%) 915 American Cellular Corp........ 9.50 10/15/09 887,550 930 AMSC Acquisition Co., Inc. (Series B) (b)............... 12.25 04/01/08 288,300 19,000 CellNet Data Systems, Inc. (a)(b).................. 14.00++ 10/01/07 23,750 3,000 Globalstar LP/Capital Corp. (b).................... 10.75 11/01/04 210,000 3,300 Orbcomm Global LP/Capital Corp. (Series B) (a)(b)...... 14.00 08/15/04 99,000 4,500 USA Mobile Communications Holdings, Inc. (a)(b)........ 14.00 11/01/04 90,000 3,600 WinStar Communications, Inc. (a)..................... 14.75++ 04/15/10 4,500 1,000 WinStar Communications, Inc. (a)(b).................. 12.75 04/15/10 1,250 ----------- 1,604,350 ----------- TOTAL CORPORATE BONDS (COST $229,267,413)................................... 64,917,632 -----------
NUMBER OF SHARES ----------- COMMON STOCKS (d) (0.5%) APPAREL/FOOTWEAR RETAIL (0.0%) 1,310,596 County Seat Store Corp. (c)............................ -- ----------- CASINO/GAMING (0.0%) 2,000 Fitzgerald Gaming Corp................................. -- ----------- FOOD: SPECIALTY/CANDY (0.0%) 2,375 SFAC New Holdings Inc. (c)............................. -- 436 SFFB Holdings, Inc. (c)................................ -- 120,000 Specialty Foods Acquisition Corp. - 144A*.............. -- ----------- -- ----------- HOTELS/RESORTS/CRUISELINES (0.0%) 444,351 Premier Holdings Inc. (c).............................. -- 71,890 Vagabond Inns, Inc. (Class D) (a)...................... -- ----------- -- -----------
SEE NOTES TO FINANCIAL STATEMENTS 47 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- MEDICAL/NURSING SERVICES (0.0%) 418,663 Raintree Healthcare Corp. (c).......................... $ -- ----------- MOTOR VEHICLES (0.0%) 87 Northern Holdings Industrial Corp.* (c)................ -- ----------- RESTAURANTS (0.0%) 7,750 American Restaurant Group Holdings, Inc. - 144A*....... -- ----------- SPECIALTY TELECOMMUNICATIONS (0.1%) 33,335 Versatel Telecom International NV (ADR) (Netherlands)......................................... 31,675 15,710 World Access, Inc (c).................................. 17 ----------- 31,692 ----------- TELECOMMUNICATION EQUIPMENT (0.0%) 196,000 FWT Inc. (c)........................................... 1,960 ----------- TELECOMMUNICATIONS (0.4%) 25,399 Covad Communications Group, Inc. (c)................... 72,641 374,996 Focal Communications Corp.* (c)........................ 228,748 ----------- 301,389 ----------- TEXTILES (0.0%) 298,461 U.S. Leather, Inc. (c)................................. -- ----------- WIRELESS COMMUNICATIONS (0.0%) 809,424 Arch Wireless, Inc. (c)................................ 10,927 38,444 Vast Solutions, Inc. (Class B1) (c).................... -- 38,444 Vast Solutions, Inc. (Class B2) (c).................... -- 38,444 Vast Solutions, Inc. (Class B3) (c).................... -- ----------- 10,927 ----------- TOTAL COMMON STOCKS (COST $66,781,546).................................... 345,968 -----------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE ----------- ------------- -------- CONVERTIBLE BONDS (0.1%) HOTELS/RESORTS/CRUISELINES (0.0%) $ 742 Premier Cruises Ltd. (a)...... 10.00 %+ 08/15/05 -- ----------- TELECOMMUNICATION EQUIPMENT (0.1%) 220 Corning Inc................... 0.00 11/08/15 113,850 ----------- TOTAL CONVERTIBLE BONDS (COST $859,067)....................................... 113,850 -----------
SEE NOTES TO FINANCIAL STATEMENTS 48 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- PREFERRED STOCKS (2.2%) RESTAURANTS (0.6%) 2,395 American Restaurant Group Holdings, Inc. (Series B).... $ 416,699 ----------- TELECOMMUNICATION EQUIPMENT (1.6%) 2,244,200 FWT Inc. (Series A) (c)(d)............................. 1,122,100 ----------- TOTAL PREFERRED STOCKS (COST $10,452,297).................................... 1,538,799 -----------
NUMBER OF EXPIRATION WARRANTS DATE ----------- ---------- WARRANTS (0.1%) ADVERTISING/MARKETING SERVICES (0.0%) 12,524 Mentus Media Corp. - 144A*................. 02/01/08 -- ----------- AEROSPACE & DEFENSE (0.0%) 1,500 Sabreliner Corp. - 144A*................... 04/15/03 -- ----------- BROADCASTING (0.0%) 640 XM Satellite Radio Holdings Inc. - 144A*... 03/15/10 19,200 ----------- CABLE/SATELLITE TV (0.1%) 705 ONO Finance PLC - 144A* (United Kingdom)... 03/16/11 35,250 ----------- CASINO/GAMING (0.0%) 83,500 Aladdin Gaming Enterprises, Inc. - 144A*... 03/01/10 -- 6,000 Resorts At Summerlin - 144A*............... 12/15/07 -- ----------- -- ----------- CONSUMER/BUSINESS SERVICES (0.0%) 42,250 Comforce Corp. - 144A*..................... 12/01/09 -- ----------- HOTELS/RESORTS/CRUISELINES (0.0%) 3,000 Epic Resorts LLC - 144A*................... 06/15/05 -- ----------- INTERNET SOFTWARE/SERVICES (0.0%) 16,520 Verado Holdings Inc. - 144A*............... 04/15/08 -- ----------- OIL & GAS PRODUCTION (0.0%) 39,665 Gothic Energy Corp. - 144A*................ 05/01/05 -- ----------- RESTAURANTS (0.0%) 1,500 American Restaurant Group Holdings, Inc. - 144A*..................................... 08/15/08 -- ----------- SPECIALTY TELECOMMUNICATIONS (0.0%) 6,500 Birch Telecom Inc. - 144A*................. 06/15/08 -- 2,500 GT Group Telecom Inc. - 144A* (Canada)..... 02/01/10 12,500 ----------- 12,500 -----------
SEE NOTES TO FINANCIAL STATEMENTS 49 Morgan Stanley Variable Investment Series - High Yield PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF EXPIRATION WARRANTS DATE VALUE --------------------------------------------------------------------------------- TELECOMMUNICATIONS (0.0%) 1,200 Startec Global Communications Corp. - 144A*..................................... 05/15/08 $ -- ----------- WIRELESS COMMUNICATIONS (0.0%) 1,000 Motient Corp. - 144A*...................... 04/01/08 15 ----------- TOTAL WARRANTS (COST $730,825)....................................... 66,965 -----------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE ----------- ------------- -------- SHORT-TERM INVESTMENT (2.5%) REPURCHASE AGREEMENT $ 1,749 The Bank of New York (dated 12/31/01; proceeds $1,749,344) (e) (COST $1,749,259)............ 0.875% 01/02/02 1,749,259 -----------
TOTAL INVESTMENTS (COST $309,840,407) (f)...... 97.3% 68,732,473 OTHER ASSETS IN EXCESS OF LIABILITIES.................. 2.7 1,901,100 ----- ----------- NET ASSETS.................... 100.0% $70,633,573 ===== ===========
- --------------------- ADR AMERICAN DEPOSITORY RECEIPT. * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. + PAYMENT-IN-KIND SECURITY. ++ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT A FUTURE SPECIFIED DATE. (A) ISSUER IN BANKRUPTCY. (B) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT. (C) ACQUIRED THROUGH EXCHANGE OFFER. (D) NON-INCOME PRODUCING SECURITIES. (E) COLLATERALIZED BY $1,774,533 FEDERAL HOME LOAN MORTGAGE CORP. 5.775% DUE 06/26/06 VALUED AT $1,784,246. (F) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,367,689 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $242,475,623, RESULTING IN NET UNREALIZED DEPRECIATION OF $241,107,934. SEE NOTES TO FINANCIAL STATEMENTS 50 Morgan Stanley Variable Investment Series - Utilities PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------- COMMON STOCKS (82.3%) ELECTRIC UTILITIES (44.4%) 188,050 AES Corp.*.................................... $ 3,074,618 165,000 Calpine Corp.*................................ 2,770,350 225,865 Cinergy Corp.................................. 7,550,667 185,000 CMS Energy Corp............................... 4,445,550 150,000 Consolidated Edison, Inc...................... 6,054,000 307,500 DPL, Inc...................................... 7,404,600 175,000 DTE Energy Co................................. 7,339,500 262,432 Duke Energy Corp.............................. 10,303,080 230,000 Energy East Corp.............................. 4,367,700 220,000 Entergy Corp.................................. 8,604,200 100,000 FirstEnergy Corp.............................. 3,498,000 170,000 FPL Group, Inc................................ 9,588,000 145,000 General Electric Co........................... 5,811,600 231,367 Mirant Corp.*................................. 3,706,499 265,000 NRG Energy, Inc.*............................. 4,107,500 195,000 Pinnacle West Capital Corp.................... 8,160,750 150,000 PNM Resources Inc............................. 4,192,500 120,000 PPL Corp...................................... 4,182,000 175,000 Public Service Enterprise Group, Inc.......... 7,383,250 200,000 Reliant Energy, Inc........................... 5,304,000 215,000 SCANA Corp.................................... 5,983,450 200,000 Sierra Pacific Resources...................... 3,010,000 285,000 Southern Co. (The)............................ 7,224,750 221,500 TXU Corp...................................... 10,443,725 200,000 Wisconsin Energy Corp......................... 4,512,000 267,250 Xcel Energy, Inc.............................. 7,413,515 ------------ 156,435,804 ------------ ENERGY (13.2%) 145,000 Anardarko Petroleum Corp...................... 8,243,250 137,000 Dynegy, Inc. (Class A)........................ 3,493,500 220,460 El Paso Corp.................................. 9,834,721 170,000 KeySpan Corp.................................. 5,890,500 120,000 Kinder Morgan, Inc............................ 6,682,800 200,000 UtiliCorp United, Inc......................... 5,034,000 290,000 Williams Companies, Inc....................... 7,400,800 ------------ 46,579,571 ------------ TELECOMMUNICATIONS (24.7%) 161,932 ALLTEL Corp................................... 9,996,062
SEE NOTES TO FINANCIAL STATEMENTS 51 Morgan Stanley Variable Investment Series - Utilities PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------- 205,000 AOL Time Warner Inc.*......................... $ 6,580,500 128,007 AT&T Wireless Services Inc.*.................. 1,839,461 170,000 BCE, Inc. (Canada)............................ 3,876,000 258,750 CenturyTel, Inc............................... 8,487,000 158,000 Charter Communications, Inc. (Class A)*....... 2,595,940 165,000 Nextel Communications, Inc. (Class A)*........ 1,808,400 238,946 SBC Communications, Inc....................... 9,359,515 215,000 Sprint Corp. (FON Group)...................... 4,317,200 100,000 Sprint Corp. (PCS Group)*..................... 2,441,000 160,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)..................................... 5,603,200 110,000 Telephone & Data Systems, Inc................. 9,872,500 201,120 Verizon Communications Inc.................... 9,545,155 230,000 Vodafone Group PLC (ADR) (United Kingdom)..... 5,906,400 326,163 WorldCom, Inc. - WorldCom Group*.............. 4,592,375 ------------ 86,820,708 ------------ TOTAL COMMON STOCKS (COST $216,010,981).......................... 289,836,083 ------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - --------- ------- -------- CORPORATE BONDS (5.9%) AEROSPACE & DEFENSE (0.1%) $ 400 Northrop Grumman Corporation.................. 7.00% 03/01/06 418,610 ------------ ELECTRIC UTILITIES (2.5%) 1,215 American Electric Power....... 6.125 05/15/06 1,202,752 240 Calpine Corp.................. 8.50 02/15/11 218,392 400 Consumers Energy Co........... 6.875 03/01/18 355,629 495 DTE Energy Co................. 7.05 06/01/11 510,817 1,065 Exelon Corp................... 6.75 05/01/11 1,079,389 330 Florida Power Corp............ 6.65 07/15/11 336,144 1,000 MidAmerican Funding LLC....... 6.75 03/01/11 980,996 920 Mirant Americas Generation LLC.......................... 7.625 05/01/06 838,790 800 NRG Energy, Inc............... 7.75 04/01/11 752,510 275 PG&E National Energy Corp..... 10.375 05/16/11 289,960 1,740 PSEG Energy Holdings.......... 9.125 02/10/04 1,829,027 330 South Carolina Electric & Gas Co........................... 7.50 06/15/05 353,167 ------------ 8,747,573 ------------ ENERGY (1.1%) 400 CMS Panhandle Holding Co...... 7.00 07/15/29 344,890
SEE NOTES TO FINANCIAL STATEMENTS 52 Morgan Stanley Variable Investment Series - Utilities PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------- $ 330 Conoco Inc.................... 5.90% 04/15/04 $ 342,720 280 Consolidated Natural Gas Co,.......................... 5.375 11/01/06 276,096 845 NiSource Finance Corp......... 7.875 11/15/10 874,510 410 Oxymar - 144A**............... 7.50 02/15/16 327,233 535 Petrozuata Finance, Inc. (Venezuela) - 144A**......... 8.22 04/01/17 401,250 455 RAS Laffan Liquid Natural Gas - 144A** (Qatar)......... 8.294 03/15/14 464,100 110 Transcontinental Gas Pipeline Corp. - 144A**............... 7.00 08/15/11 107,363 900 Williams Companies Inc. (Series A)................... 7.50 01/15/31 876,791 ------------ 4,014,953 ------------ ENVIRONMENTAL SERVICES (0.1%) 450 Waste Management Inc.......... 7.00 10/15/06 462,506 ------------ FINANCIAL CONGLOMERATES (0.1%) 195 General Motors Acceptance Corp......................... 7.50 07/15/05 204,998 ------------ INDUSTRIAL CONGLOMERATES (0.2%) 260 Honeywell International Inc.......................... 5.125 11/01/06 256,499 410 Tyco International Group S.A. (Luxembourg)................. 6.375 02/15/06 418,748 ------------ 675,247 ------------ TELECOMMUNICATIONS (1.8%) 450 AOL Time Warner, Inc.......... 6.125 04/15/06 459,644 375 AT&T Corp. - 144A**........... 6.50 11/15/06 381,227 510 AT&T Wireless Services, Inc................ 7.875 03/01/11 545,195 520 British Telecom PLC (United Kingdom)..................... 7.875 12/15/05 557,028 415 Comcast Cable Communications Corp......................... 6.375 01/30/06 421,678 520 Deutsche Telekom PLC (Netherlands)................ 7.75 06/15/05 563,075 520 GTE Corp...................... 7.90 02/01/27 539,229 210 PCCW Capital Ltd. - 144A** (Hong Kong).................. 7.75 11/15/11 209,512 1,150 Qwest Capital Funding......... 7.90 08/15/10 1,169,938 130 TCI Communications Corp....... 8.00 08/01/05 139,287 390 Telus Corp.................... 8.00 06/01/11 413,857 940 WorldCom, Inc................. 8.25 05/15/31 993,632 ------------ 6,393,302 ------------ TOTAL CORPORATE BONDS (COST $20,988,968).............................. 20,917,189 ------------ ASSET-BACKED SECURITIES (0.5%) FINANCE/RENTAL/LEASING 425 Connecticut RRB Special Purpose Trust CL&P - Series 2001.................. 6.21 12/30/11 434,680 400 Detroit Edison Securitization Funding LLC.................. 5.875 03/01/10 411,020
SEE NOTES TO FINANCIAL STATEMENTS 53 Morgan Stanley Variable Investment Series - Utilities PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------- $ 450 PECO Energy Transition Trust........................ 7.625% 03/01/10 $ 496,330 400 PSE&G Transition Funding LLC.......................... 6.61 06/15/15 414,748 ------------ TOTAL ASSET-BACKED SECURITIES (COST $1,796,933)............................... 1,756,778 ------------ U.S. GOVERNMENT OBLIGATIONS (0.6%) 700 U.S. Treasury Bond............ 8.125 08/15/21 893,593 1,050 U.S. Treasury Bond............ 8.75 08/15/20 1,409,051 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $2,310,783)............................... 2,302,644 ------------ SHORT-TERM INVESTMENT (a) (11.1%) U.S. GOVERNMENT AGENCY 39,000 Federal Home Loan Mortgage Discount Note (a) (COST $38,998,364)........... 1.51 01/02/02 38,998,364 ------------
TOTAL INVESTMENTS (COST $280,106,029) (b)...... 100.4% 353,811,058 LIABILITIES IN EXCESS OF OTHER ASSETS....................... (0.4) (1,512,073) ----- ------------ NET ASSETS.................... 100.0% $352,298,985 ===== ============
- --------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. (a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $93,316,455 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $19,611,426, RESULTING IN NET UNREALIZED APPRECIATION OF $73,705,029. SEE NOTES TO FINANCIAL STATEMENTS 54 Morgan Stanley Variable Investment Series - Income Builder PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS (53.6%) AEROSPACE & DEFENSE (1.4%) 26,000 Boeing Co............................... $ 1,008,280 ----------- AUTO PARTS: O.E.M. (2.5%) 60,000 Delphi Automotive Systems Corp.......... 819,600 12,000 Johnson Controls, Inc................... 969,000 ----------- 1,788,600 ----------- CHEMICALS: AGRICULTURAL (0.3%) 15,940 IMC Global Inc.......................... 207,220 ----------- CHEMICALS: MAJOR DIVERSIFIED (0.6%) 12,000 Dow Chemical Co. (The).................. 405,360 ----------- DEPARTMENT STORES (1.2%) 18,000 Sears, Roebuck & Co..................... 857,520 ----------- ELECTRIC UTILITIES (3.4%) 12,000 Dominion Resources, Inc................. 721,200 15,000 FPL Group, Inc.......................... 846,000 30,000 TECO Energy, Inc........................ 787,200 ----------- 2,354,400 ----------- ELECTRICAL PRODUCTS (0.8%) 10,000 Emerson Electric Co..................... 571,000 ----------- FINANCE/RENTAL/ LEASING (1.1%) 10,000 Fannie Mae.............................. 795,000 ----------- FINANCIAL CONGLOMERATES (1.2%) 23,000 J.P. Morgan Chase & Co.................. 836,050 ----------- FOOD: MAJOR DIVERSIFIED (1.3%) 40,000 Sara Lee Corp........................... 889,200 ----------- FOOD: MEAT/FISH/DAIRY (1.2%) 35,000 ConAgra Foods Inc....................... 831,950 ----------- HOUSEHOLD/PERSONAL CARE (1.0%) 21,665 Estee Lauder Companies, Inc. (The) (Class A).............................. 694,580 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (3.4%) 25,000 Honeywell International, Inc............ $ 845,500 14,506 Ingersoll-Rand Co....................... 606,496 15,000 United Technologies Corp................ 969,450 ----------- 2,421,446 ----------- INDUSTRIAL SPECIALTIES (0.6%) 8,000 PPG Industries, Inc..................... 413,760 ----------- LIFE/HEALTH INSURANCE (1.2%) 18,000 Lincoln National Corp................... 874,260 ----------- MAJOR BANKS (4.7%) 15,000 Bank of America Corp.................... 944,250 26,000 FleetBoston Financial Corp.............. 949,000 35,000 KeyCorp................................. 851,900 13,125 WestPac Banking Corp. Ltd. (ADR) (Australia)............................ 531,037 ----------- 3,276,187 ----------- MAJOR TELECOMMUNICATIONS (2.4%) 40,000 Sprint Corp. (FON Group)................ 803,200 18,000 Verizon Communications Inc.............. 854,280 ----------- 1,657,480 ----------- OFFICE EQUIPMENT/ SUPPLIES (1.3%) 25,000 Pitney Bowes, Inc....................... 940,250 ----------- OIL & GAS PRODUCTION (2.3%) 22,000 Burlington Resources, Inc............... 825,880 14,000 Kerr-McGee Corp......................... 767,200 ----------- 1,593,080 ----------- OIL REFINING/MARKETING (4.7%) 20,000 Ashland, Inc............................ 921,600 30,000 Marathon Oil Corp....................... 900,000 50,000 Tesoro Petroleum Corp.*................. 655,500 17,000 Ultramar Diamond Shamrock Corp.......... 841,160 ----------- 3,318,260 -----------
SEE NOTES TO FINANCIAL STATEMENTS 55 Morgan Stanley Variable Investment Series - Income Builder PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- PHARMACEUTICALS: MAJOR (4.4%) 17,000 Bristol-Myers Squibb Co................. $ 867,000 20,000 Merck & Co., Inc........................ 1,176,000 30,000 Schering-Plough Corp.................... 1,074,300 ----------- 3,117,300 ----------- REAL ESTATE INVESTMENT TRUSTS (7.8%) 13,000 Alexandria Real Estate Equities, Inc.... 534,300 20,000 Archstone Smith Trust................... 526,000 10,000 Avalonbay Communities, Inc.............. 473,100 10,000 Boston Properties, Inc.................. 380,000 16,000 Equity Office Properties Trust.......... 481,280 10,000 Equity Residential Properties Trust..... 287,100 6,000 General Growth Properties, Inc.......... 232,800 18,000 Healthcare Realty Trust, Inc............ 504,000 15,000 Mack-Cali Realty Corp................... 465,300 20,000 Reckson Associates Realty Corp.......... 467,200 8,000 Rouse Co. (The)......................... 234,320 16,000 Simon Property Group, Inc............... 469,280 10,000 Vornado Realty Trust.................... 416,000 ----------- 5,470,680 ----------- REGIONAL BANKS (1.1%) 12,001 Fifth Third Bancorp..................... 739,022 ----------- SAVINGS BANKS (1.3%) 27,000 Washington Mutual, Inc.................. 882,900 ----------- TELECOMMUNICATION EQUIPMENT (1.2%) 35,000 Nokia Oyj (ADR) (Finland)............... 858,550 ----------- TOBACCO (1.2%) 18,000 Philip Morris Companies, Inc............ 825,300 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- WIRELESS COMMUNICATIONS (0.0%) 688 Leap Wireless International, Inc.*...... $ 14,427 ----------- TOTAL COMMON STOCKS (COST $33,901,886)..................... 37,642,062 ----------- CONVERTIBLE PREFERRED STOCKS (10.2%) AUTO PARTS: O.E.M. (0.0%) 12,000 BTI Capital Trust $3.25 - 144A**........ 1,500 ----------- CONTAINERS/PACKAGING (2.1%) 36,000 Sealed Air Corp. (Series A) $2.00....... 1,492,200 ----------- ELECTRIC UTILITIES (2.0%) 53,000 Duke Energy Corp. $17.02 (Units)++...... 1,396,550 ----------- MAJOR BANKS (1.0%) 22,550 National Australia Bank, Ltd. $1.97 (Australia) (Units)++.................. 676,500 ----------- PULP & PAPER (1.5%) 20,000 Boise Cascade $3.75..................... 1,089,000 ----------- RAILROADS (1.5%) 22,400 Union Pacific Capital Trust $3.13....... 1,069,600 ----------- REAL ESTATE INVESTMENT TRUSTS (1.0%) 9,000 Equity Residential Properties Trust (Series E) $1.75....................... 285,750 13,000 SL Green Realty Corp. $2.00............. 413,400 ----------- 699,150 ----------- TELECOMMUNICATION EQUIPMENT (1.1%) 16,250 Motorola Inc. $3.50..................... 759,525 ----------- TOTAL CONVERTIBLE PREFERRED STOCKS (COST $7,721,878)...................... 7,184,025 -----------
SEE NOTES TO FINANCIAL STATEMENTS 56 Morgan Stanley Variable Investment Series - Income Builder PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ---------------------------------------------------------------- CONVERTIBLE BONDS (18.6%) CABLE/SATELLITE TV (4.0%) $ 1,800 Adelphia Communications Corp. 6.00% due 02/15/06..................... $ 1,563,750 1,445 EchoStar Communications Corp. 4.875% due 01/07/07.................... 1,280,631 ----------- 2,844,381 ----------- CONTRACT DRILLING (1.4%) 2,000 Diamond Offshore Drilling Inc. 0.00% due 06/06/20..................... 1,002,500 ----------- DEPARTMENT STORES (1.6%) 1,000 Penney (J.C.) Co., Inc. - 144A** 5.00% due 10/15/08..................... 1,117,500 ----------- ELECTRONIC EQUIPMENT/ INSTRUMENTS (1.2%) 1,000 SCI Systems, Inc. 3.00% due 03/15/07..................... 823,750 ----------- ELECTRONIC PRODUCTION EQUIPMENT (1.6%) 960 Photronics Inc. 6.00% due 06/01/04..................... 1,134,000 ----------- INDUSTRIAL MACHINERY (0.3%) 200 Thermo Fibertek, Inc. - 144A** 4.50% due 07/15/04..................... 189,000 ----------- INFORMATION TECHNOLOGY SERVICES (1.5%) 1,750 Aether Systems, Inc. 6.00% due 03/22/05..................... 1,032,500 ----------- MAJOR TELECOMMUNICATIONS (3.0%) 800 Bell Atlantic Financial Service - 144A** (exchangeable into Cable & Wireless Communications common stock) 4.25% due 09/15/05..................... 796,000 PRINCIPAL AMOUNT IN THOUSANDS VALUE - ---------------------------------------------------------------- $ 1,300 Bell Atlantic Financial Service - 144A** (exchangeable into Telecom Corporation of New Zealand common stock) 5.75% due 04/01/03..................... $ 1,321,125 ----------- 2,117,125 ----------- PACKAGED SOFTWARE (1.3%) 1,125 Mercury Interactive Corp. 4.75% due 07/01/07..................... 909,844 ----------- SERVICES TO THE HEALTH INDUSTRY (1.4%) 1,000 Healthsouth Corp. 3.25% due 04/01/03..................... 948,750 ----------- TELECOMMUNICATION EQUIPMENT (1.3%) 1,100 RF Micro Systems Devices - 144A** 3.75% due 08/15/05..................... 903,375 ----------- TOTAL CONVERTIBLE BONDS (COST $13,325,428)..................... 13,022,725 ----------- CORPORATE BONDS (13.4%) ADVERTISING/MARKETING SERVICES (1.5%) 1,000 Lamar Media Corp. 9.625% due 12/01/06.................... 1,046,250 ----------- APPAREL/FOOTWEAR (1.7%) 1,250 Tommy Hilfiger USA Inc. 6.85% due 06/01/08..................... 1,189,845 ----------- BROADCASTING (3.0%) 2,000 Clear Channel Communications (Series B) 8.75% due 06/15/07..................... 2,080,000 ----------- FOOD DISTRIBUTORS (1.3%) 1,000 Fleming Companies, Inc. (Series B) 10.625% due 07/31/07................... 955,000 -----------
SEE NOTES TO FINANCIAL STATEMENTS 57 Morgan Stanley Variable Investment Series - Income Builder PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ---------------------------------------------------------------- OIL & GAS PRODUCTION (1.3%) $ 900 KCS Energy, Inc. (Series B) 11.00% due 01/15/03.................... $ 895,500 ----------- OTHER METALS/MINERALS (3.6%) 2,500 Cyprus Amax Minerals Inc. 10.125% due 04/01/02................... 2,528,115 ----------- TRUCKS/CONSTRUCTION/FARM MACHINERY (1.0%) 700 Navistar International (Series B) 9.375% due 06/01/06.................... 735,000 ----------- TOTAL CORPORATE BONDS (COST $9,547,541)...................... 9,429,710 ----------- SHORT-TERM INVESTMENT (a) (5.0%) U.S. GOVERNMENT AGENCY 3,500 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $3,499,853)...................... 3,499,853 -----------
TOTAL INVESTMENTS (COST $67,996,586) (b)................. 100.8% 70,778,375 LIABILITIES IN EXCESS OF OTHER ASSETS... (0.8) (571,390) ------ ----------- NET ASSETS.............................. 100.0% $70,206,985 ====== ===========
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. ++ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; PREFERRED STOCKS WITH ATTACHED WARRANTS. (A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $6,237,894 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,456,105, RESULTING IN NET UNREALIZED APPRECIATION OF $2,781,789. SEE NOTES TO FINANCIAL STATEMENTS 58 Morgan Stanley Variable Investment Series - Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - -------------------------------------------------------------------- COMMON STOCKS (98.7%) AEROSPACE & DEFENSE (1.6%) 780,000 Goodrich Corp........................... $ 20,763,600 -------------- ALUMINUM (2.9%) 550,000 Alcan, Inc. (Canada).................... 19,761,500 520,000 Alcoa, Inc.............................. 18,486,000 -------------- 38,247,500 -------------- APPAREL/FOOTWEAR (1.5%) 520,000 VF Corp................................. 20,285,200 -------------- AUTO PARTS: O.E.M. (4.6%) 1,505,000 Delphi Automotive Systems Corp.......... 20,558,300 248,000 Johnson Controls, Inc................... 20,026,000 515,000 TRW, Inc................................ 19,075,600 -------------- 59,659,900 -------------- BEVERAGES: NON-ALCOHOLIC (1.4%) 394,000 Coca-Cola Co............................ 18,577,100 -------------- CHEMICALS: MAJOR DIVERSIFIED (2.9%) 545,000 Dow Chemical Co......................... 18,410,100 460,000 Du Pont (E.I.) de Nemours & Co., Inc.... 19,554,600 -------------- 37,964,700 -------------- COMPUTER PROCESSING HARDWARE (2.9%) 880,000 Hewlett-Packard Co...................... 18,075,200 167,000 International Business Machines Corp.... 20,200,320 -------------- 38,275,520 -------------- DEPARTMENT STORES (1.5%) 425,000 Sears, Roebuck & Co..................... 20,247,000 -------------- DISCOUNT STORES (1.7%) 535,000 Target Corp............................. 21,961,750 -------------- ELECTRIC UTILITIES (7.4%) 330,000 Dominion Resources, Inc................. 19,833,000 415,000 Exelon Corp............................. 19,870,200 NUMBER OF SHARES VALUE - -------------------------------------------------------------------- 560,000 FirstEnergy Corp........................ $ 19,588,800 340,000 FPL Group, Inc.......................... 19,176,000 720,000 Reliant Energy, Inc..................... 19,094,400 -------------- 97,562,400 -------------- ELECTRONICS/ APPLIANCES (1.6%) 285,000 Whirlpool Corp.......................... 20,899,050 -------------- FINANCE/RENTAL/ LEASING (2.9%) 240,000 Fannie Mae.............................. 19,080,000 340,000 Household International, Inc............ 19,699,600 -------------- 38,779,600 -------------- FINANCIAL CONGLOMERATES (2.9%) 410,000 Citigroup, Inc.......................... 20,696,800 500,000 J.P. Morgan Chase & Co.................. 18,175,000 -------------- 38,871,800 -------------- FOOD DISTRIBUTORS (3.0%) 930,000 Supervalu, Inc.......................... 20,571,600 740,000 SYSCO Corp.............................. 19,402,800 -------------- 39,974,400 -------------- FOOD: MAJOR DIVERSIFIED (1.5%) 400,000 PepsiCo, Inc............................ 19,476,000 -------------- FOREST PRODUCTS (1.5%) 370,000 Weyerhaeuser Co......................... 20,009,600 -------------- HOUSEHOLD/PERSONAL CARE (4.4%) 395,000 Avon Products, Inc...................... 18,367,500 325,000 Kimberly-Clark Corp..................... 19,435,000 255,000 Procter & Gamble Co. (The).............. 20,178,150 -------------- 57,980,650 -------------- INDUSTRIAL CONGLOMERATES (7.8%) 500,000 General Electric Co..................... 20,040,000 600,000 Honeywell International, Inc............ 20,292,000
SEE NOTES TO FINANCIAL STATEMENTS 59 Morgan Stanley Variable Investment Series - Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - -------------------------------------------------------------------- 172,000 Minnesota Mining & Manufacturing Co..... $ 20,332,120 358,000 Tyco International Ltd. (Bermuda)....... 21,086,200 325,000 United Technologies Corp................ 21,004,750 -------------- 102,755,070 -------------- INDUSTRIAL SPECIALTIES (1.5%) 385,000 PPG Industries, Inc..................... 19,912,200 -------------- INFORMATION TECHNOLOGY SERVICES (1.5%) 295,000 Electronic Data Systems Corp............ 20,222,250 -------------- INTEGRATED OIL (4.4%) 425,000 BP PLC (ADR) (United Kingdom)........... 19,766,750 490,000 Exxon Mobil Corp........................ 19,257,000 390,000 Royal Dutch Petroleum Co. (ADR) (Netherlands).......................... 19,117,800 -------------- 58,141,550 -------------- LIFE/HEALTH INSURANCE (4.5%) 730,000 Aegon N.V. (ARS) (Netherlands).......... 19,542,100 420,000 Jefferson-Pilot Corp.................... 19,433,400 410,000 Lincoln National Corp................... 19,913,700 -------------- 58,889,200 -------------- MAJOR BANKS (2.9%) 310,000 Bank of America Corp.................... 19,514,500 790,000 KeyCorp................................. 19,228,600 -------------- 38,743,100 -------------- MAJOR TELECOMMUNICATIONS (1.4%) 385,000 Verizon Communications, Inc............. 18,272,100 -------------- MOTOR VEHICLES (3.4%) 470,000 DaimlerChrysler AG (Germany)............ 19,584,900 NUMBER OF SHARES VALUE - -------------------------------------------------------------------- 318,100 Ford Motor Co........................... $ 5,000,532 410,000 General Motors Corp..................... 19,926,000 -------------- 44,511,432 -------------- OFFICE EQUIPMENT/ SUPPLIES (1.4%) 500,000 Pitney Bowes, Inc....................... 18,805,000 -------------- OIL & GAS PIPELINES (1.6%) 465,000 El Paso Corp............................ 20,743,650 -------------- OIL & GAS PRODUCTION (1.5%) 355,000 Kerr-McGee Corp......................... 19,454,000 -------------- OIL REFINING/ MARKETING (3.0%) 685,000 Marathon Oil Corp....................... 20,550,000 500,000 Sunoco, Inc............................. 18,670,000 -------------- 39,220,000 -------------- PHARMACEUTICALS: MAJOR (5.7%) 312,000 American Home Products Corp............. 19,144,320 365,000 Bristol-Myers Squibb Co................. 18,615,000 450,000 Pharmacia Corp.......................... 19,192,500 515,000 Schering-Plough Corp.................... 18,442,150 -------------- 75,393,970 -------------- PULP & PAPER (3.0%) 500,000 International Paper Co.................. 20,175,000 640,000 Mead Corp............................... 19,769,600 -------------- 39,944,600 -------------- RAILROADS (3.0%) 695,000 Burlington Northern Santa Fe Corp....... 19,828,350 565,000 CSX Corp................................ 19,803,250 -------------- 39,631,600 -------------- RECREATIONAL PRODUCTS (1.4%) 618,000 Eastman Kodak Co........................ 18,187,740 --------------
SEE NOTES TO FINANCIAL STATEMENTS 60 Morgan Stanley Variable Investment Series - Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - -------------------------------------------------------------------- SEMICONDUCTORS (1.4%) 605,000 Intel Corp.............................. $ 19,027,250 -------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (3.1%) 385,000 Caterpillar, Inc........................ 20,116,250 470,000 Deere & Co.............................. 20,520,200 -------------- 40,636,450 -------------- TOTAL COMMON STOCKS (COST $1,148,027,632).................. 1,302,026,932 -------------- PRINCIPAL AMOUNT IN THOUSANDS - ---------- SHORT-TERM INVESTMENTS (1.0%) U.S. GOVERNMENT AGENCY (a) (1.0%) $ 13,000 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $12,999,455)..................... 12,999,455 -------------- REPURCHASE AGREEMENT (0.0%) 326 The Bank of New York 0.875% due 01/02/02 (dated 12/31/01; proceeds $325,572)(b) (COST $325,556)........................ 325,556 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $13,325,011)..................... 13,325,011 -------------- VALUE - --------------------------------------------------------------------
TOTAL INVESTMENTS (COST $1,161,352,643) (c).............. 99.7% $1,315,351,943 OTHER ASSETS IN EXCESS OF LIABILITIES... 0.3 3,904,559 ------ -------------- NET ASSETS.............................. 100.0% $1,319,256,502 ====== ==============
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. ARS AMERICAN REGISTERED SHARES. (a) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) COLLATERALIZED BY $331,806 FEDERAL HOME LOAN MORTGAGE CORP 5.775% DUE 06/26/06 VALUED AT $332,068. (c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $212,296,288 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $58,296,988, RESULTING IN NET UNREALIZED APPRECIATION OF $153,999,300. SEE NOTES TO FINANCIAL STATEMENTS 61 Morgan Stanley Variable Investment Series - Capital Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- COMMON STOCKS (92.9%) ADVERTISING/MARKETING SERVICES (0.8%) 30,000 Interpublic Group of Companies, Inc..... $ 886,200 ------------ AEROSPACE & DEFENSE (2.1%) 10,000 Lockheed Martin Corp.................... 466,700 5,000 Northrop Grumman Corp................... 504,050 55,000 Titan Corp. (The)*...................... 1,372,250 ------------ 2,343,000 ------------ AIR FREIGHT/COURIERS (1.4%) 30,000 FedEx Corp.*............................ 1,556,400 ------------ BEVERAGES: NON-ALCOHOLIC (2.4%) 10,000 Coca-Cola Co............................ 471,500 37,500 Coca-Cola Enterprises Inc............... 710,250 60,000 Pepsi Bottling Group, Inc. (The)........ 1,410,000 ------------ 2,591,750 ------------ BIOTECHNOLOGY (2.6%) 25,000 Cephalon, Inc.*......................... 1,889,625 35,000 Immunex Corp.*.......................... 969,850 ------------ 2,859,475 ------------ CATALOG/SPECIALTY DISTRIBUTION (1.2%) 27,500 Lands' End, Inc.*....................... 1,379,400 ------------ COMPUTER COMMUNICATIONS (1.2%) 75,000 Cisco Systems, Inc.*.................... 1,358,250 ------------ COMPUTER PERIPHERALS (1.4%) 16,500 Advanced Digital Information Corp.*..... 264,660 60,000 Network Appliance, Inc.*................ 1,312,200 ------------ 1,576,860 ------------ COMPUTER PROCESSING HARDWARE (3.1%) 35,000 Apple Computer, Inc.*................... 766,500 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 55,000 Dell Computer Corp.*.................... $ 1,494,900 90,000 Sun Microsystems, Inc.*................. 1,110,600 ------------ 3,372,000 ------------ CONTAINERS/ PACKAGING (1.6%) 25,000 Ball Corp............................... 1,767,500 ------------ CONTRACT DRILLING (1.6%) 90,000 Rowan Companies, Inc.*.................. 1,743,300 ------------ DATA PROCESSING SERVICES (1.6%) 16,500 Affiliated Computer Services, Inc. (Class A)*............................. 1,751,145 ------------ DEPARTMENT STORES (4.0%) 30,000 Kohl's Corp.*........................... 2,113,200 85,000 Penney (J.C.) Co., Inc.................. 2,286,500 ------------ 4,399,700 ------------ DISCOUNT STORES (2.2%) 55,000 Costco Wholesale Corp.*................. 2,440,900 ------------ ELECTRONIC COMPONENTS (0.9%) 21,000 Amphenol Corp. (Class A)*............... 1,009,050 ------------ ELECTRONICS/APPLIANCE STORES (2.1%) 90,000 Circuit City Stores, Inc. - Circuit City Group............................. 2,335,500 ------------ FINANCE/RENTAL/ LEASING (1.3%) 17,500 USA Education Inc....................... 1,470,350 ------------ FINANCIAL CONGLOMERATES (0.3%) 9,400 Prudential Financial, Inc.*............. 311,986 ------------ FINANCIAL PUBLISHING/ SERVICES (2.1%) 80,000 SunGard Data Systems Inc.*.............. 2,314,400 ------------ HOME BUILDING (0.6%) 15,000 Lennar Corp............................. 702,300 ------------
SEE NOTES TO FINANCIAL STATEMENTS 62 Morgan Stanley Variable Investment Series - Capital Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- HOME FURNISHINGS (0.6%) 27,500 Leggett & Platt, Inc.................... $ 632,500 ------------ HOSPITAL/NURSING MANAGEMENT (0.3%) 5,500 Tenet Healthcare Corp.*................. 322,960 ------------ HOUSEHOLD/PERSONAL CARE (1.9%) 70,000 International Flavors & Fragrances, Inc.................................... 2,079,700 ------------ INDUSTRIAL CONGLOMERATES (1.9%) 35,000 Tyco International Ltd. (Bermuda)....... 2,061,500 ------------ INFORMATION TECHNOLOGY SERVICES (1.4%) 45,000 McAfee.com Corp.*....................... 1,525,950 ------------ INSURANCE BROKERS/ SERVICES (1.8%) 85,000 Willis Group Holdings Ltd.*............. 2,001,750 ------------ INTEGRATED OIL (0.4%) 5,000 ChevronTexaco Corp...................... 448,050 ------------ INTERNET SOFTWARE/ SERVICES (0.7%) 25,000 BEA Systems, Inc.*...................... 385,250 35,000 Earthlink, Inc.*........................ 425,950 ------------ 811,200 ------------ INVESTMENT BANKS/ BROKERS (2.1%) 25,000 Goldman Sachs Group, Inc. (The)......... 2,318,750 ------------ MAJOR BANKS (1.7%) 30,000 Bank of America Corp.................... 1,888,500 ------------ MEDICAL DISTRIBUTORS (0.7%) 10,000 Henry Schein, Inc.*..................... 370,300 10,000 McKesson HBOC, Inc...................... 374,000 ------------ 744,300 ------------ MEDICAL SPECIALTIES (5.3%) 55,000 Cytyc Corp.*............................ 1,435,500 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 30,000 Guidant Corp.*.......................... $ 1,494,000 17,500 St. Jude Medical, Inc.*................. 1,358,875 22,000 Varian Medical Systems, Inc.*........... 1,567,720 ------------ 5,856,095 ------------ MISCELLANEOUS COMMERCIAL SERVICES (0.9%) 85,000 IKON Office Solutions, Inc.............. 993,650 ------------ OIL & GAS PRODUCTION (0.7%) 30,000 Ocean Energy, Inc....................... 576,000 12,500 XTO Energy Inc.......................... 218,750 ------------ 794,750 ------------ OILFIELD SERVICES/ EQUIPMENT (1.5%) 30,000 Smith International, Inc.*.............. 1,608,600 ------------ OTHER CONSUMER SERVICES (1.0%) 25,000 Apollo Group, Inc. (Class A)*........... 1,125,250 ------------ PACKAGED SOFTWARE (5.7%) 20,000 Concord Communications, Inc.*........... 413,000 55,000 i2 Technologies, Inc.*.................. 434,500 35,000 Intuit Inc.*............................ 1,496,600 35,000 Microsoft Corp.*........................ 2,319,450 65,000 Network Associates, Inc.*............... 1,680,250 ------------ 6,343,800 ------------ PROPERTY - CASUALTY INSURERS (5.5%) 55,000 ACE, Ltd. (Bermuda)..................... 2,208,250 22,500 Everest Re Group, Ltd. (Bermuda)........ 1,590,750 25,000 XL Capital Ltd. (Class A) (Bermuda)..... 2,284,000 ------------ 6,083,000 ------------ PULP & PAPER (1.0%) 40,000 Georgia-Pacific Group................... 1,104,400 ------------ RAILROADS (1.9%) 60,000 CSX Corp................................ 2,103,000 ------------
SEE NOTES TO FINANCIAL STATEMENTS 63 Morgan Stanley Variable Investment Series - Capital Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- RECREATIONAL PRODUCTS (2.5%) 15,000 International Game Technology*.......... $ 1,024,500 100,000 Mattel, Inc............................. 1,720,000 ------------ 2,744,500 ------------ REGIONAL BANKS (2.7%) 20,000 Fifth Third Bancorp..................... 1,231,600 100,000 Hibernia Corp. (Class A)................ 1,779,000 ------------ 3,010,600 ------------ RESTAURANTS (2.7%) 55,000 AFC Enterprises, Inc.*.................. 1,561,450 50,000 Wendy's International, Inc.............. 1,458,500 ------------ 3,019,950 ------------ SAVINGS BANKS (0.2%) 8,000 Charter One Financial, Inc.............. 217,200 ------------ SEMICONDUCTORS (6.4%) 35,000 Applied Micro Circuits Corp.*........... 396,200 17,500 Broadcom Corp. (Class A)*............... 717,150 105,000 Conexant Systems, Inc.*................. 1,507,800 45,000 Fairchild Semiconductor Corp. (Class A)*............................. 1,269,000 65,000 Intel Corp.............................. 2,044,250 35,000 National Semiconductor Corp.*........... 1,077,650 ------------ 7,012,050 ------------ SPECIALTY STORES (2.6%) 35,000 Michaels Stores, Inc.*.................. 1,153,250 90,000 Staples, Inc.*.......................... 1,683,000 ------------ 2,836,250 ------------ TELECOMMUNICATION EQUIPMENT (1.1%) 35,000 Polycom, Inc.*.......................... 1,204,000 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- WIRELESS COMMUNICATIONS (3.2%) 70,000 Sprint Corp. (PCS Group)*............... $ 1,708,700 70,000 Vodafone Group PLC (ADR) (United Kingdom)............................... 1,797,600 ------------ 3,506,300 ------------ TOTAL COMMON STOCKS (COST $93,327,298)..................... 102,568,021 ------------ PRINCIPAL AMOUNT IN THOUSANDS - --------- SHORT-TERM INVESTMENT (a) (8.0%) U.S. GOVERNMENT AGENCY $ 8,800 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $8,799,631)...................... 8,799,631 ------------
TOTAL INVESTMENTS (COST $102,126,929) (b)................ 100.9% 111,367,652 LIABILITIES IN EXCESS OF OTHER ASSETS... (0.9) (989,368) ------ ------------ NET ASSETS.............................. 100.0% $110,378,284 ====== ============
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $10,020,038 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $779,315, RESULTING IN NET UNREALIZED APPRECIATION OF $9,240,723. SEE NOTES TO FINANCIAL STATEMENTS 64 Morgan Stanley Variable Investment Series - Global Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (95.7%) AUSTRALIA (3.4%) CONTAINERS/PACKAGING 750,000 Amcor Ltd............................... $ 2,736,484 ------------ MAJOR BANKS 280,000 Australia & New Zealand Banking Group Ltd.................................... 2,544,621 160,000 Commonwealth Bank of Australia.......... 2,444,541 ------------ 4,989,162 ------------ OIL & GAS PRODUCTION 725,000 Santos Ltd.............................. 2,293,798 ------------ TOTAL AUSTRALIA......................... 10,019,444 ------------ BELGIUM (0.9%) FINANCIAL CONGLOMERATES 105,000 Fortis.................................. 2,726,210 ------------ CANADA (2.6%) ALUMINUM 50,000 Alcan Inc............................... 1,794,236 ------------ FINANCIAL CONGLOMERATES 115,000 Brascan Corp. (Class A)................. 2,076,008 ------------ MAJOR BANKS 70,000 Toronto-Dominion Bank................... 1,805,601 ------------ OIL & GAS PIPELINES 70,000 Enbridge Inc............................ 1,907,572 ------------ TOTAL CANADA............................ 7,583,417 ------------ FINLAND (1.5%) INFORMATION TECHNOLOGY SERVICES 80,000 TietoEnator Oyj......................... 2,119,866 ------------ TELECOMMUNICATION EQUIPMENT 87,000 Nokia Oyj............................... 2,244,136 ------------ TOTAL FINLAND........................... 4,364,002 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ FRANCE (6.6%) AUTOMOTIVE AFTERMARKET 70,000 Compagnie Generale des Etablissements Michelin (B Shares).................... $ 2,310,030 ------------ CONSTRUCTION MATERIALS 27,000 Lafarge S.A............................. 2,522,730 ------------ CONTAINERS/PACKAGING 17,000 Compagnie de Saint-Gobain............... 2,566,552 ------------ MAJOR BANKS 29,000 BNP Paribas S.A......................... 2,595,945 42,000 Societe Generale (A Shares)............. 2,351,181 ------------ 4,947,126 ------------ MISCELLANEOUS MANUFACTURING 70,000 Compagnie Generale d'Industrie et de Participations......................... 2,338,088 60,000 Compagnie Generale d'Industrie et de Participations (Warrants due 03/31/03)*............................. 24,583 ------------ 2,362,671 ------------ MULTI-LINE INSURANCE 45,000 Assurances Generales de France.......... 2,160,393 ------------ OIL REFINING/MARKETING 18,000 TotalFinaElf S.A........................ 2,571,629 ------------ TOTAL FRANCE............................ 19,441,131 ------------ GERMANY (5.8%) APPAREL/FOOTWEAR 37,050 Adidas-Salomon AG....................... 2,755,536 ------------ CHEMICALS: MAJOR DIVERSIFIED 70,000 BASF AG................................. 2,609,306 60,000 Bayer AG................................ 1,907,879 ------------ 4,517,185 ------------
SEE NOTES TO FINANCIAL STATEMENTS 65 Morgan Stanley Variable Investment Series - Global Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES 45,000 E. ON AG................................ $ 2,340,760 115,000 MAN AG.................................. 2,437,846 40,000 Siemens AG.............................. 2,666,756 ------------ 7,445,362 ------------ MOTOR VEHICLES 60,000 DaimlerChrysler AG (Registered Shares)................................ 2,570,560 ------------ TOTAL GERMANY........................... 17,288,643 ------------ HONG KONG (2.7%) ELECTRIC UTILITIES 570,000 CLP Holdings Ltd........................ 2,174,317 ------------ FINANCIAL CONGLOMERATES 150,000 HSBC Holdings PLC....................... 1,755,033 ------------ REAL ESTATE DEVELOPMENT 205,000 Cheung Kong (Holdings) Ltd.............. 2,129,119 235,000 Sun Hung Kai Properties Ltd............. 1,898,320 ------------ 4,027,439 ------------ TOTAL HONG KONG......................... 7,956,789 ------------ IRELAND (0.9%) MAJOR BANKS 230,000 Allied Irish Banks PLC.................. 2,663,193 ------------ ITALY (3.0%) MAJOR BANKS 200,000 Sanpaolo IMI SpA........................ 2,146,587 550,000 Unicredito Italiano SpA................. 2,209,381 ------------ 4,355,968 ------------ MAJOR TELECOMMUNICATIONS 465,000 Telecom Italia SpA...................... 2,485,053 ------------ WIRELESS COMMUNICATIONS 550,000 Telecom Italia Mobile SpA............... 2,106,506 ------------ TOTAL ITALY............................. 8,947,527 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ JAPAN (8.7%) BEVERAGES: ALCOHOLIC 270,000 Kirin Brewery Co., Ltd.................. $ 1,920,665 ------------ DEPARTMENT STORES 140,000 Marui Co., Ltd.......................... 1,647,434 ------------ ELECTRICAL PRODUCTS 175,000 Matsushita Electric Works, Ltd.......... 1,433,533 ------------ ELECTRONIC COMPONENTS 32,000 TDK Corp................................ 1,501,367 ------------ ELECTRONIC EQUIPMENT/ INSTRUMENTS 25,000 Kyocera Corp............................ 1,622,760 100,000 Matsushita Electric Industrial Co., Ltd.................................... 1,277,710 140,000 NEC Corp................................ 1,421,045 ------------ 4,321,515 ------------ ELECTRONICS/APPLIANCES 160,000 Sharp Corp.............................. 1,862,132 32,000 Sony Corp............................... 1,455,208 ------------ 3,317,340 ------------ FINANCE/RENTAL/LEASING 22,000 Acom Co., Ltd........................... 1,595,050 ------------ MOTOR VEHICLES 50,000 Honda Motor Co.......................... 1,985,272 60,000 Toyota Motor Corp....................... 1,512,299 ------------ 3,497,571 ------------ PHARMACEUTICALS: MAJOR 40,500 Takeda Chemical Industries, Ltd......... 1,823,299 ------------ PHARMACEUTICALS: OTHER 90,000 Taisho Pharmaceutical Co., Ltd.......... 1,407,531 ------------ RECREATIONAL PRODUCTS 11,000 Nintendo Co., Ltd....................... 1,916,566 ------------
SEE NOTES TO FINANCIAL STATEMENTS 66 Morgan Stanley Variable Investment Series - Global Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ WIRELESS COMMUNICATIONS 120 NTT DoCoMo, Inc......................... $ 1,402,976 ------------ TOTAL JAPAN............................. 25,784,847 ------------ NETHERLANDS (4.2%) CHEMICALS: SPECIALTY 75,000 DSM NV.................................. 2,739,570 ------------ ELECTRONIC EQUIPMENT/ INSTRUMENTS 90,000 Koninklijke (Royal) Philips Electronics NV..................................... 2,675,841 ------------ FINANCIAL CONGLOMERATES 80,000 ING Groep NV............................ 2,040,772 ------------ FINANCIAL PUBLISHING/ SERVICES 105,000 Wolters Kluwer NV....................... 2,394,202 ------------ FOOD: MAJOR DIVERSIFIED 45,000 Unilever NV............................. 2,639,367 ------------ TOTAL NETHERLANDS....................... 12,489,752 ------------ SINGAPORE (1.3%) AIRLINES 280,000 Singapore Airlines Ltd.................. 1,667,569 ------------ MAJOR BANKS 279,000 DBS Group Holdings Ltd.................. 2,084,569 ------------ TOTAL SINGAPORE......................... 3,752,138 ------------ SPAIN (2.3%) ELECTRIC UTILITIES 190,000 Iberdrola S.A........................... 2,474,186 ------------ MAJOR BANKS 275,000 Banco Santander Central Hispano, S.A.... 2,304,909 ------------ OIL REFINING/MARKETING 150,000 Repsol-YPF, S.A......................... 2,188,450 ------------ TOTAL SPAIN............................. 6,967,545 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ SWEDEN (2.6%) ELECTRONICS/APPLIANCES 145,000 Electrolux AB (Series B)................ $ 2,171,219 ------------ ENGINEERING & CONSTRUCTION 248,000 Skanska AB (B Shares)................... 1,625,413 ------------ INDUSTRIAL MACHINERY 90,000 Sandvik AB (B Shares)................... 1,933,215 ------------ REGIONAL BANKS 350,000 Nordea AB............................... 1,858,585 ------------ TOTAL SWEDEN............................ 7,588,432 ------------ SWITZERLAND (6.0%) CHEMICALS: AGRICULTURAL 2,500 Syngenta AG*............................ 129,573 ------------ FINANCIAL CONGLOMERATES 61,500 UBS AG (Registered Shares)*............. 3,105,948 ------------ FOOD: MAJOR DIVERSIFIED 15,000 Nestle S.A. (Registered Shares)......... 3,200,145 ------------ MAJOR TELECOMMUNICATIONS 11,000 Swisscom AG (Registered Shares)......... 3,049,479 ------------ OTHER CONSUMER SPECIALTIES 130,000 Compagnie Financiere Richmont AG (A Units)++............................... 2,416,983 ------------ PHARMACEUTICALS: MAJOR 82,000 Novartis AG (Registered Shares)......... 2,965,106 ------------ PROPERTY - CASUALTY INSURERS 30,000 Swiss Re (Registered Shares)............ 3,019,345 ------------ TOTAL SWITZERLAND....................... 17,886,579 ------------ UNITED KINGDOM (11.0%) AEROSPACE & DEFENSE 500,000 BAE Systems PLC......................... 2,252,696 ------------
SEE NOTES TO FINANCIAL STATEMENTS 67 Morgan Stanley Variable Investment Series - Global Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ AIRLINES 745,000 British Airways PLC..................... $ 2,114,768 ------------ APPAREL/FOOTWEAR RETAIL 160,000 Next PLC................................ 2,084,562 ------------ BEVERAGES: ALCOHOLIC 220,000 Diageo PLC.............................. 2,513,994 ------------ CONSTRUCTION MATERIALS 320,000 Hanson PLC.............................. 2,208,006 ------------ ELECTRIC UTILITIES 225,000 PowerGen PLC............................ 2,472,870 255,000 United Utilities PLC.................... 2,284,757 ------------ 4,757,627 ------------ ELECTRONIC COMPONENTS 1,550,000 Cookson Group PLC....................... 2,154,800 ------------ HOTELS/RESORTS/CRUISELINES 250,000 Six Continents PLC...................... 2,474,690 ------------ MAJOR BANKS 95,000 Royal Bank of Scotland Group PLC........ 2,312,234 ------------ MOVIES/ENTERTAINMENT 770,000 Rank Group PLC.......................... 2,578,045 ------------ STEEL 2,450,000 Corus Group PLC*........................ 2,567,855 ------------ TOBACCO 260,000 British American Tobacco PLC............ 2,204,658 ------------ WATER UTILITIES 215,000 Severn Trent PLC........................ 2,250,294 ------------ TOTAL UNITED KINGDOM.................... 32,474,229 ------------ UNITED STATES (32.2%) AEROSPACE & DEFENSE 75,000 Boeing Co............................... 2,908,500 ------------ ALUMINUM 80,000 Alcoa, Inc.............................. 2,844,000 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ CHEMICALS: MAJOR DIVERSIFIED 84,000 Dow Chemical Co. (The).................. $ 2,837,520 ------------ COMPUTER PROCESSING HARDWARE 260,000 Compaq Computer Corp.................... 2,537,600 135,000 Hewlett-Packard Co...................... 2,772,900 26,000 International Business Machines Corp.... 3,144,960 ------------ 8,455,460 ------------ DEPARTMENT STORES 68,000 Sears, Roebuck & Co..................... 3,239,520 ------------ DISCOUNT STORES 80,000 Target Corp............................. 3,284,000 ------------ ELECTRIC UTILITIES 70,706 FirstEnergy Corp........................ 2,473,296 55,000 FPL Group, Inc.......................... 3,102,000 ------------ 5,575,296 ------------ ENGINEERING & CONSTRUCTION 67,000 Fluor Corp.............................. 2,505,800 ------------ FINANCIAL CONGLOMERATES 60,006 Citigroup, Inc.......................... 3,029,103 ------------ FOOD RETAIL 90,000 Albertson's, Inc........................ 2,834,100 ------------ INDUSTRIAL CONGLOMERATES 95,000 Honeywell International, Inc............ 3,212,900 25,000 Minnesota Mining & Manufacturing Co..... 2,955,250 ------------ 6,168,150 ------------ INFORMATION TECHNOLOGY SERVICES 45,000 Electronic Data Systems Corp............ 3,084,750 ------------ INTEGRATED OIL 33,000 ChevronTexaco Corp...................... 2,957,130 ------------
SEE NOTES TO FINANCIAL STATEMENTS 68 Morgan Stanley Variable Investment Series - Global Dividend Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ MAJOR BANKS 47,000 Bank of America Corp.................... $ 2,958,650 125,000 KeyCorp................................. 3,042,500 ------------ 6,001,150 ------------ MAJOR TELECOMMUNICATIONS 65,000 SBC Communications, Inc................. 2,546,050 130,000 Sprint Corp. (FON Group)................ 2,610,400 55,000 Verizon Communications Inc.............. 2,610,300 ------------ 7,766,750 ------------ MOTOR VEHICLES 40,654 Ford Motor Co........................... 639,081 ------------ OIL REFINING/MARKETING 67,000 Ashland, Inc............................ 3,087,360 105,000 Marathon Oil Corp....................... 3,150,000 ------------ 6,237,360 ------------ PACKAGED SOFTWARE 83,000 Computer Associates International, Inc.................................... 2,862,670 ------------ PHARMACEUTICALS: MAJOR 50,000 Bristol-Myers Squibb Co................. 2,550,000 45,000 Merck & Co., Inc........................ 2,646,000 ------------ 5,196,000 ------------ PULP & PAPER 75,000 International Paper Co.................. 3,026,250 ------------ RECREATIONAL PRODUCTS 84,000 Eastman Kodak Co........................ 2,472,120 ------------ SAVINGS BANKS 80,000 Washington Mutual, Inc.................. 2,616,000 ------------ SEMICONDUCTORS 90,000 Intel Corp.............................. 2,830,500 ------------ TOBACCO 60,000 Philip Morris Companies, Inc............ 2,751,000 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ TRUCKS/CONSTRUCTION/FARM MACHINERY 70,000 Deere & Co.............................. $ 3,056,200 ------------ TOTAL UNITED STATES..................... 95,178,410 ------------ TOTAL COMMON STOCKS AND WARRANTS (COST $278,898,563).................... 283,112,288 ------------ PRINCIPAL AMOUNT IN THOUSANDS - ---------- SHORT-TERM INVESTMENT (a) (3.9%) U.S. GOVERNMENT AGENCY $ 11,500 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $11,499,518)..................... 11,499,518 ------------
TOTAL INVESTMENTS (COST $290,398,081) (b)................ 99.6% 294,611,806 OTHER ASSETS IN EXCESS OF LIABILITIES... 0.4 1,040,066 ------ ------------ NET ASSETS.............................. 100.0% $295,651,872 ====== ============
- --------------------------------------------------- * NON-INCOME PRODUCING SECURITY. ++ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; STOCKS WITH ATTACHED WARRANTS. (A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $37,880,247 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $33,666,522, RESULTING IN NET UNREALIZED APPRECIATION OF $4,213,725. SEE NOTES TO FINANCIAL STATEMENTS 69 Morgan Stanley Variable Investment Series - Global Dividend Growth SUMMARY OF INVESTMENTS / / DECEMBER 31, 2001
PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------ Aerospace & Defense..................... $ 5,161,196 1.7% Airlines................................ 3,782,337 1.3 Aluminum................................ 4,638,236 1.6 Apparel/Footwear........................ 2,755,536 0.9 Apparel/Footwear Retail................. 2,084,562 0.7 Automotive Aftermarket.................. 2,310,030 0.8 Beverages: Alcoholic.................... 4,434,659 1.5 Chemicals: Agricultural................. 129,573 0.0 Chemicals: Major Diversified............ 7,354,705 2.5 Chemicals: Specialty.................... 2,739,571 0.9 Computer Processing Hardware............ 8,455,460 2.9 Construction Materials.................. 4,730,736 1.6 Containers/Packaging.................... 5,303,036 1.8 Department Stores....................... 4,886,954 1.6 Discount Stores......................... 3,284,000 1.1 Electric Utilities...................... 14,981,426 5.1 Electrical Products..................... 1,433,533 0.5 Electronic Components................... 3,656,166 1.2 Electronic Equipment/ Instruments....... 6,997,356 2.4 Electronics/Appliances.................. 5,488,559 1.8 Engineering & Construction.............. 4,131,213 1.4 Finance/Rental/Leasing.................. 1,595,050 0.5 Financial Conglomerates................. 14,733,074 5.0 Financial Publishing/Services........... 2,394,202 0.8 Food Retail............................. 2,834,100 0.9 Food: Major Diversified................. 5,839,511 2.0 Hotels/Resorts/Cruiselines.............. 2,474,690 0.8 Industrial Conglomerates................ 13,613,511 4.6 Industrial Machinery.................... 1,933,215 0.7 Information Technology Services......... 5,204,616 1.8 Integrated Oil.......................... 2,957,130 1.0 Major Banks............................. 31,463,913 10.6 Major Telecommunications................ 13,301,282 4.5 Miscellaneous Manufacturing............. 2,362,671 0.8 PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------ Motor Vehicles.......................... $ 6,707,212 2.3% Movies/Entertainment.................... 2,578,045 0.9 Multi-Line Insurance.................... 2,160,393 0.7 Oil & Gas Pipelines..................... 1,907,573 0.6 Oil & Gas Production.................... 2,293,798 0.8 Oil Refining/Marketing.................. 10,997,439 3.7 Other Consumer Specialties.............. 2,416,983 0.8 Packaged Software....................... 2,862,670 1.0 Pharmaceuticals: Major.................. 9,984,405 3.4 Pharmaceuticals: Other.................. 1,407,531 0.5 Property - Casualty Insurers............ 3,019,346 1.0 Pulp & Paper............................ 3,026,250 1.0 Real Estate Development................. 4,027,439 1.4 Recreational Products................... 4,388,685 1.5 Regional Banks.......................... 1,858,585 0.6 Savings Banks........................... 2,616,000 0.9 Semiconductors.......................... 2,830,500 0.9 Steel................................... 2,567,855 0.9 Telecommunication Equipment............. 2,244,136 0.8 Tobacco................................. 4,955,658 1.7 Trucks/Construction/Farm Machinery...... 3,056,200 1.0 U.S. Government Agency.................. 11,499,518 3.9 Water Utilities......................... 2,250,294 0.8 Wireless Communications................. 3,509,482 1.2 ------------ ------- $294,611,806 99.6% ============ ======= TYPE OF INVESTMENT - ------------------------------------------------------------------ Common Stocks........................... $283,087,705 95.7% Short-Term Investment................... 11,499,518 3.9 Warrants................................ 24,583 0.0 ------------ ------- $294,611,806 99.6% ============ =======
SEE NOTES TO FINANCIAL STATEMENTS 70 Morgan Stanley Variable Investment Series - European Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- COMMON STOCKS AND WARRANTS (97.6%) BELGIUM (1.5%) FINANCIAL CONGLOMERATES 195,470 Fortis.................................. $ 5,066,459 ------------ FINLAND (0.9%) TELECOMMUNICATION EQUIPMENT 121,880 Nokia Oyj+.............................. 3,143,855 ------------ FRANCE (16.3%) ADVERTISING/MARKETING SERVICES 168,700 JC Decaux S.A.*......................... 1,885,777 ------------ APPAREL/FOOTWEAR 36,100 LVMH (Louis Vuitton Moet Hennessy)...... 1,469,450 ------------ FOOD RETAIL 76,600 Carrefour S.A........................... 3,984,493 ------------ HOUSEHOLD/PERSONAL CARE 47,320 L'Oreal S.A............................. 3,409,767 ------------ INFORMATION TECHNOLOGY SERVICES 106,900 Cap Gemini S.A.......................... 7,722,004 ------------ MAJOR BANKS 22,270 BNP Paribas S.A......................... 1,993,507 82,500 Credit Agricole S.A..................... 1,307,258 ------------ 3,300,765 ------------ OIL REFINING/MARKETING 52,482 TotalFinaElf S.A.+...................... 7,498,013 ------------ PHARMACEUTICALS: MAJOR 163,906 Aventis S.A.+........................... 11,642,788 38,980 Sanofi-Synthelabo S.A................... 2,909,493 ------------ 14,552,281 ------------ RESTAURANTS 39,560 Sodexho Alliance S.A.................... 1,691,685 ------------ SEMICONDUCTORS 188,360 STMicroelectronics NV................... 6,048,190 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- WATER UTILITIES 98,700 Vivendi Environnement................... $ 3,293,187 98,700 Vivendi Environnement (Warrants due 03/08/06)*............................. 40,439 ------------ 3,333,626 ------------ TOTAL FRANCE............................ 54,896,051 ------------ GERMANY (5.6%) MAJOR BANKS 92,990 Deutsche Bank AG (Registered Shares).... 6,568,117 ------------ MAJOR TELECOMMUNICATIONS 354,100 Deutsche Telecom AG..................... 6,118,699 ------------ MULTI-LINE INSURANCE 22,866 Muenchener Rueckver AG (Registered Shares)................................ 6,211,858 ------------ TOTAL GERMANY........................... 18,898,674 ------------ ITALY (8.7%) CONSUMER SUNDRIES 317,782 Luxottica Group SpA (ADR)............... 5,237,047 ------------ INTEGRATED OIL 781,490 ENI SpA................................. 9,800,710 ------------ MAJOR BANKS 2,675,100 IntesaBci SpA........................... 6,695,420 1,335,220 Unicredito Italiano SpA................. 5,363,655 ------------ 12,059,075 ------------ MAJOR TELECOMMUNICATIONS 264,160 Telecom Italia SpA...................... 2,258,758 ------------ TOTAL ITALY............................. 29,355,590 ------------ NETHERLANDS (7.8%) APPAREL/FOOTWEAR 19,210 Gucci Group NV.......................... 1,634,894 ------------ BEVERAGES: ALCOHOLIC 46,100 Heineken NV............................. 1,748,799 ------------
SEE NOTES TO FINANCIAL STATEMENTS 71 Morgan Stanley Variable Investment Series - European Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 370,363 Koninklijke (Royal) Philips Electronics NV+.................................... $ 11,011,472 ------------ FINANCIAL CONGLOMERATES 229,400 ING Groep NV............................ 5,851,913 ------------ FOOD RETAIL 143,213 Koninklijke Ahold NV.................... 4,168,655 ------------ MAJOR TELECOMMUNICATIONS 375,100 Koninklijke (Royal) Kpn NV*............. 1,907,720 ------------ TOTAL NETHERLANDS....................... 26,323,453 ------------ NORWAY (0.5%) MAJOR TELECOMMUNICATIONS 399,500 Telenor ASA............................. 1,721,041 ------------ PORTUGAL (0.6%) MAJOR TELECOMMUNICATIONS 252,000 Portugal Telecom, S.A. (Registered Shares)................................ 1,963,994 ------------ SPAIN (4.0%) MAJOR TELECOMMUNICATIONS 713,352 Telefonica S.A.*........................ 9,549,801 ------------ MISCELLANEOUS COMMERCIAL SERVICES 654,000 Amadeus Global Travel Distribution S.A. (A Shares)............................. 3,774,715 ------------ TOTAL SPAIN............................. 13,324,516 ------------ SWEDEN (3.7%) INDUSTRIAL MACHINERY 175,391 Assa Abloy AB (Series B)................ 2,533,994 ------------ MAJOR BANKS 199,600 Svenska Handelsbanken AB (A Shares)..... 2,941,051 ------------ REGIONAL BANKS 1,310,870 Nordea AB............................... 6,961,038 ------------ TOTAL SWEDEN............................ 12,436,083 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- SWITZERLAND (9.8%) CHEMICALS: AGRICULTURAL 104,628 Syngenta AG*............................ $ 5,422,774 ------------ ELECTRICAL PRODUCTS 18,803 Kaba Holding AG (Registered B Shares)... 4,646,074 ------------ FINANCIAL CONGLOMERATES 70,673 UBS AG (Registered Shares)*............. 3,569,214 ------------ FOOD: MAJOR DIVERSIFIED 41,870 Nestle S.A. (Registered Shares)+........ 8,932,670 ------------ OTHER CONSUMER SPECIALTIES 123,200 Compagnie Financiere Richmont AG (A Units)++............................... 2,290,556 ------------ PERSONNEL SERVICES 60,500 Adecco S.A. (Registered Shares)......... 3,290,620 ------------ PHARMACEUTICALS: MAJOR 138,120 Novartis AG (Registered Shares)+........ 4,994,395 ------------ TOTAL SWITZERLAND....................... 33,146,303 ------------ UNITED KINGDOM (38.2%) ADVERTISING/MARKETING SERVICES 1,011,690 WPP Group PLC........................... 11,192,650 ------------ BEVERAGES: ALCOHOLIC 730,970 Allied Domecq PLC....................... 4,333,437 441,270 Diageo PLC.............................. 5,042,500 ------------ 9,375,937 ------------ CATALOG/SPECIALTY DISTRIBUTION 480,630 GUS PLC................................. 4,512,763 ------------ FINANCIAL CONGLOMERATES 919,600 Lloyds TSB Group PLC.................... 9,986,416 ------------ FOOD: SPECIALTY/CANDY 1,149,900 Cadbury Schweppes PLC................... 7,331,723 ------------
SEE NOTES TO FINANCIAL STATEMENTS 72 Morgan Stanley Variable Investment Series - European Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- INTEGRATED OIL 780,410 BP PLC.................................. $ 6,066,469 ------------ INVESTMENT MANAGERS 377,400 Amvescap PLC............................ 5,444,368 ------------ MAJOR BANKS 261,860 Barclays PLC+........................... 8,672,064 ------------ MISCELLANEOUS COMMERCIAL SERVICES 1,662,000 Hays PLC................................ 5,032,297 1,998,100 Rentokil Initial PLC.................... 8,027,830 ------------ 13,060,127 ------------ PHARMACEUTICALS: MAJOR 88,744 AstraZeneca PLC+........................ 4,084,185 736,761 GlaxoSmithKline PLC+.................... 18,479,227 ------------ 22,563,412 ------------ PUBLISHING: BOOKS/ MAGAZINES 1,188,901 Reed International PLC.................. 9,864,894 ------------ RESTAURANTS 324,071 Compass Group PLC....................... 2,429,513 ------------ WIRELESS COMMUNICATIONS 6,982,653 Vodafone Group PLC+..................... 18,270,955 ------------ TOTAL UNITED KINGDOM.................... 128,771,291 ------------ TOTAL COMMON STOCKS AND WARRANTS (COST $299,396,442).................... 329,047,310 ------------ PRINCIPAL AMOUNT IN THOUSANDS VALUE - ----------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (2.6%) U.S. GOVERNMENT AGENCY $ 8,700 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $8,699,635)...................... $ 8,699,635 ------------
TOTAL INVESTMENTS (COST $308,096,077) (b)................ 100.2% 337,746,945 LIABILITIES IN EXCESS OF OTHER ASSETS... (0.2) (692,997) ------ ------------ NET ASSETS.............................. 100.0% $337,053,948 ====== ============
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. + SOME OR ALL OF THESE SECURITIES ARE SEGREGATED IN CONNECTION WITH OPEN FORWARD FOREIGN CURRENCY CONTRACTS. ++ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; STOCKS WITH ATTACHED WARRANTS. (a) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $40,479,762 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $10,828,894, RESULTING IN NET UNREALIZED APPRECIATION OF $29,650,868. SEE NOTES TO FINANCIAL STATEMENTS 73 Morgan Stanley Variable Investment Series - European Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 2001: UNREALIZED CONTRACTS IN EXCHANGE DELIVERY APPRECIATION TO DELIVER FOR DATE (DEPRECIATION) - ----------------------------------------------------------------------------------------------- SEK 6,291,140 $ 594,120 01/02/02 $ (7,816) EUR 3,158,929 SEK 30,000,000 01/04/02 56,546 EUR 13,572,854 GBP 8,500,000 01/04/02 283,220 EUR 2,094,175 SEK 20,000,000 01/04/02 48,186 EUR 1,078,272 SEK 10,000,000 01/04/02 (3,678) GBP 10,400,000 EUR 16,810,798 01/04/02 (164,848) GBP 1,200,000 EUR 1,948,052 01/04/02 (11,590) GBP 2,350,000 EUR 3,800,437 01/04/02 (35,608) SEK 117,000,000 EUR 12,185,723 01/04/02 (339,951) --------- Net unrealized depreciation.................................... $(175,539) =========
CURRENCY ABBREVIATIONS: GBP British Pound. EUR Euro. SEK Swedish Krona. SEE NOTES TO FINANCIAL STATEMENTS 74 Morgan Stanley Variable Investment Series - European Growth SUMMARY OF INVESTMENTS / / DECEMBER 31, 2001
PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------ Advertising/Marketing Services.......... $ 13,078,427 3.9% Apparel/Footwear........................ 3,104,344 0.9 Beverages: Alcoholic.................... 11,124,737 3.3 Catalog/Specialty Distribution.......... 4,512,762 1.3 Chemicals: Agricultural................. 5,422,774 1.6 Consumer Sundries....................... 5,237,047 1.6 Electrical Products..................... 4,646,074 1.4 Electronic Equipment/ Instruments....... 11,011,472 3.3 Financial Conglomerates................. 24,474,003 7.2 Food Retail............................. 8,153,148 2.4 Food: Major Diversified................. 8,932,670 2.7 Food: Specialty/Candy................... 7,331,723 2.2 Household/Personal Care................. 3,409,767 1.0 Industrial Machinery.................... 2,533,994 0.8 Information Technology Services......... 7,722,004 2.3 Integrated Oil.......................... 15,867,179 4.7 Investment Managers..................... 5,444,368 1.6 Major Banks............................. 33,541,071 9.9 Major Telecommunications................ 23,520,013 7.0 Miscellaneous Commercial Services....... 16,834,842 5.0 PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------ Multi-Line Insurance.................... $ 6,211,858 1.8% Oil Refining/Marketing.................. 7,498,013 2.2 Other Consumer Specialties.............. 2,290,556 0.7 Personnel Services...................... 3,290,620 1.0 Pharmaceuticals: Major.................. 42,110,088 12.5 Publishing: Books/Magazines............. 9,864,894 2.9 Regional Banks.......................... 6,961,038 2.1 Restaurants............................. 4,121,198 1.2 Semiconductors.......................... 6,048,190 1.8 Telecommunication Equipment............. 3,143,855 0.9 U.S. Government Agency.................. 8,699,635 2.6 Water Utilities......................... 3,333,626 1.0 Wireless Communications................. 18,270,955 5.4 ------------ ------- $337,746,945 100.2% ============ ======= TYPE OF INVESTMENT - ------------------------------------------------------------------ Common Stocks........................... $329,006,871 97.6% Short-Term Investment................... 8,699,635 2.6 Warrants................................ 40,439 0.0 ------------ ------- $337,746,945 100.2% ============ =======
SEE NOTES TO FINANCIAL STATEMENTS 75 Morgan Stanley Variable Investment Series - Pacific Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- COMMON AND PREFERRED STOCKS (103.7%) AUSTRALIA (9.4%) AIRLINES 87,500 Qantas Airways Ltd...................... $ 164,317 ----------- BEVERAGES: ALCOHOLIC 65,350 Foster's Group Ltd...................... 162,072 ----------- INFORMATION TECHNOLOGY SERVICES 14,650 Computershare Ltd....................... 39,473 ----------- MAJOR BANKS 6,700 Australia & New Zealand Banking Group Ltd.................................... 60,889 7,750 Commonwealth Bank of Australia.......... 118,407 19,300 National Australia Bank Ltd............. 313,782 31,550 Westpac Banking Corp., Ltd.............. 253,655 ----------- 746,733 ----------- MAJOR TELECOMMUNICATIONS 92,000 Telstra Corp. Ltd....................... 255,395 ----------- MARINE SHIPPING 6,481 Lang Corporation Ltd.................... 37,041 ----------- MEDIA CONGLOMERATES 50,400 News Corp., Ltd. (The).................. 401,784 ----------- MEDICAL/NURSING SERVICES 12,150 Sonic Healthcare Ltd.................... 49,601 ----------- MISCELLANEOUS COMMERCIAL SERVICES 23,727 Brambles Industries Ltd................. 125,921 ----------- OTHER METALS/MINERALS 67,796 BHP Billiton Ltd........................ 363,264 114,600 M.I.M. Holdings Ltd..................... 66,668 20,600 Rio Tinto Ltd........................... 391,116 20,500 WMC Ltd................................. 100,144 ----------- 921,192 ----------- PHARMACEUTICALS: OTHER 6,950 CSL Ltd................................. 182,614 ----------- PRECIOUS METALS 104,500 Normandy Mining Ltd..................... 96,521 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- REAL ESTATE DEVELOPMENT 10,700 Lend Lease Corp., Ltd................... $ 71,256 ----------- TOTAL AUSTRALIA......................... 3,253,920 ----------- CHINA (1.2%) ALUMINUM 459,000 Aluminum Corp. of China Ltd.*........... 80,041 ----------- INTEGRATED OIL 562,000 China Petroleum & Chemical Corp. (Class H).............................. 77,105 724,000 PetroChina Co. Ltd...................... 128,109 ----------- 205,214 ----------- MAJOR TELECOMMUNICATIONS 88,000 China Unicom Ltd.*...................... 97,038 ----------- MISCELLANEOUS COMMERCIAL SERVICES 55,000 Travelsky Technology Ltd.*.............. 42,313 ----------- TOTAL CHINA............................. 424,606 ----------- HONG KONG (10.4%) ADVERTISING/MARKETING SERVICES 25,000 Clear Media Ltd.*....................... 18,272 ----------- APPAREL/FOOTWEAR RETAIL 147,000 Esprit Holdings Ltd..................... 165,867 ----------- COMPUTER PROCESSING HARDWARE 116,000 Legend Holdings Ltd..................... 59,123 ----------- ELECTRIC UTILITIES 268,000 Beijing Datang Power Generation Co., Ltd.................................... 85,049 17,000 CLP Holdings Ltd........................ 64,848 ----------- 149,897 ----------- ENGINEERING & CONSTRUCTION 95,000 New World Development Co., Ltd.......... 82,831 ----------- GAS DISTRIBUTORS 130,220 Hong Kong & China Gas Co., Ltd.......... 159,456 -----------
SEE NOTES TO FINANCIAL STATEMENTS 76 Morgan Stanley Variable Investment Series - Pacific Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- INDUSTRIAL CONGLOMERATES 64,900 Hutchison Whampoa Ltd................... $ 626,199 29,700 Swire Pacific Ltd. (Class A)............ 161,848 ----------- 788,047 ----------- INDUSTRIAL SPECIALTIES 97,000 China Merchants Holdings International Co., Ltd............................... 62,187 ----------- INVESTMENT BANKS/BROKERS 37,000 Hong Kong Exchanges & Clearing Ltd...... 56,219 ----------- MAJOR BANKS 11,000 Hang Seng Bank Ltd...................... 120,945 ----------- MISCELLANEOUS MANUFACTURING 114,400 Johnson Electric Holdings Ltd........... 120,282 ----------- MOTOR VEHICLES 188,500 Denway Motors Ltd....................... 58,612 ----------- OIL & GAS PRODUCTION 86,000 CNOOC Ltd............................... 81,049 ----------- REAL ESTATE DEVELOPMENT 34,000 Amoy Properties, Ltd.................... 34,876 18,000 Cheung Kong (Holdings) Ltd.............. 186,947 35,000 Henderson Land Development Co., Ltd..... 158,418 69,100 Sun Hung Kai Properties Ltd............. 558,187 9,000 Wharf (Holdings) Ltd. (The)............. 21,984 ----------- 960,412 ----------- REGIONAL BANKS 11,000 Bank of East Asia Ltd................... 23,695 ----------- SPECIALTY TELECOMMUNICATIONS 21,500 Asia Satellite Telecommunications Holdings Ltd........................... 35,149 ----------- WHOLESALE DISTRIBUTORS 31,000 Citic Pacific Ltd....................... 68,964 47,600 Li & Fung Ltd........................... 53,404 ----------- 122,368 ----------- WIRELESS COMMUNICATIONS 136,200 China Mobile Ltd.*...................... 479,381 NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 71,500 SmarTone Telecommunications Holdings Ltd.*.................................. $ 85,261 ----------- 564,642 ----------- TOTAL HONG KONG......................... 3,629,053 ----------- INDIA (3.5%) ELECTRICAL PRODUCTS 19,200 Bharat Heavy Electricals Ltd............ 55,925 ----------- INFORMATION TECHNOLOGY SERVICES 4,700 HCL Technologies Ltd.................... 26,708 3,200 Infosys Technologies Ltd................ 270,054 2,350 Wipro Ltd............................... 78,017 ----------- 374,779 ----------- MAJOR TELECOMMUNICATIONS 20,170 Videsh Sanchar Nigam Ltd................ 86,183 ----------- MOTOR VEHICLES 17,500 Hero Honda Motors Ltd................... 90,890 ----------- MOVIES/ENTERTAINMENT 15,000 Zee Telefilms Ltd....................... 34,695 ----------- OIL REFINING/MARKETING 7,800 Bharat Petroleum Corp., Ltd............. 30,541 8,000 Hindustan Petroleum Corp., Ltd.......... 23,137 ----------- 53,678 ----------- PHARMACEUTICALS: OTHER 1,400 Cipla Ltd............................... 33,015 9,100 Dr. Reddy's Laboratories Ltd............ 174,092 4,500 Ranbaxy Laboratories Ltd................ 64,358 ----------- 271,465 ----------- REGIONAL BANKS 5,800 HDFC Bank Ltd. (ADR)*................... 84,390 ----------- SPECIALTY TELECOMMUNICATIONS 29,700 Mahanagar Telephone Nigam Ltd........... 77,926 -----------
SEE NOTES TO FINANCIAL STATEMENTS 77 Morgan Stanley Variable Investment Series - Pacific Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- TOBACCO 5,000 ITC Ltd................................. $ 70,106 ----------- TOTAL INDIA............................. 1,200,037 ----------- INDONESIA (0.0%) INVESTMENT TRUSTS/MUTUAL FUNDS 500,000 Batavia Investment Fund Ltd.*........... -- ----------- JAPAN (54.1%) AUTO PARTS: O.E.M. 24,000 NIFCO Inc............................... 196,781 ----------- BUILDING PRODUCTS 68,000 Sanwa Shutter Corp...................... 146,614 ----------- CHEMICALS: MAJOR DIVERSIFIED 100,000 Mitsubishi Chemical Corp................ 211,813 ----------- CHEMICALS: SPECIALTY 100,000 Daicel Chemical Industries Ltd.......... 292,287 100,000 Denki Kagaku Kogyo Kabushiki Kaisha..... 230,793 64,000 Kaneka Corp............................. 388,217 43,000 Shin-Etsu Polymer Co., Ltd.............. 118,828 ----------- 1,030,125 ----------- COMMERCIAL PRINTING/FORMS 31,000 Dai Nippon Printing Co., Ltd............ 308,305 10,000 Nissha Printing Co., Ltd................ 45,551 ----------- 353,856 ----------- COMPUTER PERIPHERALS 25,000 Mitsumi Electric Co., Ltd............... 285,264 ----------- COMPUTER PROCESSING HARDWARE 60,000 Fujitsu Ltd............................. 434,558 ----------- ELECTRIC UTILITIES 18,000 Tokyo Electric Power Co................. 381,263 ----------- ELECTRICAL PRODUCTS 40,000 Furukawa Electric Co.................... 211,357 ----------- ELECTRONIC COMPONENTS 8,000 TDK Corp................................ 375,342 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- ELECTRONIC DISTRIBUTORS 17,100 Ryosan Co., Ltd......................... $ 188,240 ----------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 16,000 Canon, Inc.............................. 547,829 49,000 Casio Computer Co., Ltd................. 211,297 6,100 Kyocera Corp............................ 395,954 39,000 Matsushita Electric Industrial Co., Ltd.................................... 498,307 45,000 NEC Corp................................ 456,764 30,000 Ricoh Co., Ltd.......................... 555,724 114,000 Toshiba Corp............................ 389,462 ----------- 3,055,337 ----------- ELECTRONICS/APPLIANCES 10,100 Rinnai Corp............................. 161,790 11,500 Sony Corp............................... 522,965 ----------- 684,755 ----------- ENGINEERING & CONSTRUCTION 35,000 Kyudenko Corp........................... 116,915 80,000 Obayashi Corp........................... 225,934 13,000 Sanki Engineering Co., Ltd.............. 63,164 ----------- 406,013 ----------- FINANCE/RENTAL/LEASING 25,400 Hitachi Capital Corp.................... 379,882 ----------- FOOD RETAIL 16,500 FamilyMart Co., Ltd..................... 276,211 ----------- FOOD: MEAT/FISH/DAIRY 24,000 Nippon Meat Packers, Inc................ 253,265 ----------- FOOD: SPECIALTY/CANDY 20,000 House Foods Corp........................ 163,225 ----------- HOME BUILDING 53,000 Sekisui Chemical Co., Ltd............... 138,817 40,000 Sekisui House Ltd....................... 288,491 ----------- 427,308 ----------- HOME FURNISHINGS 4,000 Sangetsu Co., Ltd....................... 54,661 ----------- INDUSTRIAL CONGLOMERATES 67,000 Hitachi Ltd............................. 488,309 ----------- INDUSTRIAL MACHINERY 63,000 Amada Co., Ltd.......................... 248,709
SEE NOTES TO FINANCIAL STATEMENTS 78 Morgan Stanley Variable Investment Series - Pacific Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 68,000 Daifuku Co., Ltd........................ $ 273,611 30,000 Daikin Industries Ltd................... 468,038 16,000 Fuji Machine Manufacturing Co., Ltd..... 207,713 105,000 Mitsubishi Heavy Industries, Ltd........ 279,001 92,000 Tsubakimoto Chain Co.................... 209,535 ----------- 1,686,607 ----------- INDUSTRIAL SPECIALTIES 24,000 Fujitec Co., Ltd........................ 76,162 26,000 Lintec Corp............................. 159,687 ----------- 235,849 ----------- MAJOR BANKS 6 Mitsubishi Tokyo Financial Group, Inc.*.................................. 40,039 ----------- MAJOR TELECOMMUNICATIONS 113 Nippon Telegraph & Telephone Corp....... 366,315 ----------- MARINE SHIPPING 19,000 Mitsubishi Logistics Corp............... 133,860 ----------- METAL FABRICATIONS 55,000 Minebea Co., Ltd........................ 294,792 ----------- MISCELLANEOUS MANUFACTURING 31,000 Kurita Water Industries Ltd............. 382,911 ----------- MOTOR VEHICLES 92,000 Nissan Motor Co., Ltd................... 485,424 38,000 Suzuki Motor Corp....................... 413,696 18,000 Toyota Motor Corp....................... 453,690 ----------- 1,352,810 ----------- PHARMACEUTICALS: MAJOR 27,000 Sankyo Co., Ltd......................... 460,181 ----------- PHARMACEUTICALS: OTHER 13,000 Ono Pharmaceutical Co., Ltd............. 388,855 18,000 Yamanouchi Pharmaceutical Co., Ltd...... 472,821 ----------- 861,676 ----------- RAILROADS 58 East Japan Railway Co................... 278,728 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- REAL ESTATE DEVELOPMENT 49,000 Mitsubishi Estate Co., Ltd.............. $ 356,749 ----------- RECREATIONAL PRODUCTS 15,000 Fuji Photo Film Co., Ltd................ 532,949 4,100 Nintendo Co., Ltd....................... 714,356 33,000 Yamaha Corp............................. 243,015 ----------- 1,490,320 ----------- SEMICONDUCTORS 2,500 Rohm Co. Ltd............................ 322,844 ----------- TEXTILES 25,000 Nisshinbo Industries, Inc............... 92,241 ----------- WHOLESALE DISTRIBUTORS 10,000 Hitachi High-Technologies Corp.......... 107,729 39,000 Mitsubishi Corp......................... 251,966 27,000 Nagase & Co., Ltd....................... 111,714 ----------- 471,409 ----------- TOTAL JAPAN............................. 18,831,510 ----------- SINGAPORE (5.1%) AEROSPACE & DEFENSE 61,000 Singapore Technologies Engineering Ltd.................................... 77,612 ----------- AIRLINES 33,000 Singapore Airlines Ltd.................. 196,535 ----------- ELECTRONIC COMPONENTS 21,600 Venture Manufacturing Ltd............... 155,539 ----------- FINANCIAL CONGLOMERATES 52,000 Keppel Corp., Ltd....................... 79,957 ----------- MAJOR BANKS 38,182 DBS Group Holdings Ltd.................. 285,280 ----------- MAJOR TELECOMMUNICATIONS 66,000 Singapore Telecommunications Ltd........ 62,891 ----------- MARINE SHIPPING 166,000 Neptune Orient Lines Ltd.*.............. 87,179 99,000 Sembcorp Logistics Ltd.................. 96,481 ----------- 183,660 ----------- PUBLISHING: NEWSPAPERS 15,019 Singapore Press Holdings Ltd............ 177,268 -----------
SEE NOTES TO FINANCIAL STATEMENTS 79 Morgan Stanley Variable Investment Series - Pacific Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- REAL ESTATE DEVELOPMENT 47,000 Capitaland Ltd.......................... $ 47,585 31,400 City Developments Ltd................... 102,853 ----------- 150,438 ----------- REGIONAL BANKS 33,086 Oversea - Chinese Banking Corp., Ltd.... 197,047 27,363 United Overseas Bank Ltd................ 188,148 ----------- 385,195 ----------- SEMICONDUCTORS 13,000 Chartered Semiconductor Manufacturing Ltd.*.................................. 34,488 ----------- TOTAL SINGAPORE......................... 1,788,863 ----------- SOUTH KOREA (10.8%) ADVERTISING/MARKETING SERVICES 620 Cheil Communications, Inc............... 63,699 ----------- ELECTRIC UTILITIES 6,900 Korea Electric Power Corp............... 113,950 ----------- ELECTRONIC COMPONENTS 2,276 Samsung Electro Mechanics Co., Ltd...... 75,867 ----------- ELECTRONICS/APPLIANCES 9,070 Humax Co., Ltd.......................... 219,157 1,990 LG Electronics Inc...................... 37,559 ----------- 256,716 ----------- ENGINEERING & CONSTRUCTION 17,430 LG Construction Co., Ltd................ 187,034 ----------- FOOD: SPECIALTY/CANDY 1,880 Tong Yang Confectionery Corp............ 48,073 ----------- HOUSEHOLD/PERSONAL CARE 1,670 LG Household & Health Care Ltd.*........ 36,730 ----------- INDUSTRIAL MACHINERY 19,090 Hyundai Mobis........................... 274,582 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- INVESTMENT BANKS/BROKERS 5,530 LG Investment & Securities Co.*......... $ 62,707 2,170 Samsung Securities Co., Ltd.*........... 79,022 ----------- 141,729 ----------- MAJOR BANKS 4,397 Kookmin Bank............................ 166,639 ----------- MAJOR TELECOMMUNICATIONS 4,600 Korea Telecom Corp. (ADR)............... 93,518 ----------- MOTOR VEHICLES 10,790 Hyundai Motor Co., Ltd.................. 220,891 ----------- REGIONAL BANKS 10,660 Hana Bank............................... 137,103 2,220 Kookmin Credit Card Co., Ltd............ 84,475 17,300 Shinhan Financial Group Co., Ltd.*...... 231,062 ----------- 452,640 ----------- SEMICONDUCTORS 4,197 Samsung Electronics Co., Ltd............ 891,144 1,030 Samsung Electronics Ltd. (Pref.)........ 88,969 ----------- 980,113 ----------- SPECIALTY STORES 450 Shinsegae Co., Ltd...................... 47,603 ----------- STEEL 1,080 Pohang Iron & Steel Co., Ltd............ 100,274 ----------- TOBACCO 4,625 Korea Tobacco & Ginseng Corp. (GDR)-144A**........................... 34,687 ----------- WIRELESS COMMUNICATIONS 2,270 SK Telecom Co., Ltd..................... 462,983 ----------- TOTAL SOUTH KOREA....................... 3,757,728 ----------- TAIWAN (9.1%) COMPUTER COMMUNICATIONS 57,000 Accton Technology Corp.................. 146,488 5,200 Ambit Microsystems Corp................. 23,906 ----------- 170,394 -----------
SEE NOTES TO FINANCIAL STATEMENTS 80 Morgan Stanley Variable Investment Series - Pacific Growth PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- COMPUTER PERIPHERALS 47,400 Hon Hai Precison Industry Co., Ltd...... $ 216,562 ----------- COMPUTER PROCESSING HARDWARE 36,500 Asustek Computer, Inc................... 159,466 5,000 Quanta Computer Inc..................... 16,276 ----------- 175,742 ----------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 88,000 Au Optronics Corp.*..................... 93,981 ----------- ELECTRONIC PRODUCTION EQUIPMENT 4,360 ASE Test Ltd.*.......................... 60,735 ----------- FINANCIAL CONGLOMERATES 113,583 Fubon Financial Holding Co., Ltd.*...... 98,599 ----------- FOOD RETAIL 42,650 President Chain Store Corp.............. 90,123 ----------- REGIONAL BANKS 167,100 Bank Sinopac*........................... 69,665 387,531 Chinatrust Commercial Bank.............. 232,386 104,000 Taipei Bank............................. 77,807 ----------- 379,858 ----------- SEMICONDUCTORS 58,000 Advanced Semiconductor Engineering Inc.*.................................. 53,826 7,400 Faraday Technology Corp................. 34,866 108,915 Siliconware Precision Industries Co.*... 96,101 21,450 SunPlus Technology Co.*................. 66,151 377,000 Taiwan Semiconductor Manufacturing Co. Ltd.*.................................. 941,962 322,450 United Microelectronics Corp.*.......... 469,587 ----------- 1,662,493 ----------- STEEL 80,460 China Steel Corp........................ 31,361 ----------- TEXTILES 148,320 Formosa Chemical & Fibre Corp........... 99,529 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- WIRELESS COMMUNICATIONS 63,606 Taiwan Cellular Corp.*.................. $ 85,002 ----------- TOTAL TAIWAN............................ 3,164,379 ----------- UNITED STATES (0.1%) MEDICAL SPECIALTIES 8,150 ResMed Inc.*............................ 43,461 ----------- TOTAL COMMON AND PREFERRED STOCKS (COST $41,345,044)..................... 36,093,557 ----------- PRINCIPAL AMOUNT IN THOUSANDS - --------- SHORT-TERM INVESTMENT (a) (12.7%) U.S. GOVERNMENT AGENCY $ 4,400 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $4,399,815)...................... 4,399,815 -----------
TOTAL INVESTMENTS (COST $45,744,859) (b)................. 116.4% 40,493,372 LIABILITIES IN EXCESS OF OTHER ASSETS... (16.4) (5,714,762) ------ ----------- NET ASSETS.............................. 100.0% $34,778,610 ====== ===========
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. GDR GLOBAL DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. (A) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $52,124,705. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $2,765,576 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $14,396,909, RESULTING IN NET UNREALIZED DEPRECIATION OF $11,631,333. SEE NOTES TO FINANCIAL STATEMENTS 81 Morgan Stanley Variable Investment Series - Pacific Growth SUMMARY OF INVESTMENTS / / DECEMBER 31, 2001
PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Advertising/Marketing Services.......... $ 81,971 0.2% Aerospace & Defense..................... 77,612 0.2 Airlines................................ 360,852 1.0 Aluminum................................ 80,041 0.2 Apparel/Footwear Retail................. 165,867 0.5 Auto Parts: O.E.M....................... 196,781 0.6 Beverages: Alcoholic.................... 162,072 0.5 Building Products....................... 146,614 0.4 Chemicals: Major Diversified............ 211,813 0.6 Chemicals: Specialty.................... 1,030,125 3.0 Commercial Printing/Forms............... 353,856 1.0 Computer Communications................. 170,394 0.5 Computer Peripherals.................... 501,826 1.4 Computer Processing Hardware............ 669,423 1.9 Electric Utilities...................... 645,110 1.9 Electrical Products..................... 267,282 0.8 Electronic Components................... 606,748 1.7 Electronic Distributors................. 188,240 0.5 Electronic Equipment/ Instruments....... 3,149,318 9.1 Electronic Production Equipment......... 60,735 0.2 Electronics/Appliances.................. 941,471 2.7 Engineering & Construction.............. 675,878 1.9 Finance/Rental/Leasing.................. 379,882 1.1 Financial Conglomerates................. 178,556 0.5 Food Retail............................. 366,334 1.1 Food: Meat/Fish/Dairy................... 253,265 0.7 Food: Specialty/Candy................... 211,298 0.6 Gas Distributors........................ 159,456 0.5 Home Building........................... 427,308 1.2 Home Furnishings........................ 54,661 0.2 Household/Personal Care................. 36,730 0.1 Industrial Conglomerates................ 1,276,356 3.7 Industrial Machinery.................... 1,961,189 5.6 Industrial Specialties.................. 298,036 0.9 Information Technology Services......... 414,252 1.2 Integrated Oil.......................... 205,214 0.6 Investment Banks/Brokers................ 197,948 0.6 Major Banks............................. 1,359,636 3.9 PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Major Telecommunications................ $ 961,340 2.8% Marine Shipping......................... 354,561 1.0 Media Conglomerates..................... 401,784 1.2 Medical Specialties..................... 43,461 0.1 Medical/Nursing Services................ 49,601 0.1 Metal Fabrications...................... 294,792 0.8 Miscellaneous Commercial Services....... 168,234 0.5 Miscellaneous Manufacturing............. 503,193 1.4 Motor Vehicles.......................... 1,723,203 5.0 Movies/Entertainment.................... 34,695 0.1 Oil & Gas Production.................... 81,049 0.2 Oil Refining/Marketing.................. 53,678 0.2 Other Metals/Minerals................... 921,192 2.6 Pharmaceuticals: Major.................. 460,181 1.3 Pharmaceuticals: Other.................. 1,315,755 3.8 Precious Metals......................... 96,521 0.3 Publishing: Newspapers.................. 177,268 0.5 Railroads............................... 278,728 0.8 Real Estate Development................. 1,538,855 4.4 Recreational Products................... 1,490,320 4.3 Regional Banks.......................... 1,325,778 3.8 Semiconductors.......................... 2,999,938 8.6 Specialty Stores........................ 47,603 0.1 Specialty Telecommunications............ 113,075 0.3 Steel................................... 131,635 0.4 Textiles................................ 191,770 0.6 Tobacco................................. 104,793 0.3 U.S. Government Agencies & Obligations............................ 4,399,815 12.7 Wholesale Distributors.................. 593,777 1.7 Wireless Communications................. 1,112,627 3.2 ----------- ------- $40,493,372 116.4% =========== ======= TYPE OF INVESTMENT - ----------------------------------------------------------------- Common Stocks........................... $36,004,588 103.5% Preferred Stocks........................ 88,969 0.2 Short-Term Investment................... 4,399,815 12.7 ----------- ------- $40,493,372 116.4% =========== =======
SEE NOTES TO FINANCIAL STATEMENTS 82 Morgan Stanley Variable Investment Series - Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ------------------------------------------------------------------- COMMON STOCKS (92.5%) ADVERTISING/MARKETING SERVICES (1.1%) 433,200 DoubleClick Inc.*....................... $ 4,912,488 175,000 Lamar Advertising Co.*.................. 7,409,500 -------------- 12,321,988 -------------- AEROSPACE & DEFENSE (0.8%) 195,000 Lockheed Martin Corp.................... 9,100,650 -------------- AIR FREIGHT/ COURIERS (0.4%) 88,300 FedEx Corp.*............................ 4,581,004 -------------- AIRLINES (0.4%) 137,800 Ryanair Holdings PLC (ADR) (Ireland)*... 4,416,490 -------------- APPAREL/FOOTWEAR (1.4%) 272,900 Coach, Inc.*............................ 10,637,642 178,300 Polo Ralph Lauren Corp.*................ 4,771,308 -------------- 15,408,950 -------------- APPAREL/FOOTWEAR RETAIL (1.0%) 333,300 Hot Topic, Inc.*........................ 10,462,287 -------------- BIOTECHNOLOGY (7.5%) 55,000 Amgen Inc.*............................. 3,104,200 53,700 Aviron*................................. 2,670,501 216,000 Cephalon, Inc.*......................... 16,326,360 67,000 Genzyme Corp. (General Division)*....... 4,010,620 139,200 Gilead Sciences, Inc.*.................. 9,148,224 127,600 IDEC Pharmaceuticals Corp.*............. 8,795,468 242,700 MedImmune, Inc.*........................ 11,249,145 87,000 Myriad Genetics, Inc.*.................. 4,579,680 236,800 Neurocrine Biosciences, Inc.*........... 12,150,208 150,700 NPS Pharmaceuticals, Inc.*.............. 5,771,810 91,600 Trimeris, Inc.*......................... 4,119,252 -------------- 81,925,468 -------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------- BROADCASTING (0.8%) 315,900 USA Networks, Inc.*..................... $ 8,627,229 -------------- CABLE/SATELLITE TV (0.7%) 222,000 Comcast Corp. (Class A Special)*........ 7,992,000 -------------- COMPUTER COMMUNICATIONS (1.5%) 130,000 Brocade Communications Systems, Inc.*... 4,305,600 261,200 Cisco Systems, Inc.*.................... 4,730,332 180,300 Emulex Corp.*........................... 7,123,653 -------------- 16,159,585 -------------- COMPUTER PERIPHERALS (0.1%) 88,900 ATI Technologies Inc. (Canada)*......... 1,129,030 -------------- COMPUTER PROCESSING HARDWARE (3.6%) 467,200 Dell Computer Corp.*.................... 12,698,496 88,900 International Business Machines Corp.... 10,753,344 1,220,000 Sun Microsystems, Inc.*................. 15,054,800 -------------- 38,506,640 -------------- CONTAINERS/ PACKAGING (0.5%) 287,400 Pactiv Corp.*........................... 5,101,350 -------------- CONTRACT DRILLING (2.5%) 153,200 ENSCO International Inc................. 3,807,020 193,700 GlobalSantaFe Corp...................... 5,524,324 122,500 Nabors Industries, Inc.*................ 4,205,425 226,700 Rowan Companies, Inc.*.................. 4,391,179 257,600 Transocean Sedco Forex Inc.............. 8,712,032 -------------- 26,639,980 -------------- DATA PROCESSING SERVICES (0.5%) 80,800 Bisys Group, Inc. (The)*................ 5,170,392 --------------
SEE NOTES TO FINANCIAL STATEMENTS 83 Morgan Stanley Variable Investment Series - Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------- DISCOUNT STORES (2.7%) 115,400 99 Cents Only Stores*................... $ 4,396,740 97,200 Costco Wholesale Corp.*................. 4,313,736 366,100 Wal-Mart Stores, Inc.................... 21,069,055 -------------- 29,779,531 -------------- ELECTRICAL PRODUCTS (0.4%) 165,600 02Micro International Ltd. (Cayman Islands)*.............................. 3,982,680 -------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS (0.4%) 107,200 Waters Corp.*........................... 4,154,000 -------------- ELECTRONIC PRODUCTION EQUIPMENT (2.0%) 41,800 Brooks Automation, Inc.*................ 1,700,006 231,500 KLA-Tencor Corp.*....................... 11,473,140 119,700 Numerical Technologies, Inc.*........... 4,213,440 138,600 Photronics, Inc.*....................... 4,345,110 -------------- 21,731,696 -------------- ELECTRONICS/APPLIANCE STORES (1.0%) 212,200 Blockbuster, Inc. (Class A)............. 5,347,440 222,000 Circuit City Stores, Inc.-Circuit City Group.................................. 5,760,900 -------------- 11,108,340 -------------- FINANCIAL CONGLOMERATES (2.8%) 439,900 Citigroup, Inc.......................... 22,206,152 95,900 Prudential Financial, Inc.*............. 3,182,921 103,900 State Street Corp....................... 5,428,775 -------------- 30,817,848 -------------- FINANCIAL PUBLISHING/ SERVICES (0.4%) 108,400 Moody's Corp............................ 4,320,824 -------------- FOOD RETAIL (0.1%) 26,600 Whole Foods Market, Inc.*............... 1,158,696 -------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------- FOOD: MAJOR DIVERSIFIED (0.4%) 92,700 PepsiCo, Inc............................ $ 4,513,563 -------------- FOOD: MEAT/FISH/ DAIRY (1.0%) 80,100 Dean Foods Co.*......................... 5,462,820 151,000 Dreyer's Grand Ice Cream, Inc........... 5,815,010 -------------- 11,277,830 -------------- FOOD: SPECIALTY/ CANDY (0.3%) 103,300 Hain Celestial Group, Inc.*............. 2,836,618 -------------- HOME BUILDING (4.2%) 78,000 Beazer Homes USA Inc.*.................. 5,707,260 119,000 Centex Corp............................. 6,793,710 185,200 D.R. Horton, Inc........................ 6,011,592 224,700 KB HOME................................. 9,010,470 94,000 Lennar Corp............................. 4,401,080 123,400 Ryland Group, Inc. (The)................ 9,032,880 97,200 Toll Brothers, Inc.*.................... 4,267,080 -------------- 45,224,072 -------------- HOME IMPROVEMENT CHAINS (0.9%) 203,800 Lowe's Companies, Inc................... 9,458,358 -------------- HOSPITAL/NURSING MANAGEMENT (0.9%) 107,400 HCA Inc................................. 4,139,196 94,000 Tenet Healthcare Corp.*................. 5,519,680 -------------- 9,658,876 -------------- HOUSEHOLD/PERSONAL CARE (0.6%) 202,800 International Flavors & Fragrances, Inc.................................... 6,025,188 -------------- INDUSTRIAL CONGLOMERATES (2.4%) 538,000 General Electric Co..................... 21,563,040 68,300 United Technologies Corp................ 4,414,229 -------------- 25,977,269 --------------
SEE NOTES TO FINANCIAL STATEMENTS 84 Morgan Stanley Variable Investment Series - Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------- INDUSTRIAL SPECIALTIES (0.4%) 298,800 RPM, Inc................................ $ 4,320,648 -------------- INFORMATION TECHNOLOGY SERVICES (2.6%) 204,000 Accenture Ltd. (Class A) (Bermuda)*..... 5,491,680 179,100 Manhattan Associates, Inc.*............. 5,220,765 405,500 PeopleSoft, Inc.*....................... 16,301,100 37,600 Tier Technologies, Inc. (Class B)*...... 810,656 -------------- 27,824,201 -------------- INTEGRATED OIL (0.5%) 61,200 ChevronTexaco Corp...................... 5,484,132 -------------- INTERNET SOFTWARE/ SERVICES (5.2%) 300,500 Alloy Online, Inc.*..................... 6,469,765 284,800 BEA Systems, Inc.*...................... 4,388,768 171,300 Business Objects S.A. (ADR) (France)*... 5,789,940 620,600 Earthlink, Inc.*........................ 7,552,702 459,800 F5 Networks, Inc.*...................... 9,904,092 150,200 Internet Security Systems, Inc.*........ 4,815,412 74,200 PEC Solutions, Inc.*.................... 2,790,662 840,800 Yahoo! Inc.*............................ 14,915,792 -------------- 56,627,133 -------------- INVESTMENT BANKS/ BROKERS (3.4%) 114,000 Goldman Sachs Group, Inc. (The)......... 10,573,500 84,800 Legg Mason, Inc......................... 4,238,304 159,600 Lehman Brothers Holdings, Inc........... 10,661,280 84,900 Merrill Lynch & Co., Inc................ 4,424,988 453,000 Schwab (Charles) Corp................... 7,007,910 -------------- 36,905,982 -------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------- MAJOR BANKS (1.5%) 191,600 Bank of America Corp.................... $ 12,061,220 76,400 Comerica, Inc........................... 4,377,720 -------------- 16,438,940 -------------- MANAGED HEALTH CARE (0.6%) 95,100 Trigon Healthcare, Inc.*................ 6,604,695 -------------- MEDIA CONGLOMERATES (1.2%) 398,300 AOL Time Warner Inc.*................... 12,785,430 -------------- MEDICAL DISTRIBUTORS (0.3%) 44,200 Andrx Group*............................ 3,112,122 -------------- MEDICAL SPECIALTIES (2.5%) 310,900 Boston Scientific Corp.*................ 7,498,908 165,200 Guidant Corp.*.......................... 8,226,960 43,300 Medtronic, Inc.......................... 2,217,393 28,600 St. Jude Medical, Inc.*................. 2,220,790 212,740 Zimmer Holdings, Inc.*.................. 6,497,079 -------------- 26,661,130 -------------- MISCELLANEOUS COMMERCIAL SERVICES (1.0%) 46,800 Freemarkets, Inc.*...................... 1,121,796 123,300 MAXIMUS, Inc.*.......................... 5,185,998 99,600 Sabre Holdings Corp.*................... 4,218,060 -------------- 10,525,854 -------------- MULTI-LINE INSURANCE (1.3%) 170,600 American International Group, Inc....... 13,545,640 -------------- OIL & GAS PRODUCTION (0.3%) 76,010 Apache Corp............................. 3,791,379 -------------- OILFIELD SERVICES/ EQUIPMENT (0.7%) 79,100 Smith International, Inc.*.............. 4,241,342
SEE NOTES TO FINANCIAL STATEMENTS 85 Morgan Stanley Variable Investment Series - Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------- 94,000 Weatherford International, Inc.*........ $ 3,502,440 -------------- 7,743,782 -------------- OTHER CONSUMER SERVICES (3.0%) 134,200 eBay, Inc.*............................. 8,977,980 49,100 Expedia, Inc. (Class A)*................ 1,993,951 220,100 Hotel Reservations Network, Inc. (Class A)*.................................... 10,124,600 159,400 Travelocity.com Inc.*................... 4,576,374 190,500 Weight Watchers International, Inc.*.... 6,442,710 -------------- 32,115,615 -------------- PACKAGED SOFTWARE (5.8%) 302,200 Informatica Corp.*...................... 4,384,922 95,700 Intuit Inc.*............................ 4,092,132 49,100 Legato Systems, Inc.*................... 636,827 184,800 Mercury Interactive Corp.*.............. 6,279,504 472,000 Microsoft Corp.*........................ 31,279,440 481,600 Network Associates, Inc.*............... 12,449,360 92,500 VERITAS Software Corp.*................. 4,145,850 -------------- 63,268,035 -------------- PERSONNEL SERVICES (0.4%) 104,600 TMP Worldwide, Inc.*.................... 4,487,340 -------------- PHARMACEUTICALS: OTHER (0.9%) 70,087 Biovail Corp. (Canada)*................. 3,942,394 52,200 Forest Laboratories, Inc.*.............. 4,277,790 33,100 Sepracor, Inc.*......................... 1,888,686 -------------- 10,108,870 -------------- PROPERTY - CASUALTY INSURERS (2.0%) 109,400 Everest Re Group, Ltd. (Bermuda)........ 7,734,580 59,900 Progressive Corp. (The)................. 8,943,070 56,000 XL Capital Ltd. (Class A) (Bermuda)..... 5,116,160 -------------- 21,793,810 -------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------- RECREATIONAL PRODUCTS (0.8%) 236,500 JAKKS Pacific, Inc.*.................... $ 4,481,675 237,200 Mattel, Inc............................. 4,079,840 -------------- 8,561,515 -------------- REGIONAL BANKS (1.9%) 210,700 Compass Bancshares, Inc................. 5,962,810 149,700 Fifth Third Bancorp..................... 9,218,526 139,300 First Tennessee National Corp........... 5,051,018 -------------- 20,232,354 -------------- RESTAURANTS (2.4%) 93,100 CBRL Group, Inc......................... 2,740,864 86,300 CEC Entertainment, Inc.*................ 3,744,557 279,600 Darden Restaurants, Inc................. 9,897,840 173,500 Outback Steakhouse, Inc.*............... 5,942,375 110,500 Wendy's International, Inc.............. 3,223,285 -------------- 25,548,921 -------------- SEMICONDUCTORS (2.8%) 71,500 Genesis Microchip, Inc.*................ 4,727,580 326,300 Intel Corp.............................. 10,262,135 139,800 Intersil Holding Corp. (Class A)*....... 4,508,550 97,800 Microchip Technology Inc.*.............. 3,788,772 109,900 NVIDIA Corp.*........................... 7,352,310 -------------- 30,639,347 -------------- SERVICES TO THE HEALTH INDUSTRY (1.3%) 125,300 Laboratory Corp. of America Holdings*... 10,130,505 62,700 Quest Diagnostics Inc.*................. 4,496,217 -------------- 14,626,722 -------------- SPECIALTY INSURANCE (0.4%) 73,500 MBIA, Inc............................... 3,941,805 -------------- SPECIALTY STORES (2.0%) 95,700 AutoZone, Inc.*......................... 6,871,260 111,100 Bed Bath & Beyond Inc.*................. 3,766,290
SEE NOTES TO FINANCIAL STATEMENTS 86 Morgan Stanley Variable Investment Series - Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------- 273,500 Sonic Automotive, Inc.*................. $ 6,410,840 101,600 Williams-Sonoma, Inc.*.................. 4,358,640 -------------- 21,407,030 -------------- TELECOMMUNICATION EQUIPMENT (1.7%) 218,400 Microtune, Inc.*........................ 5,123,664 284,400 Polycom, Inc.*.......................... 9,783,360 73,500 QUALCOMM Inc.*.......................... 3,711,750 -------------- 18,618,774 -------------- TRUCKING (0.4%) 188,900 Hunt (J.B.) Tansport Services, Inc.*.... 4,382,480 -------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (0.5%) 124,800 Deere & Co.............................. 5,448,768 -------------- WIRELESS COMMUNICATIONS (1.4%) 606,900 Sprint Corp. (PCS Group)*............... 14,814,429 -------------- TOTAL COMMON STOCKS (COST $913,302,710).................... 1,001,935,315 -------------- PRINCIPAL AMOUNT IN THOUSANDS - --------- SHORT-TERM INVESTMENTS (10.0%) U.S. GOVERNMENT AGENCY (a) (9.8%) $107,000 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $106,995,512).................... 106,995,512 -------------- PRINCIPAL AMOUNT IN THOUSANDS VALUE - ------------------------------------------------------------------- REPURCHASE AGREEMENT (0.2%) $ 1,813 The Bank of New York 0.875% due 01/02/02 (dated 12/31/01; proceeds $1,813,214) (b) (COST $1,813,126)...................... $ 1,813,126 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $108,808,638).................... 108,808,638 --------------
TOTAL INVESTMENTS (COST $1,022,111,348) (c).............. 102.5% 1,110,743,953 LIABILITIES IN EXCESS OF OTHER ASSETS... (2.5) (27,299,486) ------ -------------- NET ASSETS.............................. 100.0% $1,083,444,467 ====== ==============
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) COLLATERALIZED BY $1,849,389 FEDERAL HOME LOAN MORTGAGE CORP. 5.775% DUE 06/26/06 VALUED AT $1,847,930. (c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $102,190,130 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $13,557,525, RESULTING IN NET UNREALIZED APPRECIATION OF $88,632,605. SEE NOTES TO FINANCIAL STATEMENTS 87 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- COMMON STOCKS (96.6%) ADVERTISING/MARKETING SERVICES (0.3%) 7,379 Interpublic Group of Companies, Inc..... $ 217,976 3,631 Omnicom Group, Inc...................... 324,430 ------------ 542,406 ------------ AEROSPACE & DEFENSE (0.9%) 16,364 Boeing Co............................... 634,596 3,943 General Dynamics Corp................... 314,021 1,992 Goodrich Corp........................... 53,027 8,607 Lockheed Martin Corp.................... 401,689 2,158 Northrop Grumman Corp................... 217,548 7,638 Raytheon Co............................. 248,006 3,588 Rockwell Collins, Inc................... 69,966 ------------ 1,938,853 ------------ AGRICULTURAL COMMODITIES/ MILLING (0.1%) 12,921 Archer-Daniels-Midland Co............... 185,416 ------------ AIR FREIGHT/COURIERS (0.1%) 5,825 FedEx Corp.*............................ 302,201 ------------ AIRLINES (0.2%) 3,018 AMR Corp................................ 66,909 2,408 Delta Air Lines, Inc.................... 70,458 14,954 Southwest Airlines Co................... 276,350 1,331 US Airways Group, Inc.*................. 8,439 ------------ 422,156 ------------ ALTERNATIVE POWER GENERATION (0.0%) 5,966 Calpine Corp.*.......................... 100,169 ------------ ALUMINUM (0.4%) 6,270 Alcan Inc. (Canada)..................... 225,281 16,595 Alcoa, Inc.............................. 589,952 ------------ 815,233 ------------ APPAREL/FOOTWEAR (0.3%) 3,316 Cintas Corp............................. 160,461 2,451 Jones Apparel Group, Inc.*.............. 81,300 1,028 Liz Claiborne, Inc...................... 51,143 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 5,249 Nike, Inc. (Class B).................... $ 295,204 1,151 Reebok International Inc. (United Kingdom)*.............................. 30,501 2,168 VF Corp................................. 84,574 ------------ 703,183 ------------ APPAREL/FOOTWEAR RETAIL (0.3%) 16,851 Gap, Inc. (The)......................... 234,903 8,374 Limited, Inc. (The)..................... 123,265 2,626 Nordstrom, Inc.......................... 53,124 5,329 TJX Companies, Inc. (The)............... 212,414 ------------ 623,706 ------------ AUTO PARTS: O.E.M. (0.3%) 2,902 Dana Corp............................... 40,280 10,947 Delphi Automotive Systems Corp.......... 149,536 1,354 Eaton Corp.............................. 100,751 1,705 Johnson Controls, Inc................... 137,679 2,468 TRW Inc................................. 91,415 2,547 Visteon Corp............................ 38,307 ------------ 557,968 ------------ AUTOMOTIVE AFTERMARKET (0.0%) 1,418 Cooper Tire & Rubber Co................. 22,631 3,188 Goodyear Tire & Rubber Co. (The)........ 75,906 ------------ 98,537 ------------ BEVERAGES: ALCOHOLIC (0.4%) 17,278 Anheuser-Busch Companies, Inc........... 781,138 1,334 Brown-Forman Corp. (Class B)............ 83,508 706 Coors (Adolph) Co. (Class B)............ 37,700 ------------ 902,346 ------------ BEVERAGES: NON-ALCOHOLIC (1.2%) 48,589 Coca Cola Co............................ 2,290,971 8,690 Coca-Cola Enterprises Inc............... 164,589
SEE NOTES TO FINANCIAL STATEMENTS 88 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 5,547 Pepsi Bottling Group, Inc. (The)........ $ 130,354 ------------ 2,585,914 ------------ BIOTECHNOLOGY (1.0%) 20,428 Amgen Inc.*............................. 1,152,956 2,890 Biogen, Inc.*........................... 165,741 3,696 Chiron Corp.*........................... 162,033 4,146 Genzyme Corp. (General Division)*....... 248,180 10,642 Immunex Corp.*.......................... 294,890 4,182 MedImmune, Inc.*........................ 193,836 ------------ 2,217,636 ------------ BROADCASTING (0.4%) 11,677 Clear Channel Communications, Inc.*..... 594,476 4,105 Univision Communications, Inc. (Class A)*............................. 166,088 ------------ 760,564 ------------ BUILDING PRODUCTS (0.1%) 8,967 Masco Corp.............................. 219,691 ------------ CABLE/SATELLITE TV (0.3%) 18,463 Comcast Corp. (Class A Special)*........ 664,668 ------------ CASINO/GAMING (0.0%) 2,197 Harrah's Entertainment, Inc.*........... 81,311 ------------ CHEMICALS: MAJOR DIVERSIFIED (0.8%) 17,622 Dow Chemical Co. (The).................. 595,271 20,031 Du Pont (E.I.) de Nemours & Co., Inc............................... 851,518 1,507 Eastman Chemical Co..................... 58,803 2,120 Hercules Inc.*.......................... 21,200 4,306 Rohm & Haas Co.......................... 149,117 ------------ 1,675,909 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- CHEMICALS: SPECIALTY (0.3%) 4,442 Air Products & Chemicals, Inc........... $ 208,374 2,536 Engelhard Corp.......................... 70,196 981 Great Lakes Chemical Corp............... 23,819 3,143 Praxair, Inc............................ 173,651 1,433 Sigma-Aldrich Corp...................... 56,475 ------------ 532,515 ------------ COMMERCIAL PRINTING/ FORMS (0.1%) 1,292 Deluxe Corp............................. 53,721 2,237 Donnelley (R.R.) & Sons Co.............. 66,417 ------------ 120,138 ------------ COMPUTER COMMUNICATIONS (1.3%) 5,606 Avaya Inc.*............................. 68,113 143,318 Cisco Systems, Inc.*.................... 2,595,489 ------------ 2,663,602 ------------ COMPUTER PERIPHERALS (0.4%) 43,290 EMC Corp.*.............................. 581,818 2,540 Lexmark International Group, Inc.*...... 149,860 6,470 Network Appliance, Inc.*................ 141,499 1,810 QLogic Corp.*........................... 80,563 ------------ 953,740 ------------ COMPUTER PROCESSING HARDWARE (3.6%) 6,855 Apple Computer, Inc.*................... 150,124 33,099 Compaq Computer Corp.................... 323,046 50,997 Dell Computer Corp.*.................... 1,386,098 6,330 Gateway, Inc.*.......................... 50,893 37,907 Hewlett-Packard Co...................... 778,610 33,659 International Business Machines Corp.... 4,071,393 1,898 NCR Corp.*.............................. 69,960 11,098 Palm, Inc.*............................. 43,060 63,338 Sun Microsystems, Inc.*................. 781,591 ------------ 7,654,775 ------------
SEE NOTES TO FINANCIAL STATEMENTS 89 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- CONSTRUCTION MATERIALS (0.0%) 1,979 Vulcan Materials Co..................... $ 94,873 ------------ CONSUMER SUNDRIES (0.0%) 1,241 American Greetings Corp. (Class A)...... 17,101 ------------ CONTAINERS/ PACKAGING (0.1%) 535 Ball Corp............................... 37,824 1,032 Bemis Company, Inc...................... 50,754 3,113 Pactiv Corp.*........................... 55,256 1,636 Sealed Air Corp.*....................... 66,782 964 Temple-Inland, Inc...................... 54,688 ------------ 265,304 ------------ CONTRACT DRILLING (0.2%) 2,752 Nabors Industries, Inc.*................ 94,476 2,584 Noble Drilling Corp.*................... 87,959 1,832 Rowan Companies, Inc.*.................. 35,486 6,229 Transocean Sedco Forex Inc.............. 210,665 ------------ 428,586 ------------ DATA PROCESSING SERVICES (1.0%) 12,048 Automatic Data Processing, Inc.......... 709,627 9,843 Concord EFS, Inc.*...................... 322,654 7,454 First name Corp......................... 584,766 3,657 Fiserv, Inc.*........................... 154,764 7,314 Paychex, Inc............................ 256,283 ------------ 2,028,094 ------------ DEPARTMENT STORES (0.6%) 1,636 Dillard's, Inc. (Class A)............... 26,176 3,765 Federated Department Stores, Inc.*...... 153,988 6,545 Kohl's Corp.*........................... 461,030 5,846 May Department Stores Co................ 216,185 5,155 Penney (J.C.) Co., Inc.................. 138,669 6,303 Sears, Roebuck & Co..................... 300,275 ------------ 1,296,323 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- DISCOUNT STORES (3.0%) 2,224 Big Lots, Inc.*......................... $ 23,130 8,836 Costco Wholesale Corp.*................. 392,142 6,460 Dollar General Corp..................... 96,254 3,368 Family Dollar Stores, Inc............... 100,973 9,739 Kmart Corp.*............................ 53,175 17,640 Target Corp............................. 724,122 87,088 Wal-Mart Stores, Inc.................... 5,011,914 ------------ 6,401,710 ------------ DRUGSTORE CHAINS (0.4%) 7,636 CVS Corp................................ 226,026 19,931 Walgreen Co............................. 670,877 ------------ 896,903 ------------ ELECTRIC UTILITIES (2.3%) 10,415 AES Corp. (The)*........................ 170,285 2,443 Allegheny Energy, Inc................... 88,485 2,689 Ameren Corp............................. 113,745 6,296 American Electric Power Co., Inc........ 274,065 3,109 Cinergy Corp............................ 103,934 2,598 CMS Energy Corp......................... 62,430 4,147 Consolidated Edison, Inc................ 167,373 3,199 Constellation Energy Group, Inc......... 84,933 5,139 Dominion Resources, Inc................. 308,854 3,178 DTE Energy Co........................... 133,285 15,165 Duke Energy Corp........................ 595,378 6,366 Edison International*................... 96,127 4,319 Entergy Corp............................ 168,916 6,270 Exelon Corp............................. 300,208 5,815 FirstEnergy Corp........................ 203,409 3,436 FPL Group, Inc.......................... 193,790 6,655 Mirant Corp.*........................... 106,613 3,131 Niagara Mohawk Holdings Inc.*........... 55,513 7,567 PG&E Corp.*............................. 145,589 1,654 Pinnacle West Capital Corp.............. 69,220 2,862 PPL Corp................................ 99,741 4,274 Progress Energy, Inc.................... 192,458
SEE NOTES TO FINANCIAL STATEMENTS 90 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 4,054 Public Service Enterprise Group, Inc............................. $ 171,038 5,826 Reliant Energy, Inc..................... 154,506 13,582 Southern Co. (The)...................... 344,304 2,727 TECO Energy, Inc........................ 71,556 5,180 TXU Corp................................ 244,237 6,751 Xcel Energy, Inc........................ 187,273 ------------ 4,907,265 ------------ ELECTRICAL PRODUCTS (0.4%) 3,821 American Power Conversion Corp.*........ 55,252 1,830 Cooper Industries, Inc.................. 63,904 8,362 Emerson Electric Co..................... 477,470 3,824 Molex Inc............................... 118,353 1,541 Power-One, Inc.*........................ 16,042 1,136 Thomas & Betts Corp..................... 24,026 ------------ 755,047 ------------ ELECTRONIC COMPONENTS (0.2%) 3,852 Jabil Circuit, Inc.*.................... 87,517 10,178 Sanmina-SCI Corp.*...................... 202,542 16,034 Solectron Corp.*........................ 180,864 ------------ 470,923 ------------ ELECTRONIC EQUIPMENT/ INSTRUMENTS (0.5%) 9,000 Agilent Technologies, Inc.*............. 256,590 25,942 JDS Uniphase Corp.*..................... 226,474 2,407 PerkinElmer, Inc........................ 84,293 3,591 Rockwell International Corp............. 64,135 4,462 Symbol Technologies, Inc................ 70,857 1,798 Tektronix, Inc.*........................ 46,352 3,474 Thermo Electron Corp.*.................. 82,890 2,555 Waters Corp.*........................... 99,006 14,068 Xerox Corp.............................. 146,589 ------------ 1,077,186 ------------ ELECTRONIC PRODUCTION EQUIPMENT (0.5%) 15,949 Applied Materials, Inc.*................ 639,555 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 3,621 KLA-Tencor Corp.*....................... $ 179,457 2,800 Novellus Systems, Inc.*................. 110,460 3,534 Teradyne, Inc.*......................... 106,515 ------------ 1,035,987 ------------ ELECTRONICS/APPLIANCE STORES (0.2%) 4,120 Best Buy Co., Inc.*..................... 306,858 4,070 Circuit City Stores, Inc.-Circuit City Group.................................. 105,616 3,502 RadioShack Corp......................... 105,410 ------------ 517,884 ------------ ELECTRONICS/ APPLIANCES (0.1%) 1,500 Maytag Corp............................. 46,545 1,308 Whirlpool Corp.......................... 95,916 ------------ 142,461 ------------ ENGINEERING & CONSTRUCTION (0.0%) 1,565 Fluor Corp.............................. 58,531 ------------ ENVIRONMENTAL SERVICES (0.2%) 3,849 Allied Waste Industries, Inc.*.......... 54,117 12,267 Waste Management, Inc................... 391,440 ------------ 445,557 ------------ FINANCE/RENTAL/ LEASING (2.0%) 4,198 Capital One Financial Corp.............. 226,482 2,388 Countrywide Credit Industries, Inc...... 97,836 19,520 Fannie Mae.............................. 1,551,840 13,581 Freddie Mac............................. 888,197 8,943 Household International, Inc............ 518,157 16,643 MBNA Corp............................... 585,834 5,553 Providian Financial Corp................ 19,713 1,185 Ryder System, Inc....................... 26,248 3,063 USA Education Inc....................... 257,353 ------------ 4,171,660 ------------
SEE NOTES TO FINANCIAL STATEMENTS 91 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- FINANCIAL CONGLOMERATES (3.8%) 26,070 American Express Co..................... $ 930,438 100,525 Citigroup, Inc.......................... 5,074,502 6,736 Conseco, Inc.*.......................... 30,043 5,836 Hancock (John) Financial Services , Inc.................................. 241,027 38,551 J.P. Morgan Chase & Co.................. 1,401,329 6,357 State Street Corp....................... 332,153 ------------ 8,009,492 ------------ FINANCIAL PUBLISHING/ SERVICES (0.2%) 2,831 Equifax, Inc............................ 68,369 3,777 McGraw-Hill Companies, Inc. (The)....... 230,321 3,048 Moody's Corporation..................... 121,493 ------------ 420,183 ------------ FOOD DISTRIBUTORS (0.2%) 2,605 Supervalu, Inc.......................... 57,623 13,023 SYSCO Corp.............................. 341,463 ------------ 399,086 ------------ FOOD RETAIL (0.5%) 7,934 Albertson's, Inc........................ 249,842 15,696 Kroger Co.*............................. 327,576 9,807 Safeway Inc.*........................... 409,442 2,746 Winn-Dixie Stores, Inc.................. 39,130 ------------ 1,025,990 ------------ FOOD: MAJOR DIVERSIFIED (1.8%) 8,004 Campbell Soup Co........................ 239,079 7,118 General Mills, Inc...................... 370,207 6,842 Heinz (H.J.) Co......................... 281,343 7,942 Kellogg Co.............................. 239,054 34,186 PepsiCo, Inc............................ 1,664,516 15,305 Sara Lee Corp........................... 340,230 11,168 Unilever N.V. (Netherlands)............. 643,388 ------------ 3,777,817 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- FOOD: MEAT/FISH/ DAIRY (0.1%) 10,498 ConAgra Foods Inc....................... $ 249,537 ------------ FOOD: SPECIALTY/ CANDY (0.2%) 2,650 Hershey Foods Corp...................... 179,405 4,401 Wrigley (Wm.) Jr. Co.................... 226,079 ------------ 405,484 ------------ FOREST PRODUCTS (0.1%) 2,041 Louisiana-Pacific Corp.................. 17,226 4,225 Weyerhaeuser Co......................... 228,488 ------------ 245,714 ------------ GAS DISTRIBUTORS (0.3%) 6,857 Dynegy, Inc. (Class A).................. 174,853 2,718 KeySpan Corp............................ 94,179 2,181 Kinder Morgan, Inc...................... 121,460 875 Nicor Inc............................... 36,435 4,041 NiSource Inc............................ 93,185 692 Peoples Energy Corp..................... 26,248 4,048 Sempra Energy........................... 99,378 ------------ 645,738 ------------ HOME BUILDING (0.1%) 1,187 Centex Corp............................. 67,766 983 KB HOME................................. 39,418 1,151 Pulte Homes, Inc........................ 51,415 ------------ 158,599 ------------ HOME FURNISHINGS (0.1%) 3,839 Leggett & Platt, Inc.................... 88,297 5,211 Newell Rubbermaid, Inc.................. 143,667 1,136 Tupperware Corp......................... 21,868 ------------ 253,832 ------------ HOME IMPROVEMENT CHAINS (1.4%) 45,787 Home Depot, Inc. (The).................. 2,335,595 15,130 Lowe's Companies, Inc................... 702,183 ------------ 3,037,778 ------------
SEE NOTES TO FINANCIAL STATEMENTS 92 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- HOSPITAL/NURSING MANAGEMENT (0.4%) 10,063 HCA Inc................................. $ 387,828 4,791 Health Management Associates, Inc. (Class A)*............................. 88,154 2,000 Manor Care, Inc.*....................... 47,420 6,360 Tenet Healthcare Corp.*................. 373,459 ------------ 896,861 ------------ HOTELS/RESORTS/ CRUISELINES (0.3%) 11,453 Carnival Corp........................... 321,600 7,216 Hilton Hotels Corp...................... 78,799 4,709 Marriott International, Inc. (Class A).............................. 191,421 3,864 Starwood Hotels & Resorts Worldwide, Inc......................... 115,340 ------------ 707,160 ------------ HOUSEHOLD/PERSONAL CARE (2.1%) 1,108 Alberto-Culver Co. (Class B)............ 49,572 4,616 Avon Products, Inc...................... 214,644 4,544 Clorox Co............................... 179,715 10,780 Colgate-Palmolive Co.................... 622,545 20,620 Gillette Co............................. 688,708 1,853 International Flavors & Fragrances, Inc........................ 55,053 10,261 Kimberly-Clark Corp..................... 613,608 25,315 Procter & Gamble Co. (The).............. 2,003,176 ------------ 4,427,021 ------------ INDUSTRIAL CONGLOMERATES (5.9%) 193,973 General Electric Co.**.................. 7,774,438 15,889 Honeywell International, Inc............ 537,366 3,282 Ingersoll-Rand Co....................... 137,220 1,727 ITT Industries, Inc..................... 87,213 7,661 Minnesota Mining & Manufacturing Co..... 905,607 2,760 Textron, Inc............................ 114,430 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 38,983 Tyco International Ltd. (Bermuda)....... $ 2,296,099 9,155 United Technologies Corp................ 591,688 ------------ 12,444,061 ------------ INDUSTRIAL MACHINERY (0.2%) 5,953 Illinois Tool Works Inc................. 403,137 1,205 McDermott International, Inc.*.......... 14,785 2,291 Parker-Hannifin Corp.................... 105,180 ------------ 523,102 ------------ INDUSTRIAL SPECIALTIES (0.2%) 2,498 Ecolab, Inc............................. 100,544 933 Millipore Corp.......................... 56,633 3,290 PPG Industries, Inc..................... 170,159 3,018 Sherwin-Williams Co..................... 82,995 ------------ 410,331 ------------ INFORMATION TECHNOLOGY SERVICES (0.6%) 3,668 Citrix Systems, Inc.*................... 83,117 3,328 Computer Sciences Corp.*................ 163,005 9,263 Electronic Data Systems Corp............ 634,979 5,918 PeopleSoft, Inc.*....................... 237,904 2,469 Sapient Corp.*.......................... 19,061 6,235 Unisys Corp.*........................... 78,187 ------------ 1,216,253 ------------ INSURANCE BROKERS/ SERVICES (0.4%) 5,260 AON Corp................................ 186,835 5,366 Marsh & McLennan Companies, Inc......... 576,577 ------------ 763,412 ------------ INTEGRATED OIL (4.8%) 1,733 Amerada Hess Corp....................... 108,312 20,844 ChevronTexaco Corp...................... 1,867,831 12,221 Conoco Inc.............................. 345,854 133,658 Exxon Mobil Corp........................ 5,252,759 7,450 Phillips Petroleum Co................... 448,937
SEE NOTES TO FINANCIAL STATEMENTS 93 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 41,501 Royal Dutch Petroleum Co. (ADR) (Netherlands).......................... $ 2,034,379 ------------ 10,058,072 ------------ INTERNET SOFTWARE/ SERVICES (0.2%) 9,034 Siebel Systems, Inc.*................... 252,771 11,130 Yahoo! Inc.*............................ 197,446 ------------ 450,217 ------------ INVESTMENT BANKS/ BROKERS (1.4%) 1,839 Bear Stearns Companies, Inc. (The)...... 107,839 4,656 Lehman Brothers Holdings, Inc........... 311,021 16,536 Merrill Lynch & Co., Inc................ 861,856 21,429 Morgan Stanley Dean Witter & Co. (Note 4)..................................... 1,198,738 26,703 Schwab (Charles) Corp................... 413,095 ------------ 2,892,549 ------------ INVESTMENT MANAGERS (0.2%) 5,096 Franklin Resources, Inc................. 179,736 2,412 Price (T.) Rowe Group, Inc.............. 83,769 4,325 Stilwell Financial, Inc................. 117,726 ------------ 381,231 ------------ LIFE/HEALTH INSURANCE (0.6%) 10,203 AFLAC, Inc.............................. 250,586 2,940 Jefferson-Pilot Corp.................... 136,034 3,702 Lincoln National Corp................... 179,806 14,161 MetLife, Inc............................ 448,620 2,426 Torchmark Corp.......................... 95,415 4,730 UnumProvident Corp...................... 125,392 ------------ 1,235,853 ------------ MAJOR BANKS (4.1%) 30,741 Bank of America Corp.................... 1,935,146 14,390 Bank of New York Co., Inc............... 587,112 22,784 Bank One Corp........................... 889,715 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 8,852 BB&T Corp............................... $ 319,646 3,480 Comerica, Inc........................... 199,404 20,419 FleetBoston Financial Corp.............. 745,293 4,908 Huntington Bancshares, Inc.............. 84,369 8,274 KeyCorp................................. 201,389 9,141 Mellon Financial Corp................... 343,884 11,841 National City Corp...................... 346,231 5,550 PNC Financial Services Group, Inc....... 311,910 6,696 SouthTrust Corp......................... 165,190 5,643 SunTrust Banks, Inc..................... 353,816 26,590 Wachovia Corp........................... 833,862 33,123 Wells Fargo & Co........................ 1,439,194 ------------ 8,756,161 ------------ MAJOR TELECOMMUNICATIONS (4.4%) 6,065 ALLTEL Corp............................. 374,392 69,130 AT&T Corp............................... 1,254,018 36,674 BellSouth Corp.......................... 1,399,113 65,682 SBC Communications, Inc................. 2,572,764 17,333 Sprint Corp. (FON Group)................ 348,047 53,038 Verizon Communications Inc.............. 2,517,183 57,629 WorldCom, Inc.- WorldCom Group*......... 811,416 ------------ 9,276,933 ------------ MANAGED HEALTH CARE (0.5%) 2,801 Aetna Inc............................... 92,405 2,826 CIGNA Corp.............................. 261,829 3,296 Humana, Inc.*........................... 38,860 6,092 UnitedHealth Group Inc.................. 431,131 1,246 Wellpoint Health Networks, Inc.*........ 145,595 ------------ 969,820 ------------ MEDIA CONGLOMERATES (2.4%) 86,493 AOL Time Warner Inc.*................... 2,776,425 39,833 Disney (Walt) Co. (The)................. 825,340
SEE NOTES TO FINANCIAL STATEMENTS 94 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 34,650 Viacom, Inc. (Class B) (Non-Voting)*.... $ 1,529,797 ------------ 5,131,562 ------------ MEDICAL DISTRIBUTORS (0.4%) 2,010 Amerisource Bergen Corp................. 127,735 8,810 Cardinal Health, Inc.................... 569,655 5,588 McKesson HBOC, Inc...................... 208,991 ------------ 906,381 ------------ MEDICAL SPECIALTIES (1.6%) 4,141 Applera Corp. - Applied Biosystems Group.................................. 162,617 999 Bard (C.R.), Inc........................ 64,435 1,048 Bausch & Lomb, Inc...................... 39,468 11,535 Baxter International, Inc............... 618,622 5,052 Becton, Dickinson & Co.................. 167,474 5,268 Biomet, Inc............................. 162,781 7,881 Boston Scientific Corp.*................ 190,090 5,954 Guidant Corp.*.......................... 296,509 23,655 Medtronic, Inc.......................... 1,211,373 2,387 Pall Corp............................... 57,431 1,701 St. Jude Medical, Inc.*................. 132,083 3,842 Stryker Corp............................ 224,258 3,787 Zimmer Holdings, Inc.*.................. 115,655 ------------ 3,442,796 ------------ MISCELLANEOUS COMMERCIAL SERVICES (0.1%) 3,362 Convergys Corp.*........................ 126,041 2,608 Sabre Holdings Corp.*................... 110,449 ------------ 236,490 ------------ MISCELLANEOUS MANUFACTURING (0.2%) 1,166 Crane Co................................ 29,896 2,793 Danaher Corp............................ 168,446 3,955 Dover Corp.............................. 146,612 ------------ 344,954 ------------ MOTOR VEHICLES (0.7%) 35,383 Ford Motor Co........................... 556,221 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 10,854 General Motors Corp..................... $ 527,504 5,915 Harley-Davidson, Inc.................... 321,244 ------------ 1,404,969 ------------ MULTI-LINE INSURANCE (2.2%) 51,046 American International Group, Inc....... 4,053,052 4,790 Hartford Financial Services Group, Inc. (The).................................. 300,956 3,742 Loews Corp.............................. 207,232 2,497 Safeco Corp............................. 77,782 ------------ 4,639,022 ------------ OFFICE EQUIPMENT/ SUPPLIES (0.1%) 2,147 Avery Dennison Corp..................... 121,370 4,765 Pitney Bowes, Inc....................... 179,212 ------------ 300,582 ------------ OIL & GAS PIPELINES (0.3%) 9,971 El Paso Corp............................ 444,806 10,070 Williams Companies, Inc. (The).......... 256,986 ------------ 701,792 ------------ OIL & GAS PRODUCTION (0.6%) 4,861 Anardarko Petroleum Corp................ 276,348 2,678 Apache Corp............................. 133,604 3,923 Burlington Resources, Inc............... 147,269 2,462 Devon Energy Corp....................... 95,156 2,256 EOG Resources, Inc...................... 88,232 1,958 Kerr-McGee Corp......................... 107,298 7,300 Occidental Petroleum Corp............... 193,669 4,767 Unocal Corp............................. 171,946 ------------ 1,213,522 ------------ OIL REFINING/ MARKETING (0.1%) 1,349 Ashland, Inc............................ 62,162 6,045 Marathon Oil Corp....................... 181,350 1,536 Sunoco Inc.............................. 57,354 ------------ 300,866 ------------
SEE NOTES TO FINANCIAL STATEMENTS 95 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- OILFIELD SERVICES/ EQUIPMENT (0.5%) 6,563 Baker Hughes Inc........................ $ 239,353 8,389 Halliburton Co.......................... 109,896 11,249 Schlumberger Ltd........................ 618,133 ------------ 967,382 ------------ OTHER CONSUMER SERVICES (0.3%) 3,585 Block (H.&R.), Inc...................... 160,250 19,178 Cendant Corp.*.......................... 376,081 ------------ 536,331 ------------ OTHER CONSUMER SPECIALTIES (0.1%) 2,903 Fortune Brands, Inc..................... 114,930 ------------ OTHER METALS/ MINERALS (0.1%) 3,554 Inco Ltd. (Canada)*..................... 60,205 1,538 Phelps Dodge Corp....................... 49,831 ------------ 110,036 ------------ PACKAGED SOFTWARE (4.7%) 4,635 Adobe Systems, Inc...................... 143,917 1,071 Autodesk, Inc........................... 39,916 4,772 BMC Software, Inc.*..................... 78,118 11,254 Computer Associates International, Inc..................... 388,150 7,266 Compuware Corp.*........................ 85,666 4,144 Intuit Inc.*............................ 177,197 1,616 Mercury Interactive Corp.*.............. 54,912 105,233 Microsoft Corp.*........................ 6,973,791 7,077 Novell, Inc.*........................... 32,483 108,670 Oracle Corp.*........................... 1,500,733 5,130 Parametric Technology Corp.*............ 40,065 7,833 VERITAS Software Corp.*................. 351,075 ------------ 9,866,023 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- PERSONNEL SERVICES (0.1%) 3,427 Robert Half International, Inc.*........ $ 91,501 2,160 TMP Worldwide, Inc.*.................... 92,664 ------------ 184,165 ------------ PHARMACEUTICALS: GENERIC DRUGS (0.0%) 2,080 Watson Pharmaceuticals, Inc.*........... 65,291 ------------ PHARMACEUTICALS: MAJOR (9.5%) 30,334 Abbott Laboratories..................... 1,691,121 25,777 American Home Products Corp............. 1,581,677 37,805 Bristol-Myers Squibb Co................. 1,928,055 59,935 Johnson & Johnson....................... 3,542,159 21,966 Lilly (Eli) & Co........................ 1,725,210 44,446 Merck & Co., Inc........................ 2,613,425 122,837 Pfizer, Inc............................. 4,895,054 25,194 Pharmacia Corp.......................... 1,074,524 28,607 Schering-Plough Corp.................... 1,024,417 ------------ 20,075,642 ------------ PHARMACEUTICALS: OTHER (0.3%) 2,563 Allergan, Inc........................... 192,353 3,477 Forest Laboratories, Inc.*.............. 284,940 4,799 King Pharmaceuticals, Inc.*............. 202,182 ------------ 679,475 ------------ PRECIOUS METALS (0.2%) 10,473 Barrick Gold Corp. (Canada)............. 167,059 2,813 Freeport-McMoRan Copper & Gold, Inc. (Class B)*............................. 37,666 3,830 Newmont Mining Corp..................... 73,191 6,416 Placer Dome Inc. (Canada)............... 69,999 ------------ 347,915 ------------ PROPERTY - CASUALTY INSURERS (0.7%) 13,932 Allstate Corp. (The) (Note 4)........... 469,508 3,318 Chubb Corp. (The)....................... 228,942
SEE NOTES TO FINANCIAL STATEMENTS 96 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 3,156 Cincinnati Financial Corp............... $ 120,401 1,432 Progressive Corp. (The)................. 213,798 4,053 St. Paul Companies, Inc................. 178,210 2,592 XL Capital Ltd. (Class A) (Bermuda)..... 236,805 ------------ 1,447,664 ------------ PUBLISHING: BOOKS/ MAGAZINES (0.0%) 964 Meredith Corp........................... 34,367 ------------ PUBLISHING: NEWSPAPERS (0.4%) 1,659 Dow Jones & Co., Inc.................... 90,797 5,175 Gannett Co., Inc........................ 347,915 1,643 Knight-Ridder, Inc...................... 106,680 2,962 New York Times Co. (The) (Class A)...... 128,107 5,821 Tribune Co.............................. 217,880 ------------ 891,379 ------------ PULP & PAPER (0.4%) 1,134 Boise Cascade Corp...................... 38,567 4,490 Georgia-Pacific Group................... 123,969 9,417 International Paper Co.................. 379,976 1,940 Mead Corp............................... 59,927 1,999 Westvaco Corp........................... 56,872 2,147 Willamette Industries, Inc.............. 111,902 ------------ 771,213 ------------ RAILROADS (0.4%) 7,555 Burlington Northern Santa Fe Corp....... 215,544 4,165 CSX Corp................................ 145,983 7,533 Norfolk Southern Corp................... 138,080 4,854 Union Pacific Corp...................... 276,678 ------------ 776,285 ------------ REAL ESTATE INVESTMENT TRUSTS (0.2%) 8,096 Equity Office Properties Trust.......... 243,528 NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 5,291 Equity Residential Properties Trust..... $ 151,905 ------------ 395,433 ------------ RECREATIONAL PRODUCTS (0.2%) 1,714 Brunswick Corp.......................... 37,297 5,685 Eastman Kodak Co........................ 167,310 3,375 Hasbro, Inc............................. 54,776 1,424 International Game Technology*.......... 97,259 8,434 Mattel, Inc............................. 145,065 ------------ 501,707 ------------ REGIONAL BANKS (1.1%) 7,120 AmSouth Bancorporation.................. 134,568 11,290 Fifth Third Bancorp..................... 695,238 4,340 Northern Trust Corp..................... 261,355 4,444 Regions Financial Corp.................. 133,498 5,692 Synovus Financial Corp.................. 142,585 38,119 U.S. Bancorp............................ 797,831 2,684 Union Planters Corp..................... 121,129 1,793 Zions Bancorporation.................... 94,276 ------------ 2,380,480 ------------ RESTAURANTS (0.5%) 2,277 Darden Restaurants, Inc................. 80,606 25,116 McDonald's Corp......................... 664,821 7,450 Starbucks Corp.*........................ 141,923 2,850 Tricon Global Restaurants, Inc.*........ 140,220 2,043 Wendy's International, Inc.............. 59,594 ------------ 1,087,164 ------------ SAVINGS BANKS (0.4%) 4,392 Charter One Financial, Inc.............. 119,243 3,080 Golden West Financial Corp.............. 181,258 17,114 Washington Mutual, Inc.................. 559,628 ------------ 860,129 ------------ SEMICONDUCTORS (3.6%) 6,640 Advanced Micro Devices, Inc.*........... 105,310 7,526 Altera Corp.*........................... 159,702
SEE NOTES TO FINANCIAL STATEMENTS 97 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 7,069 Analog Devices, Inc.*................... $ 313,793 5,829 Applied Micro Circuits Corp.*........... 65,984 5,125 Broadcom Corp. (Class A)*............... 210,023 4,979 Conexant Systems, Inc.*................. 71,498 131,147 Intel Corp.............................. 4,124,573 6,186 Linear Technology Corp.................. 241,501 7,168 LSI Logic Corp.*........................ 113,111 6,310 Maxim Integrated Products, Inc.*........ 331,338 11,709 Micron Technology, Inc.*................ 362,979 3,437 National Semiconductor Corp.*........... 105,825 2,825 NVIDIA Corp.*........................... 188,993 3,226 PMC - Sierra, Inc.*..................... 68,585 33,846 Texas Instruments, Inc.................. 947,688 3,722 Vitesse Semiconductor Corp.*............ 46,376 6,527 Xilinx, Inc.*........................... 254,879 ------------ 7,712,158 ------------ SERVICES TO THE HEALTH INDUSTRY (0.1%) 7,665 Healthsouth Corp.*...................... 113,595 5,774 IMS Health Inc.......................... 112,651 2,337 Quintiles Transnational Corp.*.......... 37,579 ------------ 263,825 ------------ SPECIALTY INSURANCE (0.2%) 2,062 Ambac Financial Group, Inc.............. 119,307 2,900 MBIA, Inc............................... 155,527 2,094 MGIC Investment Corp.................... 129,242 ------------ 404,076 ------------ SPECIALTY STORES (0.4%) 2,099 AutoZone, Inc.*......................... 150,708 5,667 Bed Bath & Beyond Inc.*................. 192,111 5,998 Office Depot, Inc.*..................... 111,203 9,020 Staples, Inc.*.......................... 168,674 2,854 Tiffany & Co............................ 89,815 3,879 Toys 'R' Us, Inc.*...................... 80,450 ------------ 792,961 ------------ NUMBER OF SHARES VALUE - ----------------------------------------------------------------- SPECIALTY TELECOMMUNICATIONS (0.3%) 2,757 CenturyTel, Inc......................... $ 90,430 5,472 Citizens Communications Co.*............ 58,332 32,532 Qwest Communications International, Inc..................... 459,677 ------------ 608,439 ------------ STEEL (0.1%) 1,568 Allegheny Technologies Inc.............. 26,264 1,520 Nucor Corp.............................. 80,499 1,743 USX-U.S. Steel Group Inc................ 31,566 1,668 Worthington Industries, Inc............. 23,686 ------------ 162,015 ------------ TELECOMMUNICATION EQUIPMENT (1.4%) 15,426 ADC Telecommunications, Inc.*........... 70,960 1,590 Andrew Corp.*........................... 34,805 6,393 CIENA Corp.*............................ 91,484 3,624 Comverse Technology, Inc.*.............. 81,069 18,479 Corning Inc............................. 164,833 66,710 Lucent Technologies Inc................. 419,606 43,489 Motorola, Inc........................... 653,205 62,541 Nortel Networks Corp. (Canada).......... 469,058 14,936 QUALCOMM Inc.*.......................... 754,268 3,052 Scientific-Atlanta, Inc................. 73,065 8,011 Tellabs, Inc.*.......................... 120,405 ------------ 2,932,758 ------------ TOBACCO (1.0%) 42,335 Philip Morris Companies, Inc............ 1,941,060 3,232 UST, Inc................................ 113,120 ------------ 2,054,180 ------------ TOOLS/HARDWARE (0.1%) 1,559 Black & Decker Corp..................... 58,821
SEE NOTES TO FINANCIAL STATEMENTS 98 Morgan Stanley Variable Investment Series - S&P 500 Index PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ----------------------------------------------------------------- 1,131 Snap-On, Inc............................ $ 38,069 1,668 Stanley Works (The)..................... 77,679 ------------ 174,569 ------------ TRUCKS/CONSTRUCTION/FARM MACHINERY (0.3%) 6,707 Caterpillar, Inc........................ 350,441 807 Cummins Inc............................. 31,102 4,588 Deere & Co.............................. 200,312 1,160 Navistar International Corp.*........... 45,820 1,499 PACCAR, Inc............................. 98,364 ------------ 726,039 ------------ WHOLESALE DISTRIBUTORS (0.1%) 3,384 Genuine Parts Co........................ 124,193 1,828 Grainger (W.W.), Inc.................... 87,744 ------------ 211,937 ------------ WIRELESS COMMUNICATIONS (0.6%) 49,441 AT&T Wireless Services Inc.*............ 710,467 15,598 Nextel Communications, Inc. (Class A)*............................. 170,954 19,260 Sprint Corp. (PCS Group)*............... 470,137 ------------ 1,351,558 ------------ TOTAL COMMON STOCKS (COST $225,961,038).................... 204,482,781 ------------ PRINCIPAL AMOUNT IN THOUSANDS VALUE - ----------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (3.8%) U.S. GOVERNMENT AGENCY $ 8,000 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $7,999,664)...................... $ 7,999,664 ------------
TOTAL INVESTMENTS (COST $233,960,702) (b)................ 100.4% 212,482,445 LIABILITIES IN EXCESS OF OTHER ASSETS... (0.4) (883,041) ------ ------------ NET ASSETS.............................. 100.0% $211,599,404 ====== ============
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** A PORTION OF THIS SECURITY IS SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS. (a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $20,166,626 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $41,644,883, RESULTING IN NET UNREALIZED DEPRECIATION OF $21,478,257.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2001: NUMBER OF LONG/ DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS SHORT MONTH, AND YEAR AMOUNT AT VALUE APPRECIATION - ----------------------------------------------------------------------------------------------- 27 Long S&P 500 Index March/2002 $7,757,100 $81,065
SEE NOTES TO FINANCIAL STATEMENTS 99 Morgan Stanley Variable Investment Series - Competitive Edge "Best Ideas" PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS (93.5%) FINLAND (2.5%) PULP & PAPER 35,000 UPM-Kymmene Oyj......................... $ 1,161,250 ----------- FRANCE (8.2%) ELECTRIC UTILITIES 38,400 Suez S.A................................ 1,162,898 ----------- FOOD: MAJOR DIVERSIFIED 8,300 Groupe Danone........................... 1,012,815 ----------- MULTI-LINE INSURANCE 35,000 AXA..................................... 731,665 ----------- OIL REFINING/MARKETING 6,000 TotalFinaElf S.A........................ 857,210 ----------- TOTAL FRANCE............................ 3,764,588 ----------- GERMANY (2.5%) MOTOR VEHICLES 32,000 Bayerische Motoren Werke (BMW) AG....... 1,127,270 ----------- JAPAN (4.8%) ELECTRONICS/APPLIANCES 26,410 Sony Corp............................... 1,201,001 ----------- MOTOR VEHICLES 25,000 Honda Motor Co.......................... 992,636 ----------- TOTAL JAPAN............................. 2,193,637 ----------- NETHERLANDS (4.3%) BEVERAGES: ALCOHOLIC 31,000 Heineken NV............................. 1,175,982 ----------- LIFE/HEALTH INSURANCE 30,000 Aegon NV................................ 812,319 ----------- TOTAL NETHERLANDS....................... 1,988,301 ----------- SWITZERLAND (2.4%) PHARMACEUTICALS: MAJOR 30,000 Novartis AG (Registered Shares)......... 1,084,795 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- UNITED KINGDOM (5.0%) BEVERAGES: ALCOHOLIC 105,000 Diageo PLC.............................. $ 1,199,861 ----------- INTEGRATED OIL 23,700 BP Amoco PLC (ADR)...................... 1,102,287 ----------- TOTAL UNITED KINGDOM.................... 2,302,148 ----------- UNITED STATES (63.8%) AEROSPACE & DEFENSE 13,500 General Dynamics Corp................... 1,075,140 ----------- AIR FREIGHT/COURIERS 21,500 FedEx Corp.*............................ 1,115,420 ----------- CHEMICALS: MAJOR DIVERSIFIED 31,500 Dow Chemical Co. (The).................. 1,064,070 ----------- COMPUTER COMMUNICATIONS 70,000 Cisco Systems, Inc.*.................... 1,267,700 ----------- COMPUTER PERIPHERALS 62,000 EMC Corp.*.............................. 833,280 ----------- DISCOUNT STORES 25,000 Wal-Mart Stores, Inc.................... 1,438,750 ----------- FINANCIAL CONGLOMERATES 23,000 Citigroup, Inc.......................... 1,161,040 21,000 State Street Corp....................... 1,097,250 ----------- 2,258,290 ----------- FOOD: MAJOR DIVERSIFIED 39,000 Kraft Foods Inc. (Class A).............. 1,327,170 24,500 PepsiCo, Inc............................ 1,192,905 ----------- 2,520,075 ----------- HOME IMPROVEMENT CHAINS 23,700 Home Depot, Inc. (The).................. 1,208,937 ----------- INDUSTRIAL CONGLOMERATES 30,000 General Electric Co..................... 1,202,400 10,000 Minnesota Mining & Manufacturing Co..... 1,182,100 17,000 United Technologies Corp................ 1,098,710 ----------- 3,483,210 -----------
SEE NOTES TO FINANCIAL STATEMENTS 100 Morgan Stanley Variable Investment Series - Competitive Edge "Best Ideas" PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- INTEGRATED OIL 11,000 Exxon Mobil Corp........................ $ 432,300 ----------- MAJOR BANKS 29,000 Bank of New York Co., Inc............... 1,183,200 ----------- MAJOR TELECOMMUNICATIONS 15,000 Verizon Communications Inc.............. 711,900 ----------- MEDIA CONGLOMERATES 33,300 AOL Time Warner Inc.*................... 1,068,930 ----------- MEDICAL SPECIALTIES 25,300 Medtronic, Inc.......................... 1,295,613 ----------- MULTI-LINE INSURANCE 5,500 American International Group, Inc....... 436,700 ----------- OILFIELD SERVICES/EQUIPMENT 18,000 Schlumberger Ltd........................ 989,100 ----------- PACKAGED SOFTWARE 23,700 Microsoft Corp.*........................ 1,570,599 ----------- PHARMACEUTICALS: MAJOR 14,000 Abbott Laboratories..................... 780,500 22,800 American Home Products Corp............. 1,399,008 19,000 Bristol-Myers Squibb Co................. 969,000 30,900 Schering-Plough Corp.................... 1,106,529 ----------- 4,255,037 ----------- TELECOMMUNICATION EQUIPMENT 74,000 Motorola, Inc........................... 1,111,480 ----------- TOTAL UNITED STATES..................... 29,319,731 ----------- TOTAL COMMON STOCKS (COST $51,550,122)..................... 42,941,720 ----------- PRINCIPAL AMOUNT IN THOUSANDS VALUE - ---------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (6.5%) U.S. GOVERNMENT AGENCY $ 3,000 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (COST $2,999,874)...................... $ 2,999,874 -----------
TOTAL INVESTMENTS (COST $54,549,996) (b)................. 100.0% 45,941,594 OTHER ASSETS IN EXCESS OF LIABILITIES... 0.0 10,915 ------ ----------- NET ASSETS.............................. 100.0% $45,952,509 ====== ===========
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,501,708 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $10,110,110, RESULTING IN NET UNREALIZED DEPRECIATION OF $8,608,402. SEE NOTES TO FINANCIAL STATEMENTS 101 Morgan Stanley Variable Investment Series - Competitive Edge "Best Ideas" SUMMARY OF INVESTMENTS / / DECEMBER 31, 2001
PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Aerospace & Defense..................... $ 1,075,140 2.4% Air Freight/Couriers.................... 1,115,420 2.4 Beverages: Alcoholic.................... 2,375,843 5.2 Chemicals: Major Diversified............ 1,064,070 2.3 Computer Communications................. 1,267,700 2.8 Computer Peripherals.................... 833,280 1.8 Discount Stores......................... 1,438,750 3.1 Electric Utilities...................... 1,162,898 2.5 Electronics/Appliances.................. 1,201,001 2.6 Financial Conglomerates................. 2,258,290 4.9 Food: Major Diversified................. 3,532,890 7.7 Home Improvement Chains................. 1,208,937 2.6 Industrial Conglomerates................ 3,483,210 7.6 Integrated Oil.......................... 1,534,587 3.3 Life/Health Insurance................... 812,318 1.8 Major Banks............................. 1,183,200 2.6 Major Telecommunications................ 711,900 1.6 Media Conglomerates..................... 1,068,930 2.3 Medical Specialties..................... 1,295,613 2.8 PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Motor Vehicles.......................... $ 2,119,906 4.6% Multi-Line Insurance.................... 1,168,366 2.6 Oil Refining/Marketing.................. 857,210 1.9 Oilfield Services/Equipment............. 989,100 2.2 Packaged Software....................... 1,570,599 3.4 Pharmaceuticals: Major.................. 5,339,832 11.6 Pulp & Paper............................ 1,161,250 2.5 Telecommunication Equipment............. 1,111,480 2.4 U.S. Government Agency.................. 2,999,874 6.5 ----------- ------- $45,941,594 100.0% =========== ======= TYPE OF INVESTMENT - ----------------------------------------------------------------- Common Stocks........................... $42,941,720 93.5% Short-Term Investment................... 2,999,874 6.5 ----------- ------- $45,941,594 100.0% =========== =======
SEE NOTES TO FINANCIAL STATEMENTS 102 Morgan Stanley Variable Investment Series - Aggressive Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS (96.9%) ADVERTISING/MARKETING SERVICES (0.1%) 1,000 Omnicom Group, Inc...................... $ 89,350 ----------- AEROSPACE & DEFENSE (3.0%) 4,700 Alliant Techsystems, Inc.*.............. 362,840 5,700 EDO Corp................................ 150,765 3,300 L-3 Communications Holdings, Inc.*...... 297,000 17,700 Lockheed Martin Corp.................... 826,059 1,700 Northrop Grumman Corp................... 171,377 18,200 Raytheon Co............................. 590,954 9,000 Titan Corp. (The)*...................... 224,550 ----------- 2,623,545 ----------- AIR FREIGHT/COURIERS (0.5%) 8,900 FedEx Corp.*............................ 461,732 ----------- ALUMINUM (0.3%) 7,510 Alcoa, Inc.............................. 266,980 ----------- APPAREL/FOOTWEAR (0.1%) 2,400 Nike, Inc. (Class B).................... 134,976 ----------- APPAREL/FOOTWEAR RETAIL (0.6%) 4,400 Chico's Fas, Inc.*...................... 174,680 9,300 TJX Companies, Inc. (The)............... 370,698 ----------- 545,378 ----------- BEVERAGES: ALCOHOLIC (0.7%) 13,260 Anheuser-Busch Companies, Inc........... 599,484 ----------- BEVERAGES: NON-ALCOHOLIC (0.2%) 12,400 Coca-Cola Enterprises Inc............... 234,856 ----------- BIOTECHNOLOGY (6.6%) 7,400 Amgen Inc.*............................. 417,656 3,600 Aviron*................................. 179,028 10,400 Cephalon, Inc.*......................... 786,084 7,900 Genentech, Inc.*........................ 428,575 9,700 Genzyme Corp. (General Division)*....... 580,642 6,300 Gilead Sciences, Inc.*.................. 414,036 NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 16,190 IDEC Pharmaceuticals Corp.*............. $ 1,115,977 3,500 InterMune Inc.*......................... 172,410 10,700 MedImmune, Inc.*........................ 495,945 6,800 Myriad Genetics, Inc.*.................. 357,952 9,500 Neurocrine Biosciences, Inc.*........... 487,445 9,500 NPS Pharmaceuticals, Inc.*.............. 363,850 ----------- 5,799,600 ----------- BROADCASTING (1.1%) 6,300 Clear Channel Communications, Inc.*..... 320,733 4,700 Univision Communications, Inc. (Class A)*.................................... 190,162 16,800 USA Networks, Inc.*..................... 458,808 ----------- 969,703 ----------- CABLE/SATELLITE TV (1.0%) 11,000 Comcast Corp. (Class A Special)*........ 396,000 12,670 Cox Communications, Inc. (Class A)*..... 531,000 ----------- 927,000 ----------- CHEMICALS: MAJOR DIVERSIFIED (0.2%) 4,800 Dow Chemical Co. (The).................. 162,144 ----------- CHEMICALS: SPECIALTY (0.5%) 10,200 Georgia Gulf Corp....................... 188,700 13,700 Olin Corp............................... 221,118 ----------- 409,818 ----------- COMPUTER COMMUNICATIONS (2.2%) 12,800 Brocade Communications Systems, Inc.*... 423,936 54,300 Cisco Systems, Inc.*.................... 983,373 11,300 Emulex Corp.*........................... 446,463 3,300 McDATA Corp. (Class A)*................. 80,850 ----------- 1,934,622 ----------- COMPUTER PERIPHERALS (1.0%) 5,800 Advanced Digital Information Corp.*..... 93,032
SEE NOTES TO FINANCIAL STATEMENTS 103 Morgan Stanley Variable Investment Series - Aggressive Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 13,000 ATI Technologies Inc. (Canada)*......... $ 165,100 9,300 EMC Corp.*.............................. 124,992 5,600 QLogic Corp.*........................... 249,256 12,100 Storage Technology Corp.*............... 250,107 ----------- 882,487 ----------- COMPUTER PROCESSING HARDWARE (3.7%) 18,800 Compaq Computer Corp.................... 183,488 31,700 Dell Computer Corp.*.................... 861,606 14,800 International Business Machines Corp.... 1,790,208 33,700 Sun Microsystems, Inc.*................. 415,858 ----------- 3,251,160 ----------- CONTAINERS/PACKAGING (0.2%) 11,900 Pactiv Corp.*........................... 211,225 ----------- CONTRACT DRILLING (0.8%) 16,700 ENSCO International Inc................. 414,995 10,100 GlobalSantaFe Corp...................... 288,052 ----------- 703,047 ----------- DATA PROCESSING SERVICES (2.3%) 7,600 Bisys Group, Inc. (The)*................ 486,324 5,700 Concord EFS, Inc.*...................... 186,846 13,700 First Data Corp......................... 1,074,765 6,100 Fiserv, Inc.*........................... 258,152 ----------- 2,006,087 ----------- DISCOUNT STORES (3.1%) 8,200 Costco Wholesale Corp.*................. 363,916 12,800 Target Corp............................. 525,440 32,900 Wal-Mart Stores, Inc.................... 1,893,395 ----------- 2,782,751 ----------- ELECTRICAL PRODUCTS (0.2%) 8,600 02Micro International Ltd. (Cayman Islands)*.............................. 206,830 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- ELECTRONIC COMPONENTS (0.1%) 6,200 Flextronics International, Ltd. (Singapore)*........................... $ 148,738 ----------- ELECTRONIC DISTRIBUTORS (0.2%) 4,400 Tech Data Corp.*........................ 190,432 ----------- ELECTRONIC PRODUCTION EQUIPMENT (0.4%) 3,000 Celestica, Inc.*........................ 121,170 2,300 KLA-Tencor Corp.*....................... 113,988 3,900 Photronics, Inc.*....................... 122,265 ----------- 357,423 ----------- ELECTRONICS/APPLIANCE STORES (1.1%) 3,500 Best Buy Co., Inc.*..................... 260,680 23,600 Circuit City Stores, Inc.-Circuit City Group.................................. 612,420 2,500 Electronics Boutique Holdings Corp...... 99,850 ----------- 972,950 ----------- ENVIRONMENTAL SERVICES (0.2%) 5,700 Waste Management, Inc................... 181,887 ----------- FINANCE/RENTAL/ LEASING (1.8%) 5,930 Fannie Mae.............................. 471,435 9,270 Freddie Mac............................. 606,258 5,800 USA Education Inc....................... 487,316 ----------- 1,565,009 ----------- FINANCIAL CONGLOMERATES (2.5%) 31,393 Citigroup, Inc.......................... 1,584,719 7,700 Prudential Financial, Inc.*............. 255,563 6,200 State Street Corp....................... 323,950 ----------- 2,164,232 ----------- FOOD RETAIL (0.2%) 4,300 Whole Foods Market, Inc.*............... 187,308 -----------
SEE NOTES TO FINANCIAL STATEMENTS 104 Morgan Stanley Variable Investment Series - Aggressive Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- FOOD: MAJOR DIVERSIFIED (1.5%) 5,000 General Mills, Inc...................... $ 260,050 14,100 Kraft Foods Inc. (Class A).............. 479,823 12,200 PepsiCo, Inc............................ 594,018 ----------- 1,333,891 ----------- FOOD: MEAT/FISH/DAIRY (1.0%) 6,500 Dean Foods Co.*......................... 443,300 11,800 Dreyer's Grand Ice Cream, Inc........... 454,418 ----------- 897,718 ----------- HOME BUILDING (0.7%) 6,100 D.R. Horton, Inc........................ 198,006 5,000 KB HOME................................. 200,500 2,700 Ryland Group, Inc. (The)................ 197,640 ----------- 596,146 ----------- HOME IMPROVEMENT CHAINS (1.6%) 8,700 Home Depot, Inc. (The).................. 443,787 20,500 Lowe's Companies, Inc................... 951,405 ----------- 1,395,192 ----------- HOSPITAL/NURSING MANAGEMENT (2.0%) 12,700 HCA Inc................................. 489,458 25,400 Health Management Associates, Inc. (Class A)*............................. 467,360 13,000 Tenet Healthcare Corp.*................. 763,360 ----------- 1,720,178 ----------- HOUSEHOLD/PERSONAL CARE (1.1%) 11,400 Dial Corp. (The)........................ 195,510 10,200 International Flavors & Fragrances, Inc.................................... 303,042 5,500 Procter & Gamble Co. (The).............. 435,215 ----------- 933,767 ----------- INDUSTRIAL CONGLOMERATES (1.7%) 26,200 General Electric Co..................... 1,050,096 NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 4,100 Minnesota Mining & Manufacturing Co..... $ 484,661 ----------- 1,534,757 ----------- INDUSTRIAL SPECIALTIES (0.2%) 13,200 RPM, Inc................................ 190,872 ----------- INFORMATION TECHNOLOGY SERVICES (2.2%) 13,800 Accenture Ltd. (Class A) (Bermuda)*..... 371,496 4,400 Electronic Data Systems Corp............ 301,620 6,000 Manhattan Associates, Inc.*............. 174,900 24,860 PeopleSoft, Inc.*....................... 999,372 3,100 Tier Technologies, Inc. (Class B)*...... 66,836 ----------- 1,914,224 ----------- INSURANCE BROKERS/ SERVICES (0.2%) 4,700 Gallagher (Arthur J.) & Co.............. 162,103 ----------- INTERNET RETAIL (0.1%) 7,400 Amazon.com, Inc.*....................... 80,068 ----------- INTERNET SOFTWARE/ SERVICES (1.5%) 2,100 Business Objects S.A. (ADR) (France)*... 70,980 15,300 F5 Networks, Inc.*...................... 329,562 11,900 Internet Security Systems, Inc.*........ 381,514 8,300 PEC Solutions, Inc.*.................... 312,163 10,500 Yahoo! Inc.*............................ 186,270 ----------- 1,280,489 ----------- INVESTMENT BANKS/ BROKERS (2.0%) 6,000 Goldman Sachs Group, Inc. (The)......... 556,500 9,320 Lehman Brothers Holdings, Inc........... 622,576 11,600 Merrill Lynch & Co., Inc................ 604,592 ----------- 1,783,668 -----------
SEE NOTES TO FINANCIAL STATEMENTS 105 Morgan Stanley Variable Investment Series - Aggressive Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- INVESTMENT MANAGERS (0.6%) 4,000 Affiliated Managers Group, Inc.*........ $ 281,920 6,800 Federated Investors, Inc. (Class B)..... 216,784 ----------- 498,704 ----------- MAJOR BANKS (1.3%) 17,600 Bank of America Corp.................... 1,107,920 ----------- MAJOR TELECOMMUNICATIONS (0.9%) 11,300 SBC Communications, Inc................. 442,621 7,700 Verizon Communications Inc.............. 365,442 ----------- 808,063 ----------- MANAGED HEALTH CARE (0.1%) 2,600 Anthem, Inc.*........................... 128,700 ----------- MEDIA CONGLOMERATES (1.0%) 12,000 AOL Time Warner Inc.*................... 385,200 10,600 Viacom, Inc. (Class B) (Non-Voting)*.... 467,990 ----------- 853,190 ----------- MEDICAL DISTRIBUTORS (0.4%) 4,400 Andrx Group*............................ 309,804 ----------- MEDICAL SPECIALTIES (4.2%) 16,680 Baxter International, Inc............... 894,548 17,700 Boston Scientific Corp.*................ 426,924 3,600 Digene Corp.*........................... 106,200 13,200 Guidant Corp.*.......................... 657,360 12,400 Medtronic, Inc.......................... 635,004 4,900 St. Jude Medical, Inc.*................. 380,485 4,600 Therasense, Inc......................... 114,080 2,500 Varian Medical Systems, Inc.*........... 178,150 8,620 Zimmer Holdings, Inc.*.................. 263,255 ----------- 3,656,006 ----------- MISCELLANEOUS COMMERCIAL SERVICES (0.3%) 2,400 MAXIMUS, Inc.*.......................... 100,944 4,200 Sabre Holdings Corp.*................... 177,870 ----------- 278,814 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- MOVIES/ENTERTAINMENT (0.5%) 17,600 Fox Entertainment Group, Inc. (Class A)*.................................... $ 466,928 ----------- MULTI-LINE INSURANCE (1.3%) 13,900 American International Group, Inc....... 1,103,660 ----------- OIL & GAS PRODUCTION (0.3%) 6,160 Apache Corp............................. 307,261 ----------- OILFIELD SERVICES/ EQUIPMENT (1.8%) 14,100 Baker Hughes Inc........................ 514,227 3,600 BJ Services Co.*........................ 116,820 5,300 Schlumberger Ltd........................ 291,235 4,900 Smith International, Inc.*.............. 262,738 9,800 Weatherford International, Inc.*........ 365,148 ----------- 1,550,168 ----------- OTHER CONSUMER SERVICES (1.3%) 9,400 Cendant Corp.*.......................... 184,334 9,100 eBay, Inc.*............................. 608,790 9,100 Weight Watchers International, Inc.*.... 307,762 ----------- 1,100,886 ----------- OTHER METALS/MINERALS (0.0%) 100 Phelps Dodge Corp....................... 3,240 ----------- PACKAGED SOFTWARE (5.3%) 11,800 Legato Systems, Inc.*................... 153,046 7,700 Mercury Interactive Corp.*.............. 261,646 39,300 Microsoft Corp.*........................ 2,604,411 39,300 Network Associates, Inc.*............... 1,015,905 5,800 Quest Software, Inc.*................... 128,238 4,000 Symantec Corp.*......................... 265,320 5,400 VERITAS Software Corp.*................. 242,028 ----------- 4,670,594 ----------- PHARMACEUTICALS: MAJOR (3.9%) 11,000 Abbott Laboratories..................... 613,250
SEE NOTES TO FINANCIAL STATEMENTS 106 Morgan Stanley Variable Investment Series - Aggressive Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 17,210 American Home Products Corp............. $ 1,056,006 37,700 Pfizer, Inc............................. 1,502,345 6,800 Pharmacia Corp.......................... 290,020 ----------- 3,461,621 ----------- PHARMACEUTICALS: OTHER (1.6%) 2,400 Allergan, Inc........................... 180,120 8,300 Biovail Corp. (Canada)*................. 466,875 5,320 Forest Laboratories, Inc.*.............. 435,974 8,600 King Pharmaceuticals, Inc.*............. 362,318 ----------- 1,445,287 ----------- PROPERTY - CASUALTY INSURERS (3.5%) 5,200 ACE, Ltd. (Bermuda)..................... 208,780 200 Berkshire Hathaway, Inc. (Class B)*..... 505,000 9,700 Everest Re Group, Ltd. (Bermuda)........ 685,790 5,000 Progressive Corp. (The)................. 746,500 2,600 RenaissanceRe Holdings Ltd. (Bermuda)... 248,040 7,800 XL Capital Ltd. (Class A) (Bermuda)..... 712,608 ----------- 3,106,718 ----------- PULP & PAPER (0.2%) 7,530 Jefferson Smurfit Group PLC (ADR) (Ireland).............................. 169,425 ----------- RAILROADS (0.5%) 8,200 CSX Corp................................ 287,410 9,600 Norfolk Southern Corp................... 175,968 ----------- 463,378 ----------- RECREATIONAL PRODUCTS (2.3%) 16,200 Activision, Inc.*....................... 421,362 14,100 Electronic Arts Inc.*................... 845,295 10,500 Hasbro, Inc............................. 170,415 NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 11,900 Mattel, Inc............................. $ 204,680 7,500 THQ, Inc.*.............................. 363,525 ----------- 2,005,277 ----------- REGIONAL BANKS (1.7%) 12,300 Fifth Third Bancorp..................... 757,434 10,100 First Tennessee National Corp........... 366,226 14,200 National Commerce Financial Corp........ 359,260 ----------- 1,482,920 ----------- RESTAURANTS (2.0%) 6,600 Applebee's International, Inc........... 225,720 12,000 CBRL Group, Inc......................... 353,280 5,000 Cheesecake Factory, Inc. (The)*......... 173,850 15,300 Darden Restaurants, Inc................. 541,620 3,400 Tricon Global Restaurants, Inc.*........ 167,280 8,900 Wendy's International, Inc.............. 259,613 ----------- 1,721,363 ----------- SEMICONDUCTORS (4.9%) 4,000 ESS Technology, Inc.*................... 85,040 2,700 Genesis Microchip, Inc.*................ 178,524 1,000 Infineon Technologies AG (ADR) (Germany).............................. 20,300 44,500 Intel Corp.............................. 1,399,525 9,800 Intersil Holding Corp. (Class A)*....... 316,050 4,300 Linear Technology Corp.................. 167,872 8,900 Marvell Technology Group Ltd. (Bermuda)*............................. 318,798 4,200 Maxim Integrated Products, Inc.*........ 220,542 12,800 Microchip Technology Inc.*.............. 495,872 6,900 NVIDIA Corp.*........................... 461,610 10,100 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan)*................... 173,417
SEE NOTES TO FINANCIAL STATEMENTS 107 Morgan Stanley Variable Investment Series - Aggressive Equity PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 13,200 Texas Instruments, Inc.................. $ 369,600 2,700 Zoran Corp.*............................ 88,128 ----------- 4,295,278 ----------- SERVICES TO THE HEALTH INDUSTRY (1.2%) 9,800 Laboratory Corp. of America Holdings*... 792,330 3,800 Quest Diagnostics Inc.*................. 272,498 ----------- 1,064,828 ----------- SPECIALTY STORES (1.0%) 10,600 AutoZone, Inc.*......................... 761,080 2,800 Michaels Stores, Inc.*.................. 92,260 ----------- 853,340 ----------- STEEL (0.2%) 3,600 Nucor Corp.............................. 190,656 ----------- TELECOMMUNICATION EQUIPMENT (1.5%) 16,900 Microtune, Inc.*........................ 396,474 5,400 Motorola, Inc........................... 81,108 15,500 Polycom, Inc.*.......................... 533,200 6,100 QUALCOMM Inc.*.......................... 308,050 ----------- 1,318,832 ----------- TOOLS/HARDWARE (0.2%) 3,900 Stanley Works (The)..................... 181,623 ----------- TRUCKING (0.6%) 5,100 Roadway Corp............................ 187,170 8,500 Swift Transportation Co., Inc.*......... 182,835 5,600 Werner Enterprises, Inc................. 136,080 ----------- 506,085 ----------- TRUCKS/CONSTRUCTION/FARM MACHINERY (0.7%) 10,100 Deere & Co.............................. 440,966 4,600 Navistar International Corp.*........... 181,700 ----------- 622,666 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- WHOLESALE DISTRIBUTORS (0.4%) 10,500 Genuine Parts Co........................ $ 385,350 ----------- WIRELESS COMMUNICATIONS (0.5%) 17,900 Sprint Corp. (PCS Group)*............... 436,939 ----------- TOTAL COMMON STOCKS (COST $81,992,226)..................... 85,349,351 ----------- PRINCIPAL AMOUNT IN THOUSANDS - --------- SHORT-TERM INVESTMENT (4.1%) REPURCHASE AGREEMENT $ 3,595 The Bank of New York 0.875% due 01/02/02 (dated 12/31/01; proceeds $3,594,917) (a) (COST $3,594,742)...................... 3,594,742 -----------
TOTAL INVESTMENTS (COST $85,586,968) (b)................. 101.0% 88,944,093 LIABILITIES IN EXCESS OF OTHER ASSETS... (1.0) (874,807) ------ ----------- NET ASSETS.............................. 100.0% $88,069,286 ====== ===========
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) COLLATERALIZED BY $3,663,747 FEDERAL HOME LOAN MORTGAGE CORP. 5.775% DUE 06/26/06 VALUED AT $3,666,640. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $5,262,258 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,905,133, RESULTING IN NET UNREALIZED APPRECIATION OF $3,357,125. SEE NOTES TO FINANCIAL STATEMENTS 108 Morgan Stanley Variable Investment Series - Information PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS (90.5%) CABLE/SATELLITE TV (6.1%) 9,900 Adelphia Communications Corp. (Class A)*.................................... $ 308,682 8,700 Charter Communications, Inc. (Class A)*.................................... 142,941 4,000 Comcast Corp. (Class A Special)*........ 144,000 3,000 Cox Communications, Inc. (Class A)*..... 125,730 ----------- 721,353 ----------- COMPUTER COMMUNICATIONS (7.7%) 26,300 Cisco Systems, Inc.*.................... 476,293 3,000 Emulex Corp.*........................... 118,530 5,000 Extreme Networks, Inc.*................. 64,500 2,000 Finisar Corp.*.......................... 20,340 6,000 Foundry Networks, Inc.*................. 48,900 2,000 Juniper Networks, Inc.*................. 37,900 6,000 McDATA Corp. (Class A)*................. 147,000 100 NetScreen Technologies, Inc.*........... 2,213 ----------- 915,676 ----------- COMPUTER PERIPHERALS (3.2%) 9,900 EMC Corp.*.............................. 133,056 3,000 Network Appliance, Inc.*................ 65,610 4,000 QLogic Corp.*........................... 178,040 ----------- 376,706 ----------- COMPUTER PROCESSING HARDWARE (5.5%) 14,900 Compaq Computer Corp.................... 145,424 9,900 Dell Computer Corp.*.................... 269,082 18,900 Sun Microsystems, Inc.*................. 233,226 ----------- 647,732 ----------- DATA PROCESSING SERVICES (1.3%) 1,500 Affiliated Computer Services, Inc. (Class A)*............................. 159,195 ----------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------- ELECTRONIC COMPONENTS (2.2%) 5,500 Flextronics International, Ltd. (Singapore)*........................... $ 131,945 6,450 Sanmina-SCI Corp.*...................... 128,355 ----------- 260,300 ----------- ELECTRONIC DISTRIBUTORS (1.3%) 3,000 CDW Computer Centers, Inc.*............. 161,130 ----------- ELECTRONIC EQUIPMENT/ INSTRUMENTS (0.7%) 3,000 JDS Uniphase Corp.*..................... 26,190 3,500 Symbol Technologies, Inc................ 55,580 ----------- 81,770 ----------- ELECTRONIC PRODUCTION EQUIPMENT (2.6%) 3,500 Amkor Technology, Inc.*................. 56,105 3,000 Applied Materials, Inc.*................ 120,300 3,000 ASM Lithography Holding NV (Netherlands)*......................... 51,150 2,000 Novellus Systems, Inc.*................. 78,900 ----------- 306,455 ----------- FINANCIAL PUBLISHING/ SERVICES (2.4%) 9,900 SunGard Data Systems Inc.*.............. 286,407 ----------- INFORMATION TECHNOLOGY SERVICES (3.7%) 2,500 Accenture Ltd. (Class A) (Bermuda)*..... 67,300 3,000 American Management Systems, Inc.*...... 54,240 7,000 Citrix Systems, Inc.*................... 158,620 4,000 PeopleSoft, Inc.*....................... 160,800 ----------- 440,960 ----------- INTERNET RETAIL (0.3%) 3,000 Amazon.com, Inc.*....................... 32,460 ----------- INTERNET SOFTWARE/ SERVICES (4.4%) 5,000 BEA Systems, Inc.*...................... 77,050
SEE NOTES TO FINANCIAL STATEMENTS 109 Morgan Stanley Variable Investment Series - Information PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 8,000 KPMG Consulting, Inc.*.................. $ 132,560 2,500 Openwave Systems Inc.*.................. 24,475 4,950 Siebel Systems, Inc.*................... 138,501 4,000 VeriSign, Inc.*......................... 152,160 ----------- 524,746 ----------- MEDIA CONGLOMERATES (1.9%) 7,000 AOL Time Warner Inc.*................... 224,700 ----------- PACKAGED SOFTWARE (12.4%) 1,500 Entrust Technologies Inc.*.............. 15,285 5,000 i2 Technologies, Inc.*.................. 39,500 3,500 Informatica Corp.*...................... 50,785 200 Magma Design Automation, Inc.*.......... 6,056 1,000 Mercury Interactive Corp.*.............. 33,980 5,000 Micromuse Inc.*......................... 75,000 9,950 Microsoft Corp.*........................ 659,387 500 Nassda Corp.*........................... 11,245 3,500 NetIQ Corp.*............................ 123,410 3,300 Network Associates, Inc.*............... 85,305 7,500 Oracle Corp.*........................... 103,575 4,000 Quest Software, Inc.*................... 88,440 3,500 SAP AG (ADR) (Germany).................. 111,755 1,500 VERITAS Software Corp.*................. 67,230 ----------- 1,470,953 ----------- SEMICONDUCTORS (26.9%) 14,900 Agere Systems, Inc. (Class A)*.......... 84,781 5,970 Altera Corp.*........................... 126,683 3,900 Analog Devices, Inc.*................... 173,121 6,000 Applied Micro Circuits Corp.*........... 67,920 3,500 Broadcom Corp. (Class A)*............... 143,430 7,500 Conexant Systems, Inc.*................. 107,700 20,900 Intel Corp.............................. 657,305 4,450 Intersil Holding Corp. (Class A)*....... 143,513 4,000 Linear Technology Corp.................. 156,160 6,000 Marvell Technology Group Ltd. (Bermuda)*............................. 214,920 NUMBER OF SHARES VALUE - ---------------------------------------------------------------- 3,000 Maxim Integrated Products, Inc.*........ $ 157,530 2,500 Microchip Technology Inc.*.............. 96,850 6,200 Micron Technology, Inc.*................ 192,200 3,000 NVIDIA Corp.*........................... 200,700 4,000 Pixelworks, Inc.*....................... 64,240 9,900 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan)*................... 169,983 6,200 Texas Instruments, Inc.................. 173,600 3,000 TriQuint Semiconductor, Inc.*........... 36,780 2,450 Vitesse Semiconductor Corp.*............ 30,527 5,000 Xilinx, Inc.*........................... 195,250 ----------- 3,193,193 ----------- TELECOMMUNICATION EQUIPMENT (5.5%) 2,500 CIENA Corp.*............................ 35,775 2,000 Comverse Technology, Inc.*.............. 44,740 3,500 Microtune, Inc.*........................ 82,110 12,400 Motorola, Inc........................... 186,248 2,500 Nokia Corp. (ADR) (Finland)............. 61,325 7,500 Nortel Networks Corp. (Canada)*......... 56,250 1,500 ONI Systems Corp.*...................... 9,405 3,500 QUALCOMM Inc.*.......................... 176,750 ----------- 652,603 ----------- WIRELESS COMMUNICATIONS (2.4%) 2,500 Nextel Communications, Inc. (Class A)*.................................... 27,400 9,900 Vodafone Group PLC (ADR) (United Kingdom)............................... 254,232 ----------- 281,632 ----------- TOTAL COMMON STOCKS (COST $11,053,157)..................... 10,737,971 -----------
SEE NOTES TO FINANCIAL STATEMENTS 110 Morgan Stanley Variable Investment Series - Information PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ------------------------------------------------------------------ CONVERTIBLE BONDS (5.6%) COMPUTER COMMUNICATIONS (1.2%) $150 Juniper Networks, Inc. 4.75% due 03/15/07............................... $ 108,375 60 Redback Networks, Inc. 5.00% due 04/01/07............................... 30,450 ----------- 138,825 ----------- ELECTRONIC PRODUCTION EQUIPMENT (0.5%) 180 Celestica, Inc. (Canada) 0.00% due 08/01/20............................... 76,275 ----------- PACKAGED SOFTWARE (1.6%) 130 i2 Technologies, Inc. 5.25% due 12/15/06............................... 95,875 115 Mercury Interactive Corp. 4.75% due 07/01/07............................... 93,006 ----------- 188,881 ----------- SEMICONDUCTORS (1.5%) 55 Analog Devices, Inc. 4.75% due 10/01/05............................... 52,044 158 Vitesse Semiconductor Corp. 4.00% due 03/15/05............................... 122,647 ----------- 174,691 ----------- TELECOMMUNICATION EQUIPMENT (0.8%) 60 Comverse Technology Inc. 1.50% due 12/01/05............................... 45,525 PRINCIPAL AMOUNT IN THOUSANDS VALUE - ------------------------------------------------------------------ $ 65 ONI Systems Corp. 5.00% due 10/15/05.... $ 43,794 ----------- 89,319 ----------- TOTAL CONVERTIBLE BONDS (COST $699,256)........................ 667,991 ----------- SHORT-TERM INVESTMENT (a) (3.4%) U.S. GOVERNMENT AGENCY 400 Federal Home Loan Mortgage Corp. 1.51% due 01/02/02 (Cost $399,983)........... 399,983 -----------
TOTAL INVESTMENTS (COST $12,152,396) (b)................. 99.5% 11,805,945 OTHER ASSETS IN EXCESS OF LIABILITIES... 0.5 54,918 ------ ----------- NET ASSETS.............................. 100.0% $11,860,863 ====== ===========
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (A) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $624,593 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $971,044, RESULTING IN NET UNREALIZED DEPRECIATION OF $346,451. SEE NOTES TO FINANCIAL STATEMENTS 111 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------- COMMON STOCKS (60.1%) AEROSPACE & DEFENSE (2.0%) 83,000 Lockheed Martin Corp...................................... $ 3,873,610 229,000 Raytheon Co............................................... 7,435,630 ------------- 11,309,240 ------------- AGRICULTURAL COMMODITIES/MILLING (0.4%) 150,000 Archer-Daniels-Midland Co................................. 2,152,500 ------------- APPAREL/FOOTWEAR RETAIL (0.7%) 302,825 Gap, Inc. (The)........................................... 4,221,381 ------------- AUTO PARTS: O.E.M. (0.2%) 100,000 Delphi Automotive Systems Corp............................ 1,366,000 ------------- BIOTECHNOLOGY (2.7%) 162,400 Applera Corp. - Celera Genomics Group*.................... 4,334,456 90,000 Bruker Daltonics, Inc.*................................... 1,471,500 111,300 Enzon, Inc. *............................................. 6,263,964 100,000 Human Genome Sciences, Inc.*.............................. 3,372,000 ------------- 15,441,920 ------------- CABLE/SATELLITE TV (0.4%) 68,000 Comcast Corp. (Class A Special)*.......................... 2,448,000 ------------- CHEMICALS: MAJOR DIVERSIFIED (1.2%) 200,800 Dow Chemical Co. (The).................................... 6,783,024 ------------- COMPUTER COMMUNICATIONS (1.2%) 145,000 Brocade Communications Systems, Inc.*..................... 4,802,400 100,000 Cisco Systems, Inc.*...................................... 1,811,000 ------------- 6,613,400 ------------- COMPUTER PROCESSING HARDWARE (2.0%) 230,000 Apple Computer, Inc.*..................................... 5,037,000 221,000 Compaq Computer Corp...................................... 2,156,960 352,400 Sun Microsystems, Inc.*................................... 4,348,616 ------------- 11,542,576 ------------- DISCOUNT STORES (1.3%) 169,000 Costco Wholesale Corp.*................................... 7,500,220 ------------- ELECTRIC UTILITIES (1.0%) 100,000 Dominion Resources, Inc................................... 6,010,000 ------------- ELECTRICAL PRODUCTS (0.9%) 85,000 Emerson Electric Co....................................... 4,853,500 ------------- ELECTRONICS/APPLIANCES (0.6%) 110,000 Maytag Corp............................................... 3,413,300 -------------
SEE NOTES TO FINANCIAL STATEMENTS 112 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------- ENVIRONMENTAL SERVICES (2.5%) 150,000 Waste Connections, Inc.*.................................. $ 4,648,500 300,000 Waste Management, Inc..................................... 9,573,000 ------------- 14,221,500 ------------- FINANCIAL CONGLOMERATES (1.3%) 173,000 Hancock (John) Financial Services , Inc................... 7,144,900 ------------- FOOD: MAJOR DIVERSIFIED (3.8%) 158,800 General Mills, Inc........................................ 8,259,188 385,000 Kellogg Co................................................ 11,588,500 50,000 Kraft Foods Inc. (Class A)................................ 1,701,500 ------------- 21,549,188 ------------- FOOD: MEAT/FISH/DAIRY (0.1%) 10,725 Dean Foods Co.*........................................... 731,445 ------------- INDUSTRIAL CONGLOMERATES (2.6%) 177,600 General Electric Co....................................... 7,118,208 20,000 SPX Corp.................................................. 2,738,000 85,000 Tyco International Ltd. (Bermuda)......................... 5,006,500 ------------- 14,862,708 ------------- INTEGRATED OIL (2.1%) 200,000 Phillips Petroleum Co..................................... 12,052,000 ------------- INVESTMENT BANKS/BROKERS (0.9%) 100,000 Merrill Lynch & Co., Inc.................................. 5,212,000 ------------- MAJOR TELECOMMUNICATIONS (1.0%) 400,000 WorldCom, Inc. - WorldCom Group*.......................... 5,632,000 ------------- MANAGED HEALTH CARE (3.2%) 220,000 Oxford Health Plans, Inc.*................................ 6,630,800 86,000 UnitedHealth Group Inc.................................... 6,086,220 49,500 Wellpoint Health Networks, Inc.*.......................... 5,784,075 ------------- 18,501,095 ------------- MEDIA CONGLOMERATES (0.8%) 135,800 AOL Time Warner Inc.*..................................... 4,359,180 ------------- MEDICAL DISTRIBUTORS (0.8%) 66,000 Andrx Group*.............................................. 4,647,060 ------------- MEDICAL SPECIALTIES (1.1%) 120,000 Baxter International, Inc................................. 6,435,600 ------------- MOTOR VEHICLES (0.6%) 200,000 Ford Motor Co............................................. 3,144,000 ------------- MULTI-LINE INSURANCE (1.5%) 105,000 American International Group, Inc......................... 8,337,000 -------------
SEE NOTES TO FINANCIAL STATEMENTS 113 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------- OIL & GAS PRODUCTION (1.1%) 114,000 Kerr-McGee Corp........................................... $ 6,247,200 ------------- OILFIELD SERVICES/EQUIPMENT (1.3%) 136,000 Smith International, Inc.*................................ 7,292,320 ------------- PACKAGED SOFTWARE (1.4%) 78,500 Microsoft Corp.*.......................................... 5,202,195 65,000 VERITAS Software Corp.*................................... 2,913,300 ------------- 8,115,495 ------------- PHARMACEUTICALS: MAJOR (5.7%) 90,000 American Home Products Corp............................... 5,522,400 242,874 Johnson & Johnson......................................... 14,353,853 315,200 Pfizer, Inc............................................... 12,560,720 ------------- 32,436,973 ------------- PRECIOUS METALS (2.9%) 388,100 Barrick Gold Corp. (Canada)............................... 6,190,195 258,000 Newmont Mining Corp....................................... 4,930,380 493,000 Placer Dome Inc. (Canada)................................. 5,378,630 ------------- 16,499,205 ------------- PROPERTY-CASUALTY INSURERS (2.0%) 124,000 ACE, Ltd. (Bermuda)....................................... 4,978,600 200,000 Allstate Corp. (The)...................................... 6,740,000 ------------- 11,718,600 ------------- PULP & PAPER (0.4%) 60,000 Boise Cascade Corp........................................ 2,040,600 ------------- RAILROADS (0.5%) 100,000 Burlington Northern Santa Fe Corp......................... 2,853,000 ------------- REGIONAL BANKS (0.5%) 64,000 Union Planters Corp....................................... 2,888,320 ------------- SEMICONDUCTORS (1.5%) 100,000 Intel Corp................................................ 3,145,000 173,000 Micron Technology, Inc.*.................................. 5,363,000 ------------- 8,508,000 ------------- SPECIALTY STORES (2.6%) 439,600 Bed Bath & Beyond Inc.*................................... 14,902,440 ------------- STEEL (0.8%) 50,000 Nucor Corp................................................ 2,648,000 100,000 USX-U.S. Steel Group Inc.................................. 1,811,000 ------------- 4,459,000 -------------
SEE NOTES TO FINANCIAL STATEMENTS 114 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT (1.6%) 400,000 Ericsson (L.M.) Telefonaktiebolaqet (Class B) (ADR) (Sweden)................................................. $ 2,088,000 98,300 Nokia Oyj (ADR) (Finland)................................. 2,411,299 130,000 RF Micro Devices, Inc.*................................... 2,499,900 150,000 Tellabs, Inc.*............................................ 2,254,500 ------------- 9,253,699 ------------- TOBACCO (0.9%) 95,000 R. J. Reynolds Tobacco Holdings, Inc...................... 5,348,500 ------------- TOTAL COMMON STOCKS (COST $282,812,938)...................................... 343,048,089 -------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - --------- ------ -------- U.S. GOVERNMENT & AGENCY OBLIGATIONS (11.2%) $ 2,726 Federal Home Loan Mortgage Corp......................... 8.00% 01/01/30 - 12/01/30 2,853,871 9,850 Federal National Mortgage Assoc.+...................... 6.00 9,622,704 4,341 .............................. 6.50 05/01/31 4,340,366 5,500 +............................. 6.50 5,500,000 1,400 +............................. 7.00 1,448,563 16,750 +............................. 7.50 17,278,672 4,189 ***........................... 7.50 01/01/30 - 01/01/31 4,321,503 4,158 ***........................... 8.00 11/01/29 - 09/01/31 4,353,440 9,400 +............................. 8.00 9,840,625 750 U.S. Treasury Bond............ 8.125 08/15/21 957,421 3,000 U.S. Treasury Note***......... 6.75 05/15/05 3,261,798 -------------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $63,788,125)......................................... 63,778,963 -------------- CORPORATE BONDS (9.0%) AEROSPACE & DEFENSE (0.4%) 490 Lockheed Martin Corp.......... 7.75 05/01/26 528,519 130 Northrop Grumman Corp......... 7.75 02/15/31 140,785 1,000 Raytheon Co................... 6.15 11/01/08 993,328 834 Systems 2001 Asset Trust...... 6.664 09/15/13 859,444 -------------- 2,522,076 -------------- AIRLINES (0.3%) 790 AmericaWest Airlines - 144A**....................... 7.10 04/02/21 792,216 867 Continental Airlines Inc...... 6.90 01/02/18 761,927 185 Southwest Airlines Co......... 5.496 11/01/06 182,158 -------------- 1,736,301 --------------
SEE NOTES TO FINANCIAL STATEMENTS 115 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------- AUTO PARTS: O.E.M. (0.0%) $ 235 TRW Inc....................... 7.625% 03/15/06 $ 242,026 -------------- BROADCASTING (0.1%) 335 Clear Channel Communications, Inc.......... 7.65 09/15/10 346,042 -------------- CABLE/SATELLITE TV (0.3%) 495 Comcast Cable Communications............... 6.75 01/30/11 497,153 305 Comcast Cable Communications............... 8.375 05/01/07 336,292 770 Cox Communications, Inc....... 7.75 11/01/10 822,224 190 TCI Communications, Inc....... 7.875 02/15/26 196,328 -------------- 1,851,997 -------------- COMPUTER PROCESSING HARDWARE (0.1%) 705 Sun Microsystems Inc.......... 7.65 08/15/09 715,615 -------------- DEPARTMENT STORES (0.2%) 440 Federated Department Stores, Inc.................. 6.90 04/01/29 410,985 455 May Department Stores Co., Inc..................... 5.95 11/01/08 456,506 -------------- 867,491 -------------- DRUGSTORE CHAINS (0.1%) 455 CVS Corp...................... 5.625 03/15/06 458,260 -------------- ELECTRIC UTILITIES (0.2%) 430 DTE Energy Co................. 7.05 06/01/11 443,740 750 MidAmerican Funding LLC....... 6.75 03/01/11 735,747 -------------- 1,179,487 -------------- ENVIRONMENTAL SERVICES (0.1%) 650 USA Waste Services, Inc....... 7.125 10/01/07 663,768 -------------- FINANCE/RENTAL/LEASING (0.7%) 885 American General Finance Corp......................... 5.875 07/14/06 898,006 1,510 Ford Motor Credit Corp........ 7.375 10/28/09 1,487,225 1,000 Household Finance Corp........ 7.875 03/01/07 1,074,515 265 Household Finance Corp........ 6.75 05/15/11 263,503 525 MBNA America Bank N.A......... 6.50 06/20/06 515,180 -------------- 4,238,429 -------------- FINANCIAL CONGLOMERATES (0.7%) 885 AXA Financial Inc............. 6.50 04/01/08 905,099 405 Chase Manhattan Corp.......... 6.00 02/15/09 403,393 555 General Motors Acceptance Corp......................... 6.875 09/15/11 543,655 500 General Motors Acceptance Corp......................... 8.00 11/01/31 508,892
SEE NOTES TO FINANCIAL STATEMENTS 116 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------- $ 875 Prudential Holdings........... 7.245% 12/18/23 $ 895,921 595 Prudential Holdings........... 8.695 12/18/23 618,901 -------------- 3,875,861 -------------- FINANCIAL PUBLISHING/SERVICES (0.0%) 105 Reed Elsevier Capital......... 6.75 08/01/11 106,511 -------------- FOOD RETAIL (0.3%) 420 Ahold Finance USA Inc......... 8.25 07/15/10 468,395 795 Kroger Co..................... 6.80 04/01/11 815,404 410 Safeway Inc................... 7.50 09/15/09 443,935 115 Safeway Inc................... 6.50 03/01/11 117,258 -------------- 1,844,992 -------------- GAS DISTRIBUTORS (0.4%) 560 CMS Panhandle Holding Co...... 7.00 07/15/29 482,845 285 Consolidated Natural Gas Co........................... 6.25 11/01/11 278,921 470 Nisource Finance Corp......... 7.875 11/15/10 486,414 155 Ras Laffan Liquid Natural Gas Co. - 144A** (Qatar)......... 7.628 09/15/06 161,695 660 Ras Laffan Liquid Natural Gas Co. - 144A** (Qatar)......... 8.294 03/15/14 673,200 -------------- 2,083,075 -------------- HOME BUILDING (0.1%) 380 Centex Corp................... 7.875 02/01/11 387,125 -------------- HOME IMPROVEMENT CHAINS (0.2%) 885 Lowe's Companies, Inc......... 8.25 06/01/10 999,523 -------------- HOSPITAL/NURSING MANAGEMENT (0.2%) 600 Manor Care, Inc............... 8.00 03/01/08 621,000 585 Tenet Holdings Corp. - 144A**....................... 6.875 11/15/31 538,356 -------------- 1,159,356 -------------- HOTELS/RESORTS/CRUISELINES (0.2%) 210 Hyatt Equities LLC - 144A**... 9.25 05/15/05 218,596 675 Marriott International - 144A**....................... 7.00 01/15/08 679,047 -------------- 897,643 -------------- INDUSTRIAL CONGLOMERATES (0.3%) 500 Hutchison Whampoa Finance - 144A** (Hong Kong)........... 7.50 08/01/27 471,770 720 Tyco International Group S.A. (Luxembourg)................. 6.75 02/15/11 722,893 220 Tyco International Group S.A. (Luxembourg)................. 6.375 10/15/11 214,924 80 Tyco International Group S.A. (Luxembourg)................. 6.875 01/15/29 76,747 -------------- 1,486,334 -------------- INTEGRATED OIL (0.2%) 865 Conoco Inc.................... 6.95 04/15/29 879,591 --------------
SEE NOTES TO FINANCIAL STATEMENTS 117 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE (0.5%) $ 550 American General Corp......... 7.50% 07/15/25 $ 599,833 550 John Hancock.................. 7.375 02/15/24 550,114 500 Metropolitan Life Insurance Co. - 144A**................. 7.80 11/01/25 509,629 470 Nationwide Mutual Insurance... 7.50 02/15/24 422,890 350 Nationwide Mutual Insurance... 8.25 12/01/31 349,244 255 New England Mutual Life Insurance Co................. 7.875 02/15/24 261,261 -------------- 2,692,971 -------------- MAJOR BANKS (0.0%) 200 BankOne Corp.................. 6.00 02/17/09 197,562 -------------- MAJOR TELECOMMUNICATIONS (0.7%) 640 AT&T Corp. - 144A**........... 8.00 11/15/31 669,803 405 BellSouth Telecommunications Inc.......................... 6.375 06/01/28 391,186 295 GTE Corp...................... 6.94 04/15/28 292,636 370 Telus Corp. (Canada).......... 8.00 06/01/11 392,634 2,000 WorldCom, Inc................. 7.375 01/15/06 2,073,006 -------------- 3,819,265 -------------- MANAGED HEALTH CARE (0.5%) 1,570 Aetna, Inc.................... 7.875 03/01/11 1,546,255 675 Cigna Corp.................... 6.375 10/15/11 662,801 440 Wellpoint Health Network Inc.......................... 6.375 06/15/06 448,709 -------------- 2,657,765 -------------- MEDIA CONGLOMERATES (0.6%) 1,000 News America Holdings, Inc................ 7.75 12/01/45 927,831 2,000 Time Warner Inc............... 9.15 02/01/23 2,404,156 -------------- 3,331,987 -------------- MOTOR VEHICLES (0.1%) 445 DaimlerChrysler North American Holdings Co.................. 8.50 01/18/31 475,042 -------------- MULTI-LINE INSURANCE (0.3%) 1,065 Farmers Exchange Capital - 144A**....................... 7.05 07/15/28 845,966 895 Hartford Financial Services Group Inc.................... 7.90 06/15/10 979,625 -------------- 1,825,591 -------------- OIL & GAS PIPELINES (0.1%) 335 Williams Companies, Inc....... 7.50 01/15/31 326,361 340 Williams Companies, Inc....... 7.75 06/15/31 341,041 -------------- 667,402 -------------- PHARMACEUTICALS: MAJOR (0.1%) 560 American Home Products Corp......................... 6.70 03/15/11 580,242 --------------
SEE NOTES TO FINANCIAL STATEMENTS 118 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------- PROPERTY - CASUALTY INSURERS (0.2%) $ 885 Florida Windstorm - 144A**.... 7.125% 02/25/19 $ 907,482 -------------- RAILROADS (0.3%) 1,601 Southern Pacific Transportation Co. (Series B)................... 7.28 04/30/15 1,671,946 -------------- REAL ESTATE DEVELOPMENT (0.0%) 217 World Financial Properties Tower (Class B).............. 6.91 09/01/13 218,423 -------------- REAL ESTATE INVESTMENT TRUSTS (0.1%) 525 EOP Operating L.P............. 6.763 06/15/07 534,279 240 Simon Property Group LP....... 6.375 11/15/07 234,787 -------------- 769,066 -------------- SERVICES TO THE HEALTH INDUSTRY (0.1%) 305 Anthem Insurance - 144A**..... 9.125 04/01/10 327,758 200 Anthem Insurance - 144A**..... 9.00 04/01/27 201,306 -------------- 529,064 -------------- SPECIALTY TELECOMMUNICATIONS (0.3%) 665 PCCW HKTC Capital Ltd. (Hong Kong) - 144A**............... 7.75 11/15/11 663,456 155 Qwest Capital Funding......... 7.90 08/15/10 157,687 635 Qwest Capital Funding - 144A**....................... 7.25 02/15/11 618,790 -------------- 1,439,933 -------------- WIRELESS COMMUNICATIONS (0.2%) 435 AT&T Wireless - 144A**........ 8.75 03/01/31 493,024 375 Vodafone Airtouch PLC (United Kingdom)..................... 7.75 02/15/10 411,861 225 Vodafone Group PLC (United Kingdom)..................... 6.65 05/01/08 232,757 -------------- 1,137,642 -------------- TOTAL CORPORATE BONDS (COST $50,877,415)......................................... 51,462,886 -------------- ASSET-BACKED SECURITIES (1.2%) FINANCE/RENTAL/LEASING 700 American Express Credit Assets....................... 5.53 10/15/08 715,568 915 Chase Credit Card Master Trust........................ 5.50 11/17/08 931,746 950 Citibank Credit Issuance Trust........................ 6.90 10/15/07 1,016,958 1,400 Detroit Edison Sec 2001-1 CL A5........................... 6.42 03/01/15 1,407,861 366 First Security Auto Owner Trust........................ 7.30 07/15/04 374,429 710 Ford Credit Auto Owner Trust........................ 6.74 06/15/04 733,540 610 MMCA Automobile Trust......... 7.00 06/15/04 626,081
SEE NOTES TO FINANCIAL STATEMENTS 119 Morgan Stanley Variable Investment Series - Strategist PORTFOLIO OF INVESTMENTS / / DECEMBER 31, 2001 CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------- $ 600 PSE&G Transition Funding LLC.......................... 6.61% 06/15/15 $ 622,122 385 Toyota Auto Receivables Owner Trust........................ 6.76 08/15/04 397,997 -------------- TOTAL ASSET-BACKED SECURITIES (COST $6,714,445).......................................... 6,826,302 -------------- SHORT-TERM INVESTMENTS (37.0%) U.S. GOVERNMENT AGENCY & OBLIGATIONS (a) (36.8%) 210,000 Federal Home Loan Mortgage Corp.***..................... 1.51 01/02/02 209,991,192 150 U.S. Treasury Bill............ 0.77 04/18/02 149,193 -------------- TOTAL U.S. GOVERNMENT AGENCY & OBLIGATIONS (COST $210,140,384)........................................ 210,140,385 -------------- REPURCHASE AGREEMENT (0.2%) 868 The Bank of New York (dated 12/31/01; proceeds $868,424) (b) (COST $868,381).............. 0.875 01/02/02 868,381 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $211,008,765)........................................ 211,008,766 --------------
TOTAL INVESTMENTS (COST $615,201,688) (c)............................ 118.5% 676,125,006 LIABILITIES IN EXCESS OF OTHER ASSETS............... (18.5) (105,583,838) ----- -------------- NET ASSETS.......................................... 100.0% $ 570,541,168 ===== ==============
- --------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. *** SOME OR ALL OF THESE SECURITIES HAVE BEEN SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS AND/OR SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS. + SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT. (a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) COLLATERALIZED BY $880,928 FEDERAL HOME LOAN MORTGAGE CORP. 5.775% DUE 06/26/06, VALUED AT $885,750. (c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $72,632,029 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $11,708,711, RESULTING IN NET UNREALIZED APPRECIATION OF $60,923,318.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2001: NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION - ----------------------------------------------------------------------------------------------- 7 Short US Treasury Note Future 10 Year, March 2002 $(735,984) $(3,663) 6 Short US Treasury Bond 30 Year, March 2002 (609,188) (2,260) ------- Total unrealized depreciation.................................................. $(5,923) =======
SEE NOTES TO FINANCIAL STATEMENTS 120 (This page has been intentionally left blank.) 121 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2001
MONEY SHORT-TERM QUALITY INCOME HIGH MARKET BOND PLUS YIELD UTILITIES -------------- -------------- -------------- -------------- -------------- ASSETS: Investments in securities, at value*.... $ 546,369,415 $ 50,042,158 $ 542,697,663 $ 68,732,473 $ 353,811,058 Cash.................................... 5,103 -- 242,218 -- 22,639 Receivable for: Investments sold...................... -- -- 1,362,401 -- -- Shares of beneficial interest sold.... 13,600,324 879,151 3,352,107 71,338 181,378 Dividends............................. -- -- -- -- 603,792 Interest.............................. 115,256 331,541 7,428,489 2,500,065 491,734 Foreign withholding taxes reclaimed... -- -- -- -- -- Variation margin...................... -- 15,189 -- -- -- Prepaid expenses and other assets....... 812 27 3,574 1,540 12 ------------- ------------- ------------- ------------- ------------- TOTAL ASSETS........................ 560,090,910 51,268,066 555,086,452 71,305,416 355,110,613 ------------- ------------- ------------- ------------- ------------- LIABILITIES: Payable for: Investments purchased................. -- 303,613 47,200,905 33,902 1,536,450 Shares of beneficial interest repurchased.......................... 1,069,442 10,321 378,911 68,038 1,013,652 Variation margin...................... -- -- 344,437 -- -- Distribution fee (Class Y)............ 20,945 5,019 11,041 1,276 5,019 Investment management fee............. 231,782 19,385 213,222 31,076 192,286 Payable to bank....................... -- -- -- 481,812 -- Unrealized depreciation on open forward foreign currency contracts............. -- -- -- -- -- Accrued expenses and other payables..... 50,814 21,983 65,332 55,739 64,221 ------------- ------------- ------------- ------------- ------------- TOTAL LIABILITIES................... 1,372,983 360,321 48,213,848 671,843 2,811,628 ------------- ------------- ------------- ------------- ------------- NET ASSETS.......................... $ 558,717,927 $ 50,907,745 $ 506,872,604 $ 70,633,573 $ 352,298,985 ============= ============= ============= ============= ============= COMPOSITION OF NET ASSETS: Paid-in-capital......................... $ 558,717,738 $ 50,488,337 $ 524,919,957 $ 392,295,580 $ 279,326,819 Accumulated undistributed net investment income (loss).......................... 189 (83,095) (475,593) 942,409 (27,612) Accumulated undistributed net realized gain (loss)............................ -- 255,416 (30,332,432) (81,496,482) (705,251) Net unrealized appreciation (depreciation)......................... -- 247,087 12,760,672 (241,107,934) 73,705,029 ------------- ------------- ------------- ------------- ------------- NET ASSETS.......................... $ 558,717,927 $ 50,907,745 $ 506,872,604 $ 70,633,573 $ 352,298,985 ============= ============= ============= ============= ============= *COST............................... $ 546,369,415 $ 49,795,842 $ 531,398,103 $ 309,840,407 $ 280,106,029 ============= ============= ============= ============= ============= CLASS X SHARES: Net Assets.............................. $ 452,765,450 $ 25,857,578 $ 452,757,239 $ 64,470,443 $ 327,749,363 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 452,765,290 2,542,098 42,927,167 48,363,426 22,255,113 NET ASSET VALUE PER SHARE........... $ 1.00 $ 10.17 $ 10.55 $ 1.33 $ 14.73 ============= ============= ============= ============= ============= CLASS Y SHARES: Net Assets.............................. $ 105,952,477 $ 25,050,167 $ 54,115,365 $ 6,163,130 $ 24,549,622 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 105,952,448 2,466,476 5,136,312 4,618,282 1,667,611 NET ASSET VALUE PER SHARE........... $ 1.00 $ 10.16 $ 10.54 $ 1.33 $ 14.72 ============= ============= ============= ============= =============
- --------------------- ** INCLUDES FOREIGN CASH OF $194,880. SEE NOTES TO FINANCIAL STATEMENTS 122
GLOBAL INCOME DIVIDEND CAPITAL DIVIDEND BUILDER GROWTH GROWTH GROWTH -------------- -------------- -------------- -------------- ASSETS: Investments in securities, at value*.... $ 70,778,375 $1,315,351,943 $ 111,367,652 $ 294,611,806 Cash.................................... 11,873 -- 92,132 177,569 Receivable for: Investments sold...................... -- 3,756,471 138,668 440,852 Shares of beneficial interest sold.... 7,813 178,920 35,239 54,135 Dividends............................. 125,297 1,521,190 34,913 372,297 Interest.............................. 397,115 -- -- -- Foreign withholding taxes reclaimed... -- 23,542 -- 484,808 Variation margin...................... -- -- -- -- Prepaid expenses and other assets....... 725 17 670 59 ------------- -------------- ------------- ------------- TOTAL ASSETS........................ 71,321,198 1,320,832,083 111,669,274 296,141,526 ------------- -------------- ------------- ------------- LIABILITIES: Payable for: Investments purchased................. -- -- 1,090,455 -- Shares of beneficial interest repurchased.......................... 1,042,925 839,855 95,202 229,847 Variation margin...................... -- -- -- -- Distribution fee (Class Y)............ 1,458 12,344 1,352 2,140 Investment management fee............. 44,589 603,852 60,731 187,035 Payable to bank....................... -- -- -- -- Unrealized depreciation on open forward foreign currency contracts............. -- -- -- -- Accrued expenses and other payables..... 25,241 119,530 43,250 70,632 ------------- -------------- ------------- ------------- TOTAL LIABILITIES................... 1,114,213 1,575,581 1,290,990 489,654 ------------- -------------- ------------- ------------- NET ASSETS.......................... $ 70,206,985 $1,319,256,502 $ 110,378,284 $ 295,651,872 ============= ============== ============= ============= COMPOSITION OF NET ASSETS: Paid-in-capital......................... $ 75,894,525 $1,536,488,905 $ 129,738,368 $ 299,095,660 Accumulated undistributed net investment income (loss).......................... (6,414) 44 257,317 3,453,657 Accumulated undistributed net realized gain (loss)............................ (8,462,915) (371,231,747) (28,858,124) (11,106,890) Net unrealized appreciation (depreciation)......................... 2,781,789 153,999,300 9,240,723 4,209,445 ------------- -------------- ------------- ------------- NET ASSETS.......................... $ 70,206,985 $1,319,256,502 $ 110,378,284 $ 295,651,872 ============= ============== ============= ============= *COST............................... $ 67,996,586 $1,161,352,643 $ 102,126,929 $ 290,398,081 ============= ============== ============= ============= CLASS X SHARES: Net Assets.............................. $ 63,059,946 $1,258,863,419 $ 103,763,582 $ 285,158,086 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 5,941,653 93,370,150 7,593,642 24,852,633 NET ASSET VALUE PER SHARE........... $ 10.61 $ 13.48 $ 13.66 $ 11.47 ============= ============== ============= ============= CLASS Y SHARES: Net Assets.............................. $ 7,147,039 $ 60,393,083 $ 6,614,702 $ 10,493,786 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 674,418 4,484,727 485,933 917,892 NET ASSET VALUE PER SHARE........... $ 10.60 $ 13.47 $ 13.61 $ 11.43 ============= ============== ============= ============= EUROPEAN PACIFIC GROWTH GROWTH EQUITY S&P 500 INDEX -------------- -------------- -------------- -------------- ASSETS: Investments in securities, at value*.... $ 337,746,945 $ 40,493,372 $1,110,743,953 $ 212,482,445 Cash.................................... 20,494 236,756** 3,255 36,914 Receivable for: Investments sold...................... 601,937 -- 22,227,475 36,187 Shares of beneficial interest sold.... 38,665 15,360 170,030 490,888 Dividends............................. 178,891 4,330 400,820 201,185 Interest.............................. -- -- -- -- Foreign withholding taxes reclaimed... 716,754 15,838 1,957 -- Variation margin...................... -- -- -- -- Prepaid expenses and other assets....... 883 1,861 10,470 3,283 ------------- ------------- -------------- ------------- TOTAL ASSETS........................ 339,304,569 40,767,517 1,133,557,960 213,250,902 ------------- ------------- -------------- ------------- LIABILITIES: Payable for: Investments purchased................. -- -- 48,668,723 105,768 Shares of beneficial interest repurchased.......................... 1,695,251 5,851,125 856,312 1,335,444 Variation margin...................... -- -- -- 68,175 Distribution fee (Class Y)............ 4,757 950 12,738 9,316 Investment management fee............. 269,492 32,184 459,669 71,437 Payable to bank....................... -- -- -- -- Unrealized depreciation on open forward foreign currency contracts............. 175,539 -- -- -- Accrued expenses and other payables..... 105,582 104,648 116,051 61,358 ------------- ------------- -------------- ------------- TOTAL LIABILITIES................... 2,250,621 5,988,907 50,113,493 1,651,498 ------------- ------------- -------------- ------------- NET ASSETS.......................... $ 337,053,948 $ 34,778,610 $1,083,444,467 $ 211,599,404 ============= ============= ============== ============= COMPOSITION OF NET ASSETS: Paid-in-capital......................... $ 359,851,959 $ 93,696,270 $1,514,708,380 $ 239,962,593 Accumulated undistributed net investment income (loss).......................... 4,047,787 (137,590) (1,170) 1,908,500 Accumulated undistributed net realized gain (loss)............................ (56,306,919) (53,526,536) (519,895,348) (8,874,497) Net unrealized appreciation (depreciation)......................... 29,461,121 (5,253,534) 88,632,605 (21,397,192) ------------- ------------- -------------- ------------- NET ASSETS.......................... $ 337,053,948 $ 34,778,610 $1,083,444,467 $ 211,599,404 ============= ============= ============== ============= *COST............................... $ 308,096,077 $ 45,744,859 $1,022,111,348 $ 233,960,702 ============= ============= ============== ============= CLASS X SHARES: Net Assets.............................. $ 316,195,567 $ 33,138,282 $1,022,334,705 $ 165,465,381 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 18,917,665 8,323,928 45,110,315 15,794,931 NET ASSET VALUE PER SHARE........... $ 16.71 $ 3.98 $ 22.66 $ 10.48 ============= ============= ============== ============= CLASS Y SHARES: Net Assets.............................. $ 20,858,381 $ 1,640,328 $ 61,109,762 $ 46,134,023 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 1,252,719 412,419 2,698,838 4,420,170 NET ASSET VALUE PER SHARE........... $ 16.65 $ 3.98 $ 22.64 $ 10.44 ============= ============= ============== =============
- --------------------- ** INCLUDES FOREIGN CASH OF $194,880. 123 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF ASSETS AND LIABILITIES CONTINUED DECEMBER 31, 2001
COMPETITIVE EDGE AGGRESSIVE "BEST IDEAS" EQUITY INFORMATION STRATEGIST -------------- -------------- -------------- -------------- ASSETS: Investments in securities, at value*.... $ 45,941,594 $ 88,944,093 $ 11,805,945 $ 676,125,006 Cash.................................... 3,985 -- 37,017 -- Receivable for: Investments sold...................... -- 356,809 -- 1,946,286 Shares of beneficial interest sold.... 12,628 70,837 8,333 327,168 Dividends............................. 34,970 46,807 1,811 418,989 Interest.............................. -- -- 9,240 1,272,944 Foreign withholding taxes reclaimed... 31,376 -- -- -- Prepaid expenses and other assets....... 664 2,429 204 13,139 Receivable from affiliate............... -- -- 36,335 -- ------------- ------------- ------------- ------------- TOTAL ASSETS........................ 46,025,217 89,420,975 11,898,885 680,103,532 ------------- ------------- ------------- ------------- LIABILITIES: Payable for: Investments purchased................. -- 1,156,061 -- 108,804,290 Shares of beneficial interest repurchased.......................... 20,639 90,452 4,512 421,099 Variation margin...................... -- -- -- 10,265 Distribution fee (Class Y)............ 1,223 3,893 1,565 9,836 Investment management fee............. 25,472 56,377 -- 241,720 Accrued expenses and other payables..... 25,374 44,906 31,945 75,154 ------------- ------------- ------------- ------------- TOTAL LIABILITIES................... 72,708 1,351,689 38,022 109,562,364 ------------- ------------- ------------- ------------- NET ASSETS.......................... $ 45,952,509 $ 88,069,286 $ 11,860,863 $ 570,541,168 ============= ============= ============= ============= COMPOSITION OF NET ASSETS: Paid-in-capital......................... $ 70,088,823 $ 135,566,600 $ 16,690,715 $ 533,020,238 Accumulated undistributed net investment income................................. 298,261 184,187 96,546 172,160 Accumulated net realized loss........... (15,826,647) (51,038,626) (4,579,947) (23,568,625) Net unrealized appreciation (depreciation)......................... (8,607,928) 3,357,125 (346,451) 60,917,395 ------------- ------------- ------------- ------------- NET ASSETS.......................... $ 45,952,509 $ 88,069,286 $ 11,860,863 $ 570,541,168 ============= ============= ============= ============= *COST............................... $ 54,549,996 $ 85,586,968 $ 12,152,396 $ 615,201,688 ============= ============= ============= ============= CLASS X SHARES: Net Assets.............................. $ 40,083,777 $ 69,417,702 $ 4,434,357 $ 522,655,329 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 5,592,654 6,803,098 835,104 37,491,595 NET ASSET VALUE PER SHARE........... $ 7.17 $ 10.20 $ 5.31 $ 13.94 ============= ============= ============= ============= CLASS Y SHARES: Net Assets.............................. $ 5,868,732 $ 18,651,584 $ 7,426,506 $ 47,885,839 Shares Outstanding (unlimited authorized shares of $.01 par value).............. 821,979 1,833,640 1,402,127 3,437,900 NET ASSET VALUE PER SHARE........... $ 7.14 $ 10.17 $ 5.30 $ 13.93 ============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS 124 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
MONEY SHORT-TERM QUALITY INCOME HIGH MARKET BOND PLUS YIELD UTILITIES -------------- -------------- -------------- -------------- -------------- INVESTMENT INCOME: INCOME Interest.............................. $ 21,080,306 $ 1,126,465 $ 29,169,161 $ 18,440,859 $ 3,340,235 Dividends............................. -- -- -- -- 9,535,648* ------------- ------------- ------------- ------------- ------------- TOTAL INCOME........................ 21,080,306 1,126,465 29,169,161 18,440,859 12,875,883 ------------- ------------- ------------- ------------- ------------- EXPENSES Investment management fee............. 2,487,979 115,398 2,297,200 514,608 2,940,607 Distribution fee (Class Y shares)..... 159,510 25,690 66,513 11,153 54,717 Professional fees..................... 26,629 24,240 33,610 45,831 29,619 Custodian fees........................ 27,796 22,701 43,220 9,175 23,979 Shareholder reports and notices....... 17,152 1,454 30,949 31,159 28,168 Trustees' fees and expenses........... 855 158 825 212 955 Transfer agent fees and expenses...... 500 500 500 500 500 Other................................. 2,717 3,252 7,954 7,420 5,042 ------------- ------------- ------------- ------------- ------------- TOTAL EXPENSES...................... 2,723,138 193,393 2,480,771 620,058 3,083,587 Less: expense offset.................... -- (16,260) -- -- -- Less: amounts waived/reimbursed......... -- (11,844) -- -- -- ------------- ------------- ------------- ------------- ------------- NET EXPENSES........................ 2,723,138 165,289 2,480,771 620,058 3,083,587 ------------- ------------- ------------- ------------- ------------- NET INVESTMENT INCOME............... 18,357,168 961,176 26,688,390 17,820,801 9,792,296 ------------- ------------- ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments........................... 5,214 302,230 8,325,417 (47,026,073) 5,575,752 Futures contracts..................... -- 7,944 465,480 -- -- ------------- ------------- ------------- ------------- ------------- NET GAIN (LOSS)................... 5,214 310,174 8,790,897 (47,026,073) 5,575,752 ------------- ------------- ------------- ------------- ------------- Net change in unrealized appreciation/depreciation on: Investments........................... -- 226,539 3,867,595 (11,351,187) (150,471,025) Futures contracts..................... -- 771 1,461,112 -- -- ------------- ------------- ------------- ------------- ------------- NET APPRECIATION (DEPRECIATION)... -- 227,310 5,328,707 (11,351,187) (150,471,025) ------------- ------------- ------------- ------------- ------------- NET GAIN (LOSS)................... 5,214 537,484 14,119,604 (58,377,260) (144,895,273) ------------- ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)................. $ 18,362,382 $ 1,498,660 $ 40,807,994 $ (40,556,459) $(135,102,977) ============= ============= ============= ============= =============
- --------------------- * NET OF $46,888 FOREIGN WITHHOLDING TAX. SEE NOTES TO FINANCIAL STATEMENTS 125 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF OPERATIONS CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2001
DIVIDEND CAPITAL GLOBAL DIVIDEND INCOME BUILDER GROWTH GROWTH GROWTH -------------- -------------- -------------- --------------- INVESTMENT INCOME: INCOME Interest.............................. $ 1,771,960 $ 256,841 $ 433,442 $ 404,699 Dividends............................. 1,659,952 34,486,664* 797,053* 7,992,621* ------------- ------------- ------------- ------------- TOTAL INCOME........................ 3,431,912 34,743,505 1,230,495 8,397,320 ------------- ------------- ------------- ------------- EXPENSES Investment management fee............. 502,750 7,727,136 888,331 2,459,977 Distribution fee (Class Y shares)..... 9,604 94,097 12,174 14,318 Professional fees..................... 22,930 29,320 29,895 32,576 Custodian fees........................ 6,811 81,313 26,912 74,625 Shareholder reports and notices....... 9,479 127,351 12,667 47,996 Trustees' fees and expenses........... 536 7,271 894 2,769 Transfer agent fees and expenses...... 500 500 500 500 Other................................. 2,600 11,188 1,212 11,922 ------------- ------------- ------------- ------------- TOTAL EXPENSES...................... 555,210 8,078,176 972,585 2,644,683 Less: amounts waived/reimbursed......... -- -- -- -- ------------- ------------- ------------- ------------- NET EXPENSES........................ 555,210 8,078,176 972,585 2,644,683 ------------- ------------- ------------- ------------- NET INVESTMENT INCOME (LOSS)........ 2,876,702 26,665,329 257,910 5,752,637 ------------- ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments........................... (6,125,756) (104,386,936) (26,223,368) (6,825,497) Futures contracts..................... -- -- -- -- Foreign exchange transactions......... -- -- -- (10,165) ------------- ------------- ------------- ------------- NET LOSS.......................... (6,125,756) (104,386,936) (26,223,368) (6,835,662) ------------- ------------- ------------- ------------- Net change in unrealized appreciation/depreciation on: Investments........................... 4,344,566 (2,096,175) (20,160,783) (21,664,148) Futures contracts..................... -- -- -- -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies........................... -- -- -- (9,434) ------------- ------------- ------------- ------------- NET APPRECIATION (DEPRECIATION)... 4,344,566 (2,096,175) (20,160,783) (21,673,582) ------------- ------------- ------------- ------------- NET LOSS.......................... (1,781,190) (106,483,111) (46,384,151) (28,509,244) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)................. $ 1,095,512 $ (79,817,782) $ (46,126,241) $ (22,756,607) ============= ============= ============= =============
- --------------------- * NET OF $322,464, $4,633, $714,167, $896,268, $98,088, $57,957, $11,541, $49,881, $1,677, $132, AND $16,690 FOREIGN WITHHOLDING TAX, RESPECTIVELY. ** NET OF FOREIGN TAXES OF $13,789. SEE NOTES TO FINANCIAL STATEMENTS 126
EUROPEAN PACIFIC GROWTH GROWTH EQUITY S&P 500 INDEX -------------- -------------- -------------- -------------- INVESTMENT INCOME: INCOME Interest.............................. $ 524,814 $ 97,559 $ 7,103,431 $ 316,290 Dividends............................. 6,299,392* 640,189* 6,656,391* 2,630,765* ------------- ------------- ------------- ------------- TOTAL INCOME........................ 6,824,206 737,748 13,759,822 2,947,055 ------------- ------------- ------------- ------------- EXPENSES Investment management fee............. 3,806,995 483,401 6,418,456 837,012 Distribution fee (Class Y shares)..... 42,296 4,796 111,991 70,452 Professional fees..................... 32,593 44,676 30,065 19,225 Custodian fees........................ 177,791 310,857 66,905 63,627 Shareholder reports and notices....... 63,899 21,945 124,482 23,537 Trustees' fees and expenses........... 3,403 334 9,043 2,299 Transfer agent fees and expenses...... 500 500 500 500 Other................................. 9,485 19,263 12,045 21,804 ------------- ------------- ------------- ------------- TOTAL EXPENSES...................... 4,136,962 885,772 6,773,487 1,038,456 Less: amounts waived/reimbursed......... -- -- -- -- ------------- ------------- ------------- ------------- NET EXPENSES........................ 4,136,962 885,772 6,773,487 1,038,456 ------------- ------------- ------------- ------------- NET INVESTMENT INCOME (LOSS)........ 2,687,244 (148,024) 6,986,335 1,908,599 ------------- ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments........................... (55,518,318) (12,696,356)** (448,383,743) (5,914,126) Futures contracts..................... -- -- -- (2,207,403) Foreign exchange transactions......... 2,089,625 (112,376) -- -- ------------- ------------- ------------- ------------- NET LOSS.......................... (53,428,693) (12,808,732) (448,383,743) (8,121,529) ------------- ------------- ------------- ------------- Net change in unrealized appreciation/depreciation on: Investments........................... (36,500,577) 1,876,518 (41,792,666) (23,096,340) Futures contracts..................... -- -- -- 164,253 Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies........................... (847,073) 12,551 -- -- ------------- ------------- ------------- ------------- NET APPRECIATION (DEPRECIATION)... (37,347,650) 1,889,069 (41,792,666) (22,932,087) ------------- ------------- ------------- ------------- NET LOSS.......................... (90,776,343) (10,919,663) (490,176,409) (31,053,616) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)................. $ (88,089,099) $ (11,067,687) $(483,190,074) $ (29,145,017) ============= ============= ============= ============= COMPETITIVE EDGE AGGRESSIVE "BEST IDEAS" EQUITY INFORMATION STRATEGIST ---------------- -------------- -------------- -------------- INVESTMENT INCOME: INCOME Interest.............................. $ 75,687 $ 449,088 $ 90,163 $ 15,481,549 Dividends............................. 671,842* 669,183* 18,177* 3,574,144* ------------- ------------- ------------- ------------- TOTAL INCOME........................ 747,529 1,118,271 108,340 19,055,693 ------------- ------------- ------------- ------------- EXPENSES Investment management fee............. 374,809 797,144 64,005 3,124,988 Distribution fee (Class Y shares)..... 13,328 39,838 11,794 85,536 Professional fees..................... 21,351 19,337 49,656 31,983 Custodian fees........................ 18,549 55,760 22,748 39,761 Shareholder reports and notices....... 12,323 19,179 531 51,910 Trustees' fees and expenses........... 506 1,167 18 1,245 Transfer agent fees and expenses...... 500 500 500 500 Other................................. 1,900 1,157 1,014 11,695 ------------- ------------- ------------- ------------- TOTAL EXPENSES...................... 443,266 934,082 150,266 3,347,618 Less: amounts waived/reimbursed......... -- -- (138,472) -- ------------- ------------- ------------- ------------- NET EXPENSES........................ 443,266 934,082 11,794 3,347,618 ------------- ------------- ------------- ------------- NET INVESTMENT INCOME (LOSS)........ 304,263 184,189 96,546 15,708,075 ------------- ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments........................... (15,318,479) (34,359,108) (4,563,372) (14,024,853) Futures contracts..................... -- -- -- 497,078 Foreign exchange transactions......... (4,896) -- -- -- ------------- ------------- ------------- ------------- NET LOSS.......................... (15,323,375) (34,359,108) (4,563,372) (13,527,775) ------------- ------------- ------------- ------------- Net change in unrealized appreciation/depreciation on: Investments........................... (1,752,683) (8,047,510) (60,847) (75,235,258) Futures contracts..................... -- -- -- (5,923) Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies........................... (69) -- -- -- ------------- ------------- ------------- ------------- NET APPRECIATION (DEPRECIATION)... (1,752,752) (8,047,510) (60,847) (75,241,181) ------------- ------------- ------------- ------------- NET LOSS.......................... (17,076,127) (42,406,618) (4,624,219) (88,768,956) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)................. $ (16,771,864) $ (42,222,429) $ (4,527,673) $ (73,060,881) ============= ============= ============= =============
- --------------------- * NET OF $322,464, $4,633, $714,167, $896,268, $98,088, $57,957, $11,541, $49,881, $1,677, $132, AND $16,690 FOREIGN WITHHOLDING TAX, RESPECTIVELY. ** NET OF FOREIGN TAXES OF $13,789. 127 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET SHORT-TERM BOND ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 18,357,168 $ 22,560,142 $ 961,176 $ 276,431 Net realized gain (loss)................... 5,214 2,431 310,174 (1,534) Net change in unrealized appreciation/depreciation................. -- -- 227,310 48,780 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE).................. 18,362,382 22,562,573 1,498,660 323,677 ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (16,395,899) (22,379,796) (679,053) (256,046) Class Y Shares............................. (1,961,364) (180,251) (429,836) (18,021) Net realized gain Class X Shares............................. (4,750) (2,394) -- -- Class Y Shares............................. (464) (37) -- -- Paid-in-capital Class X Shares............................. -- -- -- -- Class Y Shares............................. -- -- -- -- ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (18,362,477) (22,562,478) (1,108,889) (274,067) ------------- ------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... 186,111,839 (63,037,023) 42,661,275 4,632,500 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ 186,111,744 (63,036,928) 43,051,046 4,682,110 NET ASSETS: Beginning of period.......................... 372,606,183 435,643,111 7,856,699 3,174,589 ------------- ------------- ------------- ------------- END OF PERIOD................................ $ 558,717,927 $ 372,606,183 $ 50,907,745 $ 7,856,699 ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ 189 $ 284 $ (83,095) $ 2,364 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. SEE NOTES TO FINANCIAL STATEMENTS 128
QUALITY INCOME PLUS HIGH YIELD ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 26,688,390 $ 28,732,096 $ 17,820,801 $ 38,051,913 Net realized gain (loss)................... 8,790,897 (10,516,981) (47,026,073) (3,132,579) Net change in unrealized appreciation/depreciation................. 5,328,707 25,002,447 (11,351,187) (102,561,779) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE).................. 40,807,994 43,217,562 (40,556,459) (67,642,445) ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (25,847,068) (28,551,058) (17,433,199) (37,708,110) Class Y Shares............................. (1,575,298) (80,831) (877,856) (181,257) Net realized gain Class X Shares............................. -- -- -- -- Class Y Shares............................. -- -- -- -- Paid-in-capital Class X Shares............................. -- -- -- -- Class Y Shares............................. -- -- -- -- ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (27,422,366) (28,631,889) (18,311,055) (37,889,367) ------------- ------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... 81,802,351 (59,032,899) (1,091,250) (43,559,323) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ 95,187,979 (44,447,226) (59,958,764) (149,091,135) NET ASSETS: Beginning of period.......................... 411,684,625 456,131,851 130,592,337 279,683,472 ------------- ------------- ------------- ------------- END OF PERIOD................................ $ 506,872,604 $ 411,684,625 $ 70,633,573 $ 130,592,337 ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ (475,593) $ 170,211 $ 942,409 $ 183,893 ============= ============= ============= ============= UTILITIES INCOME BUILDER ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 9,792,296 $ 12,506,131 $ 2,876,702 $ 3,364,951 Net realized gain (loss)................... 5,575,752 22,995,021 (6,125,756) (1,439,206) Net change in unrealized appreciation/depreciation................. (150,471,025) (17,897,321) 4,344,566 (2,608,659) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE).................. (135,102,977) 17,603,831 1,095,512 (682,914) ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (9,551,429) (12,359,196) (2,768,953) (3,258,344) Class Y Shares............................. (474,333) (137,756) (185,469) (16,825) Net realized gain Class X Shares............................. (27,668,154) (33,661,404) -- -- Class Y Shares............................. (1,423,813) (57,888) -- -- Paid-in-capital Class X Shares............................. -- -- (107,996) (188,897) Class Y Shares............................. -- -- (7,234) (975) ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (39,117,729) (46,216,244) (3,069,652) (3,465,041) ------------- ------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... (44,283,875) 18,929,027 11,833,945 (17,121,201) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ (218,504,581) (9,683,386) 9,859,805 (21,269,156) NET ASSETS: Beginning of period.......................... 570,803,566 580,486,952 60,347,180 81,616,336 ------------- ------------- ------------- ------------- END OF PERIOD................................ $ 352,298,985 $ 570,803,566 $ 70,206,985 $ 60,347,180 ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ (27,612) $ 9,160 $ (6,414) $ 29,137 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. 129 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF CHANGES IN NET ASSETS CONTINUED
DIVIDEND GROWTH CAPITAL GROWTH ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)............... $ 26,665,329 $ 33,434,804 $ 257,910 $ 801,077 Net realized gain (loss)................... (104,386,936) (247,633,286) (26,223,368) 8,578,573 Net change in unrealized appreciation/depreciation................. (2,096,175) 255,968,189 (20,160,783) (7,754,345) -------------- -------------- ------------- ------------- NET INCREASE (DECREASE).................. (79,817,782) 41,769,707 (46,126,241) 1,625,305 -------------- -------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (25,946,577) (33,410,710) (773,047) (16,143) Class Y Shares............................. (709,013) (116,132) (27,695) (51) Net realized gain Class X Shares............................. -- (355,389,540) (9,671,004) (31,601,359) Class Y Shares............................. -- (366,002) (378,927) (99,741) -------------- -------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (26,655,590) (389,282,384) (10,850,673) (31,717,294) -------------- -------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... (146,076,979) (114,494,397) (19,347,265) 45,543,036 -------------- -------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ (252,550,351) (462,007,074) (76,324,179) 15,451,047 NET ASSETS: Beginning of period.......................... 1,571,806,853 2,033,813,927 186,702,463 171,251,416 -------------- -------------- ------------- ------------- END OF PERIOD................................ $1,319,256,502 $1,571,806,853 $ 110,378,284 $ 186,702,463 ============== ============== ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ 44 $ (9,695) $ 257,317 $ 800,627 ============== ============== ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. SEE NOTES TO FINANCIAL STATEMENTS 130
GLOBAL DIVIDEND GROWTH EUROPEAN GROWTH ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 5,752,637 $ 7,867,441 $ 2,687,244 $ 2,594,600 Net realized gain (loss)................... (6,835,662) 7,688,701 (53,428,693) 76,598,627 Net change in unrealized appreciation/depreciation................. (21,673,582) (33,765,802) (37,347,650) (105,877,322) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE).................. (22,756,607) (18,209,660) (88,089,099) (26,684,095) ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (8,890,511) (2,796,221) (4,595,028) (3,290,821) Class Y Shares............................. (157,422) -- (189,010) (8,172) Net realized gain Class X Shares............................. (3,829,787) (38,145,152) (72,684,527) (84,881,334) Class Y Shares............................. (68,473) (20,655) (3,122,453) (210,787) ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (12,946,193) (40,962,028) (80,591,018) (88,391,114) ------------- ------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... (44,625,980) (71,777,150) (13,211,066) 54,315,573 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ (80,328,780) (130,948,838) (181,891,183) (60,759,636) NET ASSETS: Beginning of period.......................... 375,980,652 506,929,490 518,945,131 579,704,767 ------------- ------------- ------------- ------------- END OF PERIOD................................ $ 295,651,872 $ 375,980,652 $ 337,053,948 $ 518,945,131 ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ 3,453,657 $ 6,759,117 $ 4,047,787 $ 4,054,954 ============= ============= ============= ============= PACIFIC GROWTH EQUITY ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ (148,024) $ 18,108 $ 6,986,335 $ 12,933,151 Net realized gain (loss)................... (12,808,732) 4,924,305 (448,383,743) 241,612,765 Net change in unrealized appreciation/depreciation................. 1,889,069 (37,297,247) (41,792,666) (526,098,393) ------------- ------------- -------------- -------------- NET INCREASE (DECREASE).................. (11,067,687) (32,354,834) (483,190,074) (271,552,477) ------------- ------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (889,116) (1,544,980) (6,874,464) (12,785,786) Class Y Shares............................. (45,120) (892) (142,001) (118,384) Net realized gain Class X Shares............................. -- -- (279,989,635) (309,799,810) Class Y Shares............................. -- -- (10,606,414) (519,733) ------------- ------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (934,236) (1,545,872) (297,612,514) (323,223,713) ------------- ------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest............... (18,157,070) (17,089,075) 14,210,309 361,741,551 ------------- ------------- -------------- -------------- TOTAL INCREASE (DECREASE)................ (30,158,993) (50,989,781) (766,592,279) (233,034,639) NET ASSETS: Beginning of period.......................... 64,937,603 115,927,384 1,850,036,746 2,083,071,385 ------------- ------------- -------------- -------------- END OF PERIOD................................ $ 34,778,610 $ 64,937,603 $1,083,444,467 $1,850,036,746 ============= ============= ============== ============== UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ (137,590) $ (45,639) $ (1,170) $ 28,983 ============= ============= ============== ==============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. 131 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF CHANGES IN NET ASSETS CONTINUED
S&P 500 INDEX COMPETITIVE EDGE "BEST IDEAS" ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 1,908,599 $ 1,936,508 $ 304,263 $ 386,773 Net realized gain (loss)................... (8,121,529) (569,474) (15,323,375) 5,361,073 Net change in unrealized appreciation/depreciation................. (22,932,087) (23,329,057) (1,752,752) (20,691,597) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE).................. (29,145,017) (21,962,023) (16,771,864) (14,943,751) ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (1,685,269) (1,171,429) (348,939) (314,559) Class Y Shares............................. (251,291) (8,524) (32,735) (2,328) Net realized gain Class X Shares............................. -- (1,055,974) (3,960,881) -- Class Y Shares............................. -- (7,684) (413,197) -- ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (1,936,560) (2,243,611) (4,755,752) (316,887) ------------- ------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... 19,427,233 61,496,562 (7,067,984) 27,513,945 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ (11,654,344) 37,290,928 (28,595,600) 12,253,307 NET ASSETS: Beginning of period.......................... 223,253,748 185,962,820 74,548,109 62,294,802 ------------- ------------- ------------- ------------- END OF PERIOD................................ $ 211,599,404 $ 223,253,748 $ 45,952,509 $ 74,548,109 ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME.......... $ 1,908,500 $ 1,936,461 $ 298,261 $ 380,569 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. ++ FOR THE PERIOD NOVEMBER 6, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2000. SEE NOTES TO FINANCIAL STATEMENTS 132
AGGRESSIVE EQUITY INFORMATION ------------------------------------- -------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000++ ----------------- ------------------ ----------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 184,189 $ 390,024 $ 96,546 $ 14,872 Net realized gain (loss)................... (34,359,108) (16,497,626) (4,563,372) (16,575) Net change in unrealized appreciation/depreciation................. (8,047,510) 4,022,722 (60,847) (285,604) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE).................. (42,222,429) (12,084,880) (4,527,673) (287,307) ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (337,431) (49,395) (7,156) -- Class Y Shares............................. (52,589) (497) (8,125) -- Net realized gain Class X Shares............................. -- -- -- -- Class Y Shares............................. -- -- -- -- ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (390,020) (49,892) (15,281) -- ------------- ------------- ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... (21,367,646) 125,986,777 11,802,317 4,888,807 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)................ (63,980,095) 113,852,005 7,259,363 4,601,500 NET ASSETS: Beginning of period.......................... 152,049,381 38,197,376 4,601,500 -- ------------- ------------- ------------- ------------- END OF PERIOD................................ $ 88,069,286 $ 152,049,381 $ 11,860,863 $ 4,601,500 ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ 184,187 $ 390,018 $ 96,546 $ 15,281 ============= ============= ============= ============= STRATEGIST ------------------------------------- FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income...................... $ 15,708,075 $ 19,788,254 Net realized gain (loss)................... (13,527,775) 26,318,018 Net change in unrealized appreciation/depreciation................. (75,241,181) (34,158,403) ------------- ------------- NET INCREASE (DECREASE).................. (73,060,881) 11,947,869 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X Shares............................. (15,113,265) (19,395,713) Class Y Shares............................. (872,432) (245,565) Net realized gain Class X Shares............................. (25,786,206) (85,487,009) Class Y Shares............................. (1,505,344) (209,745) ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS........ (43,277,247) (105,338,032) ------------- ------------- Net increase (decrease) from transactions in shares of beneficial interest............... (37,790,181) 88,358,964 ------------- ------------- TOTAL INCREASE (DECREASE)................ (154,128,309) (5,031,199) NET ASSETS: Beginning of period.......................... 724,669,477 729,700,676 ------------- ------------- END OF PERIOD................................ $ 570,541,168 $ 724,669,477 ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)... $ 172,160 $ 149,692 ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. ++ FOR THE PERIOD NOVEMBER 6, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2000. 133 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 SHORT-TERM BOND ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 1,327,878,803 934,549,163 3,131,178 733,662 Reinvestment of dividends and distributions............................... 16,400,649 22,382,190 67,272 25,864 Redeemed..................................... (1,250,307,217) (1,033,781,220) (1,301,529) (435,676) --------------- --------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ 93,972,235 (76,849,867) 1,896,921 323,850 =============== =============== ============= ============= AMOUNT Sold......................................... $ 1,327,878,803 $ 934,549,163 $ 31,630,451 $ 7,265,518 Reinvestment of dividends and distributions............................... 16,400,649 22,382,190 679,053 256,046 Redeemed..................................... (1,250,307,217) (1,033,781,220) (13,110,927) (4,317,357) --------------- --------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ 93,972,235 $ (76,849,867) $ 19,198,577 $ 3,204,207 =============== =============== ============= ============= CLASS Y SHARES SHARES Sold......................................... 364,123,457 21,834,091 3,368,543 152,198 Reinvestment of dividends and distributions............................... 1,961,828 180,288 42,519 1,815 Redeemed..................................... (273,945,681) (8,201,535) (1,088,304) (10,295) --------------- --------------- ------------- ------------- NET INCREASE - CLASS Y....................... 92,139,604 13,812,844 2,322,758 143,718 =============== =============== ============= ============= AMOUNT Sold......................................... $ 364,123,457 $ 21,834,091 $ 34,082,425 $ 1,512,471 Reinvestment of dividends and distributions............................... 1,961,828 180,288 429,836 18,021 Redeemed..................................... (273,945,681) (8,201,535) (11,049,563) (102,199) --------------- --------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 92,139,604 $ 13,812,844 $ 23,462,698 $ 1,428,293 =============== =============== ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. SEE NOTES TO FINANCIAL STATEMENTS 134
QUALITY INCOME PLUS HIGH YIELD ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 15,119,925 5,308,884 18,143,830 7,327,491 Reinvestment of dividends and distributions............................... 2,472,345 2,888,463 9,657,042 10,699,948 Redeemed..................................... (14,430,593) (14,707,375) (32,334,252) (29,780,742) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ 3,161,677 (6,510,028) (4,533,380) (11,753,303) ============= ============= ============= ============= AMOUNT Sold......................................... $ 158,201,213 $ 52,461,632 $ 38,065,972 $ 26,691,531 Reinvestment of dividends and distributions............................... 25,847,068 28,551,058 17,433,199 37,708,109 Redeemed..................................... (150,702,586) (145,125,419) (63,688,048) (110,680,449) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ 33,345,695 $ (64,112,729) $ (8,188,877) $ (46,280,809) ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 5,159,930 521,019 4,414,455 838,148 Reinvestment of dividends and distributions............................... 150,006 8,045 528,829 62,141 Redeemed..................................... (680,391) (22,297) (1,124,542) (100,749) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 4,629,545 506,767 3,818,742 799,540 ============= ============= ============= ============= AMOUNT Sold......................................... $ 54,006,767 $ 5,222,238 $ 8,282,640 $ 2,862,807 Reinvestment of dividends and distributions............................... 1,575,298 80,830 877,856 181,257 Redeemed..................................... (7,125,409) (223,238) (2,062,869) (322,578) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 48,456,656 $ 5,079,830 $ 7,097,627 $ 2,721,486 ============= ============= ============= ============= UTILITIES INCOME BUILDER ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 2,190,761 3,339,684 2,673,254 596,272 Reinvestment of dividends and distributions............................... 2,109,497 2,132,995 268,707 318,465 Redeemed..................................... (7,487,969) (5,380,502) (2,468,891) (2,580,512) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (3,187,711) 92,177 473,070 (1,665,775) ============= ============= ============= ============= AMOUNT Sold......................................... $ 40,178,802 $ 75,452,968 $ 29,639,063 $ 6,501,915 Reinvestment of dividends and distributions............................... 37,219,583 46,020,620 2,876,950 3,447,241 Redeemed..................................... (135,821,222) (121,835,075) (27,104,429) (28,033,361) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ (58,422,837) $ (361,487) $ 5,411,584 $ (18,084,205) ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 1,304,995 911,424 674,648 96,113 Reinvestment of dividends and distributions............................... 108,451 8,984 18,183 1,646 Redeemed..................................... (625,512) (40,731) (107,327) (8,845) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 787,934 879,677 585,504 88,914 ============= ============= ============= ============= AMOUNT Sold......................................... $ 23,965,784 $ 19,996,170 $ 7,363,430 $ 1,040,551 Reinvestment of dividends and distributions............................... 1,898,146 195,644 192,703 17,800 Redeemed..................................... (11,724,968) (901,300) (1,133,772) (95,347) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 14,138,962 $ 19,290,514 $ 6,422,361 $ 963,004 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. 135 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF CHANGES IN NET ASSETS CONTINUED SUMMARY OF TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST CONTINUED
DIVIDEND GROWTH CAPITAL GROWTH ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 8,370,592 6,915,502 1,066,597 2,339,000 Reinvestment of dividends and distributions............................... 1,918,988 29,902,455 663,536 1,544,543 Redeemed..................................... (23,994,002) (40,746,272) (3,267,914) (1,968,416) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (13,704,422) (3,928,315) (1,537,781) 1,915,127 ============= ============= ============= ============= AMOUNT Sold......................................... $ 118,517,749 $ 107,878,599 $ 17,791,534 $ 53,795,246 Reinvestment of dividends and distributions............................... 25,946,577 379,049,270 10,444,051 31,601,359 Redeemed..................................... (334,828,122) (619,548,550) (52,411,078) (43,563,364) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $(190,363,796) $(132,620,681) $ (24,175,493) $ 41,833,241 ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 3,957,756 1,340,964 365,012 186,139 Reinvestment of dividends and distributions............................... 53,019 37,255 25,900 4,877 Redeemed..................................... (843,290) (60,977) (82,314) (13,681) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 3,167,485 1,317,242 308,598 177,335 ============= ============= ============= ============= AMOUNT Sold......................................... $ 55,420,396 $ 18,463,831 $ 5,653,670 $ 3,889,764 Reinvestment of dividends and distributions............................... 709,013 482,134 406,622 99,741 Redeemed..................................... (11,842,592) (819,681) (1,232,064) (279,710) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 44,286,817 $ 18,126,284 $ 4,828,228 $ 3,709,795 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. SEE NOTES TO FINANCIAL STATEMENTS 136
GLOBAL DIVIDEND GROWTH EUROPEAN GROWTH ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 2,547,819 2,246,998 11,284,455 9,230,245 Reinvestment of dividends and distributions............................... 1,079,822 3,301,049 4,446,465 3,299,856 Redeemed..................................... (8,141,744) (11,288,529) (16,852,961) (10,913,565) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (4,514,103) (5,740,482) (1,122,041) 1,616,536 ============= ============= ============= ============= AMOUNT Sold......................................... $ 30,457,581 $ 28,967,660 $ 219,081,336 $ 272,639,151 Reinvestment of dividends and distributions............................... 12,720,298 40,941,373 77,279,555 88,172,155 Redeemed..................................... (96,536,326) (143,825,063) (325,114,133) (317,442,661) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ (53,358,447) $ (73,916,030) $ (28,753,242) $ 43,368,645 ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 856,167 186,212 6,049,689 468,981 Reinvestment of dividends and distributions............................... 19,225 1,677 191,083 8,195 Redeemed..................................... (131,472) (13,917) (5,405,710) (59,519) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 743,920 173,972 835,062 417,657 ============= ============= ============= ============= AMOUNT Sold......................................... $ 10,018,100 $ 2,287,280 $ 104,636,188 $ 12,215,627 Reinvestment of dividends and distributions............................... 225,895 20,655 3,311,463 218,959 Redeemed..................................... (1,511,528) (169,055) (92,405,475) (1,487,658) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 8,732,467 $ 2,138,880 $ 15,542,176 $ 10,946,928 ============= ============= ============= ============= PACIFIC GROWTH EQUITY ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 111,809,242 51,041,243 2,207,985 7,164,752 Reinvestment of dividends and distributions............................... 184,464 197,316 11,357,188 7,535,790 Redeemed..................................... (115,218,886) (53,387,675) (14,280,240) (7,537,949) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (3,225,180) (2,149,116) (715,067) 7,162,593 ============= ============= ============= ============= AMOUNT Sold......................................... $ 507,769,717 $ 359,491,480 $ 65,478,473 $ 363,241,322 Reinvestment of dividends and distributions............................... 889,116 1,544,980 286,864,099 319,231,351 Redeemed..................................... (527,267,864) (379,056,684) (389,764,092) (355,434,066) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ (18,609,031) $ (18,020,224) $ (37,421,520) $ 327,038,607 ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 19,194,728 142,556 1,889,420 829,761 Reinvestment of dividends and distributions............................... 9,361 114 426,095 14,864 Redeemed..................................... (18,922,766) (11,574) (421,163) (40,139) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 281,323 131,096 1,894,352 804,486 ============= ============= ============= ============= AMOUNT Sold......................................... $ 82,178,698 $ 1,009,590 $ 51,929,531 $ 35,773,057 Reinvestment of dividends and distributions............................... 45,120 892 10,748,415 623,947 Redeemed..................................... (81,771,857) (79,333) (11,046,117) (1,694,060) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 451,961 $ 931,149 $ 51,631,829 $ 34,702,944 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. 137 Morgan Stanley Variable Investment Series FINANCIAL STATEMENTS CONTINUED STATEMENTS OF CHANGES IN NET ASSETS CONTINUED SUMMARY OF TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST CONTINUED
S&P 500 INDEX COMPETITIVE EDGE "BEST IDEAS" ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 3,535,737 6,860,524 1,888,226 3,173,771 Reinvestment of dividends and distributions............................... 151,553 168,487 544,857 26,257 Redeemed..................................... (5,358,791) (3,409,330) (3,705,547) (1,371,010) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (1,671,501) 3,619,681 (1,272,464) 1,829,018 ============= ============= ============= ============= AMOUNT Sold......................................... $ 38,618,659 $ 89,722,478 $ 16,869,592 $ 37,675,407 Reinvestment of dividends and distributions............................... 1,685,269 2,227,401 4,309,820 314,559 Redeemed..................................... (57,391,636) (44,290,749) (31,322,011) (15,717,456) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ (17,087,708) $ 47,659,130 $ (10,142,599) $ 22,272,510 ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 4,013,501 1,162,112 453,466 508,335 Reinvestment of dividends and distributions............................... 22,639 1,226 56,519 194 Redeemed..................................... (673,217) (106,091) (147,261) (49,274) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 3,362,923 1,057,247 362,724 459,255 ============= ============= ============= ============= AMOUNT Sold......................................... $ 43,449,899 $ 15,208,446 $ 3,789,065 $ 5,807,167 Reinvestment of dividends and distributions............................... 251,291 16,208 445,932 2,328 Redeemed..................................... (7,186,249) (1,387,222) (1,160,382) (568,060) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 36,514,941 $ 13,837,432 $ 3,074,615 $ 5,241,435 ============= ============= ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. ++ FOR THE PERIOD NOVEMBER 6, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2000. SEE NOTES TO FINANCIAL STATEMENTS 138
AGGRESSIVE EQUITY INFORMATION ------------------------------------- -------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD ENDED ENDED ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ DECEMBER 31, 2001 DECEMBER 31, 2000++ ----------------- ------------------ ----------------- ------------------- CLASS X SHARES SHARES Sold......................................... 1,397,087 9,387,514 1,948,510 302,730 Reinvestment of dividends and distributions............................... 30,020 3,288 1,168 -- Redeemed..................................... (4,314,752) (2,321,837) (1,403,159) (14,145) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (2,887,645) 7,068,965 546,519 288,585 ============= ============= ============= ============= AMOUNT Sold......................................... $ 16,147,379 $ 146,383,257 $ 12,940,416 $ 2,991,621 Reinvestment of dividends and distributions............................... 337,431 49,395 7,156 -- Redeemed..................................... (48,169,868) (34,737,951) (8,662,660) (128,569) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ (31,685,058) $ 111,694,701 $ 4,284,912 $ 2,863,052 ============= ============= ============= ============= CLASS Y SHARES SHARES Sold......................................... 1,302,417 1,003,354 1,447,185 210,137 Reinvestment of dividends and distributions............................... 4,687 33 1,328 -- Redeemed..................................... (410,601) (66,250) (252,179) (4,344) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... 896,503 937,137 1,196,334 205,793 ============= ============= ============= ============= AMOUNT Sold......................................... $ 14,654,081 $ 15,298,277 $ 8,921,999 $ 2,068,622 Reinvestment of dividends and distributions............................... 52,589 497 8,125 -- Redeemed..................................... (4,389,258) (1,006,698) (1,412,719) (42,867) ------------- ------------- ------------- ------------- NET INCREASE - CLASS Y....................... $ 10,317,412 $ 14,292,076 $ 7,517,405 $ 2,025,755 ============= ============= ============= ============= STRATEGIST ------------------------------------- FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2001 DECEMBER 31, 2000+ ----------------- ------------------ CLASS X SHARES SHARES Sold......................................... 3,700,673 5,636,054 Reinvestment of dividends and distributions............................... 2,817,502 6,205,199 Redeemed..................................... (11,126,380) (7,949,205) ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ (4,608,205) 3,892,048 ============= ============= AMOUNT Sold......................................... $ 55,551,505 $ 102,563,826 Reinvestment of dividends and distributions............................... 40,899,471 104,882,722 Redeemed..................................... (164,253,283) (143,279,933) ------------- ------------- NET INCREASE (DECREASE) - CLASS X............ $ (67,802,307) $ 64,166,615 ============= ============= CLASS Y SHARES SHARES Sold......................................... 2,679,997 1,463,098 Reinvestment of dividends and distributions............................... 164,477 27,045 Redeemed..................................... (810,739) (85,978) ------------- ------------- NET INCREASE - CLASS Y....................... 2,033,735 1,404,165 ============= ============= AMOUNT Sold......................................... $ 39,753,947 $ 25,207,978 Reinvestment of dividends and distributions............................... 2,377,776 455,311 Redeemed..................................... (12,119,597) (1,470,940) ------------- ------------- NET INCREASE - CLASS Y....................... $ 30,012,126 $ 24,192,349 ============= =============
- --------------------- + CLASS Y SHARES WERE ISSUED JUNE 5, 2000. ++ FOR THE PERIOD NOVEMBER 6, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2000. 139 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Variable Investment Series (the "Fund"), formerly Morgan Stanley Dean Witter Variable Investment Series, is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. Investments in the Fund may be made only by (1) Northbrook Life Insurance Company to fund the benefits under variable annuity contracts and variable life insurance contracts it issues; (2) Allstate Life Insurance Company to fund the benefits under variable annuity contracts it issues; (3) Glenbrook Life and Annuity Company to fund the benefits under variable annuity contracts and variable life insurance contracts it issues; and (4) Paragon Life Insurance Company to fund the benefits under variable life insurance contracts it issues to certain employees of Morgan Stanley Dean Witter & Co., Inc. the parent company of Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), formerly Morgan Stanley Dean Witter Advisors Inc. The Fund, organized on February 25, 1983 as a Massachusetts business trust, consists of seventeen Portfolios ("Portfolios") which commenced operations as follows:
COMMENCEMENT OF PORTFOLIO OPERATIONS - --------- ---------------- Money Market...................................... March 9, 1984 Short-Term Bond................................... May 4, 1999 Quality Income Plus............................... March 1, 1987 High Yield........................................ March 9, 1984 Utilities......................................... March 1, 1990 Income Builder.................................... January 21, 1997 Dividend Growth................................... March 1, 1990 Capital Growth.................................... March 1, 1991 February 23, Global Dividend Growth............................ 1994 COMMENCEMENT OF PORTFOLIO OPERATIONS - --------- ---------------- European Growth................................... March 1, 1991 February 23, Pacific Growth.................................... 1994 Equity............................................ March 9, 1984 S&P 500 Index..................................... May 18, 1998 Competitive Edge "Best Ideas"..................... May 18, 1998 Aggressive Equity................................. May 4, 1999 Information....................................... November 6, 2000 Strategist........................................ March 1, 1987
On June 5, 2000, the Fund commenced offering one additional class of shares (Class Y shares), with all Portfolio shares issued prior to May 1, 2000 designated Class X 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 by Paragon Life Insurance Company and other contracts offered before May 1, 2000. Class Y shares are available to holders of contracts offered by Northbrook Life Insurance Company, Allstate Life Insurance Company, and Glenbrook Life and Annuity Company offered on or after June 5, 2000. 140 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED The investment objectives of each Portfolio are as follows:
PORTFOLIO INVESTMENT OBJECTIVE Money Market Seeks high current income, preservation of capital and liquidity by investing in short-term money market instruments. Short-Term Bond Seeks to provide a high level of current income consistent with the preservation of capital, by investing primarily in bonds issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities and investment grade corporate and other types of bonds including asset-backed securities. Quality Income Plus Seeks, as its primary objective, to earn a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective, by investing primarily in U.S. Government securities and higher-rated fixed income securities. High Yield Seeks, as its primary objective, to earn a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective, by investing primarily in lower-rated fixed income securities. Utilities Seeks both capital appreciation and current income by investing in equity and fixed income securities of companies engaged in the utilities industry. Income Builder Seeks, as its primary objective, to earn reasonable income and, as a secondary objective, growth of capital by investing primarily in income-producing equity securities. Dividend Growth Seeks to provide reasonable current income and long-term growth of income and capital by investing primarily in common stocks of companies with a record of paying dividends and the potential for increasing dividends. Capital Growth Seeks long-term capital growth by investing primarily in common stocks. Global Dividend Growth Seeks to provide reasonable current income and long-term growth of income and capital by investing primarily in common stocks of companies, issued by issuers worldwide, with a record of paying dividends and the potential for increasing dividends. European Growth Seeks to maximize the capital appreciation of its investments by investing primarily in securities issued by issuers located in Europe. Pacific Growth Seeks to maximize the capital appreciation of its investments by investing primarily in securities issued by issuers located in Asia, Australia and New Zealand. Equity Seeks, as its primary objective, capital growth and, as a secondary objective, income, but only when consistent with its primary objective, by investing primarily in equity securities and securities convertible into equity securities.
141 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED
PORTFOLIO INVESTMENT OBJECTIVE S&P 500 Index Seeks to provide investment results that, before expenses, correspond to the total return of the Standards & Poor's 500 Composite Stock Price Index (the "S&P 500 Index") by investing primarily in common stocks included in the S&P 500 Index. Competitive Edge Seeks long-term capital growth by investing "Best Ideas" primarily in the common stock of U.S. and non-U.S. companies included in the "Best Ideas" list, a research compilation assembled and maintained by Morgan Stanley Equity Research. Aggressive Equity Seeks long-term capital growth by investing primarily in equity securities of companies that offer the potential for superior earnings growth. Information Seeks long-term capital appreciation by investing primarily in common stocks and investment grade convertible securities of companies throughout the world that are engaged in the communications and information industry. Strategist Seeks a high total investment return through a fully managed investment policy utilizing equity, investment grade fixed income and money market securities and writing covered options.
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- Money Market: securities are valued at amortized cost which approximates market value. All remaining Portfolios: (1) an equity portfolio security listed or traded on the New York or American Stock Exchange, NASDAQ, or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the latest bid price (in cases where securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market pursuant to procedures adopted by the Trustees); (2) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the latest available bid price; (3) futures contracts are valued at the latest price published by the commodities exchange on which they trade; (4) when market quotations are not readily available, including circumstances under which it is determined by the Investment Manager (or, in the case of European Growth and Pacific Growth, by Morgan Stanley Investment Management Inc. (the "Sub-Advisor")) that sale or bid 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 142 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED Trustees (valuation of debt securities for which market quotations are not readily available may also be based upon current market prices of securities which are comparable in coupon, rating and maturity or an appropriate matrix utilizing similar factors); (5) certain of the Fund's portfolio securities may be valued by an outside pricing service approved by the Trustees. The pricing service may utilize a matrix system incorporating security quality, maturity and coupon as the evaluation model parameters, and/or research and evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the securities valued by such pricing service; and (6) short-term debt securities having a maturity date of more than sixty days at the time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income is accrued daily except where collection is not expected. The Fund amortizes premiums and accretes discounts over the life of the respective securities. C. FUTURES CONTRACTS -- A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments, known as variation margin, are recorded by the Fund as unrealized gains or losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Portfolios investing in foreign currency denominated transactions are translated into U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such 143 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED transactions. The resultant exchange gains and losses are included in the Statements of Operations as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Portfolios do not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. E. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into forward contracts which are valued daily at the appropriate forward exchange rates. The resultant unrealized exchange gains and losses are included in the Statements of Operations as unrealized gain/loss on foreign exchange transactions. The Portfolios record realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually for each Portfolio with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. H. 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. The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by a Portfolio. 144 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED 2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to each Portfolios' net assets determined at the close of each business day: Money Market -- 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to the portion of daily net assets exceeding $500 million but not exceeding $750 million, and 0.375% to the portion of daily net assets exceeding $750 million. Short-Term Bond -- 0.45%. Quality Income Plus -- 0.50% to the portion of daily net assets not exceeding $500 million and 0.45% to the portion of daily net assets exceeding $500 million. High Yield -- 0.50% to the portion of daily net assets not exceeding $500 million and 0.425% to the portion of daily net assets exceeding $500 million. Utilities -- 0.65% to the portion of daily net assets not exceeding $500 million; 0.55% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion and 0.525% to the portion of daily net assets exceeding $1 billion. Income Builder -- 0.75%. Dividend Growth -- 0.625% to the portion of daily net assets not exceeding $500 million; 0.50% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion; 0.475% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion; 0.45% to the portion of daily net assets exceeding $2 billion but not exceeding $3 billion and 0.425% to the portion of daily net assets exceeding $3 billion. Capital Growth -- 0.65%. Global Dividend Growth -- 0.75% to the portion of daily net assets not exceeding $1 billion and 0.725% to the portion of daily net assets exceeding $1 billion. European Growth -- 0.95% to the portion of daily net assets not exceeding $500 million and 0.90% to the portion of daily net assets exceeding $500 million. Pacific Growth -- 0.95%. 145 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED Equity -- 0.50% to the portion of daily net assets not exceeding $1 billion; 0.475% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion and 0.45% to the portion of daily net assets exceeding $2 billion. S&P 500 Index -- 0.40%. Competitive Edge "Best Ideas" -- 0.65%. Information -- 0.75% Aggressive Equity -- 0.75%. Strategist -- 0.50% to the portion of daily net assets not exceeding $1.5 billion and 0.475% to the portion of daily net assets exceeding $1.5 billion. Under a Sub-Advisory Agreement between the Investment Manager and the Sub-Advisor, the Sub-Advisor provides European Growth and Pacific Growth with investment advice and portfolio management relating to the Portfolios' investments in securities, subject to the overall supervision of the Investment Manager. As compensation for its services provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the Sub-Advisor monthly compensation equal to 40% of its monthly compensation. The Investment Manager has agreed to assume all operating expenses (except for distribution fees) and to waive its compensation to the extent that such expenses and compensation on an annualized basis exceed 0.50% of the daily net assets of S&P 500 Index. For the period June 1, 2001 through December 31, 2001, the Investment Manager has agreed to waive its fee and reimburse all operating expenses (except for distribution fees) for Short-Term Bond to the extent they exceed 0.50% of the daily net assets. The Investment Manager has agreed to waive its fee and reimburse all operating expenses (except for distribution fees) for Information until such time the Portfolio has $50 million of net assets or December 31, 2001, whichever occurs first. At December 31, 2001, included in the Statement of Assets and Liabilities is a receivable from affiliate, which represents expense reimbursements due to the Portfolio. 3. PLAN OF DISTRIBUTION Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager and Sub-Advisor. 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 146 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED fee which is accrued daily and paid monthly at the annual rate of 0.25% of the average daily net assets of the class. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES Purchases and sales/maturities of portfolio securities, excluding short-term investments (except Money Market), for the year ended December 31, 2001 are as follows:
U.S. GOVERNMENT SECURITIES OTHER ------------------------------ --------------------------------- PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES ------------ ---------------- --------------- ---------------- Money Market.................. $598,677,811 $480,076,937 $5,736,164,732 $5,693,572,625 Short-Term Bond............... 23,890,090 19,726,421 19,680,365 3,765,863 Quality Income Plus........... 438,429,367 426,578,935 273,429,367 210,234,621 High Yield.................... -- -- 77,738,651 79,941,201 Utilities..................... 10,790,113 8,447,224 126,854,975 193,257,176 Income Builder................ -- -- 38,203,483 28,306,729 Dividend Growth............... -- -- 265,853,125 410,126,246 Capital Growth................ -- -- 409,185,091 437,681,313 Global Dividend Growth........ -- -- 28,253,274 75,099,536 European Growth............... -- -- 318,290,748 397,886,086 Pacific Growth................ -- -- 59,863,234 76,466,107 Equity........................ 84,287,781 84,798,917 3,733,146,768 3,898,156,735 S&P 500 Index................. -- -- 22,205,075 8,998,944 Competitive Edge "Best Ideas"....................... -- -- 26,147,179 38,215,550 Aggressive Equity............. -- -- 414,172,715 426,587,410 Information................... -- -- 23,532,734 12,451,318 Strategist.................... 291,941,891 303,831,715 325,384,791 315,239,495
Included in the aforementioned purchases and sales of portfolio securities of S&P 500 Index are purchases and sales of Morgan Stanley Dean Witter & Co., an affiliate of the Investment Manager, Sub-Advisor and Distributor, of $72,114 and $52,162, respectively including realized losses of $38,553 and purchases and sales of Allstate Corp., an affiliate of the Fund, of $26,886 and $21,493, respectively, including realized losses of $2,487. Included in the purchases of Equity and Aggressive Equity are purchases of Allstate Corp. of $19,806,332 and $601,055 respectively. Included in the sales of portfolio securities of Equity and Aggressive Equity are sales of Allstate Corp. of $20,385,921 and $1,394,324, respectively, including net realized gains of $579,589 and net realized losses of $190,219, respectively. Included in the payable for investments purchased at December 31, 2001 for Capital Growth is $140,694 for unsettled trades with Morgan Stanley DW Inc. ("MSDW"), an affiliate of the Investment Manager, 147 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED Sub-Advisor and Distributor. Included in the receivable for investments sold at December 31, 2001 for Equity is $771,584 for unsettled trades with MSDW. For the year ended December 31, 2001, the following Portfolios incurred brokerage commissions with MSDW for portfolio transactions executed on behalf of the Portfolio:
GLOBAL INCOME DIVIDEND CAPITAL DIVIDEND UTILITIES BUILDER GROWTH GROWTH GROWTH - --------- ------- -------- ------- -------- $16,245 $18,666 $93,430 $70,619 $8,878 ======= ======= ======= ======= ====== AGGRESSIVE EQUITY EQUITY INFORMATION STRATEGIST - --------- ---------- ----------- ---------- $70,637 $11,490 $13,994 $37,215 ======= ======= ======= =======
Included in the payable for investments purchased at December 31, 2001 for Equity and Aggressive Equity are $3,272,548 and $62,985, respectively for unsettled trades with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager, Sub-Advisor and Distributor. Included in the receivable for investments sold at December 31, 2001 for Dividend Growth, Capital Growth, Global Dividend Growth and Aggressive Equity are $2,442,505, $138,668, $195,153 and $176,401, respectively, for unsettled trades with Morgan Stanley & Co., Inc. For the year ended December 31, 2001, the following Portfolios incurred brokerage commissions with Morgan Stanley & Co., for portfolio transactions executed on behalf of the Portfolio:
GLOBAL INCOME DIVIDEND CAPITAL DIVIDEND PACIFIC UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH - --------- ------- -------- ------- -------- ------- $ 26,581 $2,792 $131,486 $43,956 $24,174 $ 663 ======== ====== ======== ======= ======= ======= COMPETITIVE S&P 500 EDGE AGGRESSIVE EQUITY INDEX "BEST IDEAS" EQUITY INFORMATION STRATEGIST - --------- ------- -------------- ---------- ----------- ---------- $589,325 $ 131 $ 49,870 $65,534 $ 121 $26,114 ======== ====== ======== ======= ======= =======
Included in the payable for investments purchased at December 31, 2001 for Strategist are unsettled trades with other Morgan Stanley funds aggregating $3,118,000. Included in the receivable for investments sold at December 31, 2001 for Dividend Growth and Global Dividend Growth are unsettled trades with other Morgan Stanley funds aggregating $346,098 and $43,652, respectively. 148 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and Distributor, is the Fund's transfer agent. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended December 31, 2001 included in Trustees' fees and expenses in the Statement of Operations and the accrued pension liability included in accrued expenses in the Statement of Assets and Liabilities are as follows:
AGGREGATE PENSION COSTS - ---------------------------------------------------------- GLOBAL SHORT-TERM INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN BOND BUILDER GROWTH GROWTH GROWTH GROWTH - ---------- ------- -------- ------- -------- -------- $ 158 $ 54 $4,376 $767 $2,124 $2,575 ====== ====== ====== ==== ====== ====== COMPETITIVE PACIFIC S&P 500 EDGE AGGRESSIVE GROWTH EQUITY INDEX "BEST IDEAS" EQUITY STRATEGIST - ---------- ------- -------- -------------- ---------- ---------- $ 271 $6,166 $1,901 $448 $1,047 $1,245 ====== ====== ====== ==== ====== ======
ACCRUED PENSION LIABILITY - -------------------------------------------------------------------------------- MONEY SHORT-TERM QUALITY HIGH INCOME DIVIDEND CAPITAL MARKET BOND INCOME PLUS YIELD UTILITIES BUILDER GROWTH GROWTH - ------- ---------- ----------- ------- --------- ------- -------- ------- $10,562 $ 156 $7,028 $ 3,579 $4,625 $586 $12,730 $1,260 ======= ====== ====== ======= ====== ==== ======= ====== GLOBAL COMPETITIVE DIVIDEND EUROPEAN PACIFIC S&P 500 EDGE AGGRESSIVE GROWTH GROWTH GROWTH EQUITY INDEX "BEST IDEAS" EQUITY STRATEGIST - -------- ---------- ----------- ------- --------- -------------- ---------- ---------- $ 2,884 $3,597 $ 418 $12,238 $1,929 $562 $ 1,030 $7,385 ======= ====== ====== ======= ====== ==== ======= ======
149 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED 5. FEDERAL INCOME TAX STATUS At December 31, 2001, the following Portfolios had an approximate net capital loss carryover which may be used to offset future capital gains to the extent provided by regulations:
(AMOUNTS IN THOUSANDS) ------------------------------------------------------------------------------ AVAILABLE THROUGH DECEMBER 31, 2002 2003 2004 2005 2006 2007 2008 2009 TOTAL - ------------------------------ ------ ------ ------ ------ ------- ------- -------- -------- -------- Quality Income Plus........ $5,200 -- $2,491 -- -- $10,670 $ 10,496 -- $ 28,857 High Yield................. 3,256 $2,984 5,521 -- $ 2,735 10,786 7,524 $ 47,237 80,043 Utilities.................. -- -- -- -- -- -- -- 663 663 Income Builder............. -- -- -- -- -- 180 1,746 4,578 6,504 Dividend Growth............ -- -- -- -- -- -- 233,060 54,999 288,059 Capital Growth............. -- -- -- -- -- -- -- 27,066 27,066 Global Dividend Growth..... -- -- -- -- -- -- -- 2,761 2,761 European Growth............ -- -- -- -- -- -- -- 45,515 45,515 Pacific Growth............. -- -- -- $6,035 33,536 -- -- 7,413 46,984 Equity..................... -- -- -- 3,342 14 -- -- 491,219 494,575 S&P 500 Index.............. -- -- -- -- -- -- 175 8,081 8,256 Competitive Edge "Best Ideas".................... -- -- -- -- -- -- -- 14,642 14,642 Aggressive Equity.......... -- -- -- -- -- 68 10,199 38,363 48,630 Information................ -- -- -- -- -- -- -- 3,373 3,373 Strategist................. -- -- -- -- -- -- -- 23,575 23,575
During the year ended December 31, 2001, the following Portfolios utilized approximate net capital loss carryovers: Short-Term Bond -- $4,000; Quality Income Plus -- $7,783,000. Net capital and net foreign currency losses incurred after October 31 ("post-October losses") within the taxable year are deemed to arise on the first business day of the Portfolios' next taxable year. The following Portfolios incurred and will elect to defer post-October losses during fiscal 2001: Short-Term Bond -- $32,000; High Yield -- $1,289,000; Income Builder -- $1,783,000; Dividend Growth -- $44,790,000; Global Dividend Growth -- $3,381,000; European Growth -- $2,400,000; Pacific Growth -- $371,000; Equity -- $8,019,000; S&P 500 Index -- $45,000; Competitive Edge "Best Ideas"- $1,109,000; Information -- $224,000. 150 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED At December 31, 2001, the primary reason(s) for significant temporary/permanent book/tax differences were as follows:
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES ------------------------- -------------------------- POST- LOSS FOREIGN EXPIRED OCTOBER DEFERRALS FROM CURRENCY CAPITAL LOSS LOSSES WASH SALES GAINS/LOSSES CARRYFORWARD --------- -------------- ------------ ------------ Short-Term Bond............... - - Quality Income Plus........... - High Yield.................... - - - Utilities..................... - Income Builder................ - - Dividend Growth............... - - Capital Growth................ - Global Dividend Growth........ - - - European Growth............... - - - Pacific Growth................ - - - Equity........................ - - S&P 500 Index................. - - Competitive Edge "Best Ideas"....................... - - - Aggressive Equity............. - Information................... - -
Additionally, the following Portfolios had other temporary differences: Global Dividend Growth and Pacific Growth -- income from mark-to-market of passive foreign investment companies ("PFICs"); European Growth -- income from mark-to-market of forward foreign currency contracts; Short-Term Bond, Quality Income Plus, S&P 500 Index and Strategist -- capital gain/loss from mark-to-market of futures contracts; High Yield -- interest on bonds in default. Pacific Growth had permanent differences attributable to a net operating loss and tax adjustments on PFICs sold by the Portfolio. The following Portfolios had temporary and permanent differences attributable to book amortization of premiums/ discounts on debt securities: Short-Term Bond, Quality Income Plus, High Yield, Utilities, Income Builder and Strategist. 151 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED To reflect reclassification arising from the permanent differences, the following accounts were (charged) credited:
ACCUMULATED UNDISTRIBUTED ACCUMULATED UNDISTRIBUTED NET INVESMENT INCOME (LOSS) NET REALIZED GAIN (LOSS) PAID-IN-CAPITAL --------------------------- ------------------------- --------------- Short-Term Bond.................... $ 50,297 $ (50,297) -- Quality Income Plus................ 512,741 (512,741) -- High Yield......................... (364,121) 5,099,796 $(4,735,675) Utilities.......................... 182,191 (182,191) -- Income Builder..................... 252,669 (260,364) 7,695 Capital Growth..................... (478) 478 -- Global Dividend Growth............. (10,164) 10,164 -- European Growth.................... 2,089,627 (2,089,627) -- Pacific Growth..................... 990,309 (633,437) (356,872) Competitive Edge "Best Ideas"...... (4,897) 4,897 -- Strategist......................... 170,487 (170,487) --
6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS All of the Portfolios (except for Money Market, Quality Income Plus, Dividend Growth, Equity and S&P 500 Index) may enter into forward contracts to facilitate settlement of foreign currency denominated foreign securities. Forward contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Portfolios bear the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. At December 31, 2001, European Growth had outstanding forward contracts. All of the Portfolios (except Money Market, High Yield, Income Builder, Dividend Growth and Equity) may invest in futures contracts. Futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The respective Portfolio bears the risk of an unfavorable change in the value of the underlying securities. At December 31, 2001, Short-Term Bond, Quality Income Plus, Strategist and S&P 500 Index had outstanding futures contracts. At December 31, 2001, European Growth's investments in securities of issuers in the United Kingdom represented 38.2% of the Portfolio's net assets. Pacific Growth's investments in securities of issuers in Japan 152 Morgan Stanley Variable Investment Series NOTES TO FINANCIAL STATEMENTS / / DECEMBER 31, 2001 CONTINUED represented 54.1% of the Portfolio's net assets. These investments, which involve risks and considerations not present with respect to U.S. securities, may be affected by economic or political developments in these regions. At December 31, 2001, Global Dividend Growth's, European Growth's, Pacific Growth's and Information's cash balance consisted principally of interest bearing deposits with J.P. Morgan Chase Bank, the custodian of each Portfolio. 7. CHANGE IN ACCOUNTING POLICY Effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on the net assets of each respective Portfolio, but resulted in the following changes to Short-Term Bond, Quality Income Plus, High Yield, Utilities, Income Builder and Strategist: an increase or (decrease) in the cost of securities of $11,957, $(424,569), $1,612,891, $14,503, $(210,500) and $129,603, respectively; and a corresponding increase or (decrease) to undistributed net investment income based on securities held as of December 31, 2000. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $169,009, $563,776, $287,757, $191,997, $163,818 and $374,978, respectively; with a corresponding increase or (decrease) in unrealized appreciation/depreciation of $120,281, $178,280, $651,878, $42,153, $(142,101) and $204,502, respectively; and an increase or (decrease) in net realized gains/losses of $48,728, $385,496, $(364,121), $149,844, $305,919, and $170,476, respectively. The statement of changes in net assets and the financial highlights for the prior periods have not been restated to reflect this change. 153 Morgan Stanley Variable Investment Series FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
NET ASSET YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS - ----------- --------- ------------- -------------- ---------- ------------ MONEY MARKET CLASS X SHARES 1997.................... $ 1.00 $0.051 -- $0.051 $(0.051) 1998.................... 1.00 0.051 -- 0.051 (0.051) 1999.................... 1.00 0.047 -- 0.047 (0.047) 2000(a)*................ 1.00 0.058 -- 0.058 (0.058) 2001*................... 1.00 0.039 -- 0.039 (0.039)** CLASS Y SHARES* 2000(b)................. 1.00 0.033 -- 0.033 (0.033) 2001.................... 1.00 0.036 -- 0.036 (0.036)** SHORT-TERM BOND CLASS X SHARES 1999(e)................. 10.00 0.27 $(0.12) 0.15 (0.27) 2000(a)*................ 9.88 0.51 0.05 0.56 (0.48) 2001*................... 9.96 0.40(8) 0.26(8) 0.66 (0.45) CLASS Y SHARES* 2000(b)................. 9.86 0.28 0.09 0.37 (0.28) 2001.................... 9.95 0.35(8) 0.28(8) 0.63 (0.42) QUALITY INCOME PLUS CLASS X SHARES 1997.................... 10.37 0.70 0.40 1.10 (0.70) 1998.................... 10.77 0.68 0.23 0.91 (0.68) 1999.................... 11.00 0.67 (1.14) (0.47) (0.67) 2000(a)*................ 9.86 0.68 0.37 1.05 (0.69) 2001*................... 10.22 0.61(8) 0.34(8) 0.95 (0.62) CLASS Y SHARES* 2000(b)................. 9.80 0.38 0.42 0.80 (0.39) 2001.................... 10.21 0.57(8) 0.36(8) 0.93 (0.60)
SEE NOTES TO FINANCIAL STATEMENTS 154
TOTAL NET ASSET NET ASSETS YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF ENDED TO AND END OF TOTAL PERIOD DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (000'S) - ----------- ------------- ------------- --------- ------- ---------- MONEY MARKET CLASS X SHARES 1997.................... -- $(0.051) $ 1.00 5.23% $335,578 1998.................... -- (0.051) 1.00 5.18 442,034 1999.................... -- (0.047) 1.00 4.80 435,643 2000(a)*................ -- (0.058) 1.00 6.01 358,793 2001*................... -- (0.039) 1.00 3.94 452,765 CLASS Y SHARES* 2000(b)................. -- (0.033) 1.00 3.37(1) 13,813 2001.................... -- (0.036) 1.00 3.68 105,952 SHORT-TERM BOND CLASS X SHARES 1999(e)................. -- (0.27) 9.88 1.56(1) 3,175 2000(a)*................ -- (0.48) 9.96 5.85 6,427 2001*................... -- (0.45) 10.17 6.72 25,858 CLASS Y SHARES* 2000(b)................. -- (0.28) 9.95 3.82(1) 1,430 2001.................... -- (0.42) 10.16 6.49 25,050 QUALITY INCOME PLUS CLASS X SHARES 1997.................... -- (0.70) 10.77 11.09 474,990 1998.................... -- (0.68) 11.00 8.67 547,583 1999.................... -- (0.67) 9.86 (4.32) 456,132 2000(a)*................ -- (0.69) 10.22 11.09 406,508 2001*................... -- (0.62) 10.55 9.57 452,757 CLASS Y SHARES* 2000(b)................. -- (0.39) 10.21 8.31(1) 5,176 2001.................... -- (0.60) 10.54 9.33 54,115 RATIOS TO AVERAGE NET ASSETS -------------------------- YEAR NET PORTFOLIO ENDED INVESTMENT TURNOVER DECEMBER 31 EXPENSES INCOME RATE - ----------- -------- ---------- --------- MONEY MARKET CLASS X SHARES 1997.................... 0.52% 5.10% N/A 1998.................... 0.52 5.04 N/A 1999.................... 0.52 4.68 N/A 2000(a)*................ 0.52 5.83 N/A 2001*................... 0.51 3.69 N/A CLASS Y SHARES* 2000(b)................. 0.77(2) 5.86(2) N/A 2001.................... 0.76 3.44 N/A SHORT-TERM BOND CLASS X SHARES 1999(e)................. 0.62(2)(5) 4.83(2)(5) 56%(1) 2000(a)*................ 0.98 5.08 16 2001*................... 0.61(7)# 3.84(7)(8) 133 CLASS Y SHARES* 2000(b)................. 1.17(2) 5.00(2) 16 2001.................... 0.86(7)# 3.59(7)(8) 133 QUALITY INCOME PLUS CLASS X SHARES 1997.................... 0.53 6.71 171 1998.................... 0.52 6.23 152 1999.................... 0.52 6.45 119 2000(a)*................ 0.52 6.90 105 2001*................... 0.53 5.82(8) 150 CLASS Y SHARES* 2000(b)................. 0.77(2) 6.53(2) 105 2001.................... 0.78 5.57(8) 150
155 Morgan Stanley Variable Investment Series FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS - ----------- --------- ------------- -------------- ---------- ------------ HIGH YIELD CLASS X SHARES 1997.................... $ 6.18 $0.75 $(0.06) $ 0.69 $(0.75) 1998.................... 6.12 0.71 (1.05) (0.34) (0.71) 1999.................... 5.07 0.68 (0.74) (0.06) (0.68) 2000(a)*................ 4.33 0.66 (1.90) (1.24) (0.66) 2001*................... 2.43 0.33(8) (1.09)(8) (0.76) (0.34) CLASS Y SHARES* 2000(b)................. 3.92 0.37 (1.48) (1.11) (0.38) 2001.................... 2.43 0.32(8) (1.08)(8) (0.76) (0.34) UTILITIES CLASS X SHARES 1997.................... 15.34 0.57 3.46 4.03 (0.57) 1998.................... 18.59 0.57 3.68 4.25 (0.57) 1999.................... 21.25 0.55 2.08 2.63 (0.55) 2000(a)*................ 22.90 0.49 0.17 0.66 (0.49) 2001*................... 21.69 0.39(8) (5.74)(8) (5.35) (0.41) CLASS Y SHARES* 2000(b)................. 22.98 0.24 0.19 0.43 (0.35) 2001.................... 21.68 0.35(8) (5.74)(8) (5.39) (0.37) INCOME BUILDER CLASS X SHARES 1997(c)................. 10.00 0.44 1.76 2.20 (0.44) 1998.................... 11.76 0.56 (0.19) 0.37 (0.56) 1999.................... 11.46 0.58 0.21 0.79 (0.56) 2000(a)*................ 11.44 0.55 (0.54) 0.01 (0.56) 2001*................... 10.86 0.47(8) (0.22)(8) 0.25 (0.50)++ CLASS Y SHARES* 2000(b)................. 11.15 0.32 (0.21) 0.11 (0.39) 2001.................... 10.85 0.42(8) (0.19)(8) 0.23 (0.48)++
SEE NOTES TO FINANCIAL STATEMENTS 156
TOTAL NET ASSET NET ASSETS YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF ENDED TO AND END OF TOTAL PERIOD DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (000'S) - ----------- ------------- ------------- --------- ------- ---------- HIGH YIELD CLASS X SHARES 1997.................... -- $(0.75) $ 6.12 11.87% $368,061 1998.................... -- (0.71) 5.07 (6.20) 364,079 1999.................... -- (0.68) 4.33 (1.33) 279,683 2000(a)*................ -- (0.66) 2.43 (32.22) 128,646 2001*................... -- (0.34) 1.33 (33.75) 64,470 CLASS Y SHARES* 2000(b)................. -- (0.38) 2.43 (30.02)(1) 1,947 2001.................... -- (0.34) 1.33 (33.92) 6,163 UTILITIES CLASS X SHARES 1997.................... $(0.21) (0.78) 18.59 27.15 458,134 1998.................... (1.02) (1.59) 21.25 23.76 560,803 1999.................... (0.43) (0.98) 22.90 12.71 580,487 2000(a)*................ (1.38) (1.87) 21.69 3.03 551,734 2001*................... (1.20) (1.61) 14.73 (25.75) 327,749 CLASS Y SHARES* 2000(b)................. (1.38) (1.73) 21.68 2.07(1) 19,069 2001.................... (1.20) (1.57) 14.72 (25.98) 24,550 INCOME BUILDER CLASS X SHARES 1997(c)................. -- (0.44) 11.76 22.38(1) 55,423 1998.................... (0.11) (0.67) 11.46 3.21 87,769 1999.................... (0.25)=/= (0.81) 11.44 7.06 81,616 2000(a)*................ (0.03)++ (0.59) 10.86 0.17 59,383 2001*................... -- (0.50) 10.61 2.30 63,060 CLASS Y SHARES* 2000(b)................. (0.02)++ (0.41) 10.85 1.06(1) 965 2001.................... -- (0.48) 10.60 2.10 7,147 RATIOS TO AVERAGE NET ASSETS ----------------------------- YEAR NET PORTFOLIO ENDED INVESTMENT TURNOVER DECEMBER 31 EXPENSES INCOME (LOSS) RATE - ----------- -------- ------------- --------- HIGH YIELD CLASS X SHARES 1997.................... 0.53% 12.44% 95% 1998.................... 0.53 12.27 93 1999.................... 0.53 14.05 48 2000(a)*................ 0.54 17.40 9 2001*................... 0.59 17.33(8) 81 CLASS Y SHARES* 2000(b)................. 0.79(2) 20.95(2) 9 2001.................... 0.84 17.08(8) 81 UTILITIES CLASS X SHARES 1997.................... 0.67 3.48 13 1998.................... 0.67 2.89 7 1999.................... 0.67 2.51 10 2000(a)*................ 0.66 2.16 13 2001*................... 0.67 2.19(8) 32 CLASS Y SHARES* 2000(b)................. 0.91(2) 1.93(2) 13 2001.................... 0.92 1.94(8) 32 INCOME BUILDER CLASS X SHARES 1997(c)................. 0.15(2)(3) 5.73(2)(3) 41(1) 1998.................... 0.81 5.09 54 1999.................... 0.81 4.98 43 2000(a)*................ 0.81 5.07 51 2001*................... 0.81 4.34(8) 45 CLASS Y SHARES* 2000(b)................. 1.06(2) 5.17(2) 51 2001.................... 1.06 3.88(8) 45
157 Morgan Stanley Variable Investment Series FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS - ----------- --------- ------------- -------------- ---------- ------------ DIVIDEND GROWTH CLASS X SHARES 1997.................... $18.40 $ 0.41 $ 4.20 $ 4.61 $(0.41) 1998.................... 21.60 0.41 2.58 2.99 (0.41) 1999.................... 22.13 0.39 (0.55) (0.16) (0.39) 2000(a)*................ 18.32 0.31 0.02 0.33 (0.33) 2001*................... 14.50 0.26 (1.02) (0.76) (0.26) CLASS Y SHARES* 2000(b)................. 17.79 0.12 0.62 0.74 (0.22) 2001.................... 14.49 0.22 (1.01) (0.79) (0.23) CAPITAL GROWTH CLASS X SHARES 1997.................... 16.65 0.01 3.90 3.91 (0.08) 1998.................... 18.29 (0.05) 3.59 3.54 -- 1999.................... 20.36 -- 6.12 6.12 -- 2000(a)*................ 23.73 0.10 0.28 0.38 -- 2001*................... 20.06 0.03 (5.13) (5.10) (0.10) CLASS Y SHARES* 2000(b)................. 24.55 0.03 (0.50) (0.47) -- 2001.................... 20.03 (0.01) (5.12) (5.13) (0.09) GLOBAL DIVIDEND GROWTH CLASS X SHARES 1997.................... 13.13 0.22 1.37 1.59 (0.23) 1998.................... 13.89 0.24 1.45 1.69 (0.24) 1999.................... 13.82 0.27 1.71 1.98 (0.29) 2000(a)*................ 14.44 0.24 (0.64) (0.40) (0.09) 2001*................... 12.73 0.21 (1.00) (0.79) (0.33) CLASS Y SHARES* 2000(b)................. 13.96 0.08 (0.11) (0.03) -- 2001.................... 12.71 0.15 (0.96) (0.81) (0.33)
SEE NOTES TO FINANCIAL STATEMENTS 158
TOTAL NET ASSET NET ASSETS YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF ENDED TO AND END OF TOTAL PERIOD DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (000'S) - ----------- ------------- ------------- --------- ------- ---------- DIVIDEND GROWTH CLASS X SHARES 1997.................... $(1.00) $(1.41) $21.60 25.61% $1,905,906 1998.................... (2.05) (2.46) 22.13 14.28 2,249,927 1999.................... (3.26) (3.65) 18.32 (2.39) 2,033,814 2000(a)*................ (3.82) (4.15) 14.50 5.30 1,552,724 2001*................... -- (0.26) 13.48 (5.20) 1,258,863 CLASS Y SHARES* 2000(b)................. (3.82) (4.04) 14.49 7.65(1) 19,083 2001.................... -- (0.23) 13.47 (5.42) 60,393 CAPITAL GROWTH CLASS X SHARES 1997.................... (2.19) (2.27) 18.29 24.54 127,100 1998.................... (1.47) (1.47) 20.36 19.63 138,603 1999.................... (2.75) (2.75) 23.73 33.29 171,251 2000(a)*................ (4.05) (4.05) 20.06 1.28 183,151 2001*................... (1.20) (1.30) 13.66 (26.31) 103,764 CLASS Y SHARES* 2000(b)................. (4.05) (4.05) 20.03 (2.24)(1) 3,551 2001.................... (1.20) (1.29) 13.61 (26.49) 6,615 GLOBAL DIVIDEND GROWTH CLASS X SHARES 1997.................... (0.60) (0.83) 13.89 12.04 481,613 1998.................... (1.52) (1.76) 13.82 12.53 484,228 1999.................... (1.07) (1.36) 14.44 14.65 506,929 2000(a)*................ (1.22) (1.31) 12.73 (2.50) 373,770 2001*................... (0.14) (0.47) 11.47 (6.25) 285,158 CLASS Y SHARES* 2000(b)................. (1.22) (1.22) 12.71 0.07(1) 2,211 2001.................... (0.14) (0.47) 11.43 (6.44) 10,494 RATIOS TO AVERAGE NET ASSETS ----------------------------- YEAR NET PORTFOLIO ENDED INVESTMENT TURNOVER DECEMBER 31 EXPENSES INCOME (LOSS) RATE - ----------- -------- ------------- --------- DIVIDEND GROWTH CLASS X SHARES 1997.................... 0.54% 2.06% 28% 1998.................... 0.53 1.85 45 1999.................... 0.52 1.82 81 2000(a)*................ 0.54 2.07 34 2001*................... 0.55 1.86 19 CLASS Y SHARES* 2000(b)................. 0.79(2) 1.59(2) 34 2001.................... 0.80 1.61 19 CAPITAL GROWTH CLASS X SHARES 1997.................... 0.71 0.01 139 1998.................... 0.70 (0.26) 248 1999.................... 0.72 0.02 575 2000(a)*................ 0.69 0.43 349 2001*................... 0.70 0.20 323 CLASS Y SHARES* 2000(b)................. 0.94(2) 0.30(2) 349 2001.................... 0.95 (0.05) 323 GLOBAL DIVIDEND GROWTH CLASS X SHARES 1997.................... 0.84 1.61 48 1998.................... 0.84 1.68 52 1999.................... 0.83 1.90 43 2000(a)*................ 0.80 1.88 40 2001*................... 0.80 1.76 9 CLASS Y SHARES* 2000(b)................. 1.05(2) 1.14(2) 40 2001.................... 1.05 1.51 9
159 Morgan Stanley Variable Investment Series FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS - ----------- --------- ------------- -------------- ---------- ------------ EUROPEAN GROWTH CLASS X SHARES 1997.................... $21.56 $ 0.21 $ 3.19 $ 3.40 $(0.24) 1998.................... 23.54 0.15 5.53 5.68 (0.31) 1999.................... 27.18 0.25 6.91 7.16 (0.19) 2000(a)*................ 31.47 0.13 (1.43) (1.30) (0.18) 2001*................... 25.37 0.13 (4.47) (4.34) (0.26) CLASS Y SHARES* 2000(b)................. 32.26 (0.03) (2.10) (2.13) (0.18) 2001.................... 25.33 0.05 (4.42) (4.37) (0.25) PACIFIC GROWTH CLASS X SHARES 1997.................... 9.96 0.12 (3.82) (3.70) (0.14) 1998.................... 6.12 0.06 (0.75) (0.69) (0.28) 1999.................... 5.15 0.04 3.33 3.37 (0.06) 2000(a)*................ 8.46 -- (2.78) (2.78) (0.12) 2001*................... 5.56 (0.01) (1.50) (1.51) (0.07) CLASS Y SHARES* 2000(b)................. 7.70 (0.01) (2.01) (2.02) (0.12) 2001.................... 5.56 (0.02) (1.49) (1.51) (0.07) EQUITY CLASS X SHARES 1997.................... 26.39 0.18 9.27 9.45 (0.18) 1998.................... 33.58 0.25 9.47 9.72 (0.25) 1999.................... 38.58 0.22 20.48 20.70 (0.22) 2000(a)*................ 53.88 0.30 (6.46) (6.16) (0.29) 2001*................... 39.68 0.15 (10.12) (9.97) (0.16) CLASS Y SHARES* 2000(b)................. 49.12 0.21 (1.68) (1.47) (0.24) 2001.................... 39.66 0.06 (10.09) (10.03) (0.10)
SEE NOTES TO FINANCIAL STATEMENTS 160
TOTAL NET ASSET NET ASSETS YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF ENDED TO AND END OF TOTAL PERIOD DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (000'S) - ----------- ------------- ------------- --------- ------- ---------- EUROPEAN GROWTH CLASS X SHARES 1997.................... $(1.18) $(1.42) $23.54 16.07% $ 391,441 1998.................... (1.73) (2.04) 27.18 23.96 510,638 1999.................... (2.68) (2.87) 31.47 29.11 579,705 2000(a)*................ (4.62) (4.80) 25.37 (4.92) 508,366 2001*................... (4.06) (4.32) 16.71 (17.76) 316,196 CLASS Y SHARES* 2000(b)................. (4.62) (4.80) 25.33 (7.39)(1) 10,580 2001.................... (4.06) (4.31) 16.65 (17.92) 20,858 PACIFIC GROWTH CLASS X SHARES 1997.................... -- (0.14) 6.12 (37.70) 68,904 1998.................... -- (0.28) 5.15 (10.40) 52,842 1999.................... -- (0.06) 8.46 66.09 115,927 2000(a)*................ -- (0.12) 5.56 (33.46) 64,209 2001*................... -- (0.07) 3.98 (27.42) 33,138 CLASS Y SHARES* 2000(b)................. -- (0.12) 5.56 (26.72)(1) 728 2001.................... -- (0.07) 3.98 (27.26) 1,640 EQUITY CLASS X SHARES 1997.................... (2.08) (2.26) 33.58 37.43 823,090 1998.................... (4.47) (4.72) 38.58 30.45 1,138,413 1999.................... (5.18) (5.40) 53.88 58.59 2,083,071 2000(a)*................ (7.75) (8.04) 39.68 (12.35) 1,818,134 2001*................... (6.89) (7.05) 22.66 (26.87) 1,022,335 CLASS Y SHARES* 2000(b)................. (7.75) (7.99) 39.66 (3.99)(1) 31,903 2001.................... (6.89) (6.99) 22.64 (27.07) 61,110 RATIOS TO AVERAGE NET ASSETS ----------------------------- YEAR NET PORTFOLIO ENDED INVESTMENT TURNOVER DECEMBER 31 EXPENSES INCOME (LOSS) RATE - ----------- -------- ------------- --------- EUROPEAN GROWTH CLASS X SHARES 1997.................... 1.12% 1.04% 45% 1998.................... 1.11 0.65 56 1999.................... 1.04 0.87 55 2000(a)*................ 1.00 0.46 78 2001*................... 1.02 0.68 82 CLASS Y SHARES* 2000(b)................. 1.25(2) (0.18)(2) 78 2001.................... 1.27 0.43 82 PACIFIC GROWTH CLASS X SHARES 1997.................... 1.44 1.09 58 1998.................... 1.51 0.91 112 1999.................... 1.42 0.85 105 2000(a)*................ 1.21 0.01 46 2001*................... 1.73 (0.28) 124 CLASS Y SHARES* 2000(b)................. 1.46(2) (0.20)(2) 46 2001.................... 1.98 (0.53) 124 EQUITY CLASS X SHARES 1997.................... 0.52 0.61 145 1998.................... 0.52 0.73 257 1999.................... 0.51 0.54 323 2000(a)*................ 0.50 0.62 402 2001*................... 0.51 0.55 329 CLASS Y SHARES* 2000(b)................. 0.75(2) 0.85(2) 402 2001.................... 0.76 0.30 329
161 Morgan Stanley Variable Investment Series FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS - ----------- --------- ------------- -------------- ---------- ------------ S&P 500 INDEX CLASS X SHARES 1998(d)................. $10.00 $ 0.06 $ 1.16 $ 1.22 -- 1999.................... 11.22 0.06 2.21 2.27 $(0.03) 2000(a)*................ 13.43 0.12 (1.37) (1.25) (0.07) 2001*................... 12.05 0.10 (1.57) (1.47) (0.10) CLASS Y SHARES* 2000(b)................. 13.47 0.04 (1.34) (1.30) (0.07) 2001.................... 12.04 0.08 (1.58) (1.50) (0.10) COMPETITIVE EDGE "BEST IDEAS" CLASS X SHARES 1998(d)................. 10.00 0.07 (0.25) (0.18) -- 1999.................... 9.82 0.06 2.56 2.62 (0.07) 2000(a)*................ 12.37 0.06 (2.20) (2.14) (0.05) 2001*................... 10.18 0.05 (2.36) (2.31) (0.06) CLASS Y SHARES* 2000(b)................. 12.03 -- (1.82) (1.82) (0.05) 2001.................... 10.16 0.02 (2.35) (2.33) (0.05) AGGRESSIVE EQUITY CLASS X SHARES 1999(e)................. 10.00 0.05 4.55 4.60 (0.03) 2000(a)*................ 14.57 0.05 (0.30) (0.25) (0.01) 2001*................... 14.31 0.02 (4.09) (4.07) (0.04) CLASS Y SHARES* 2000(b)................. 14.66 0.03 (0.39) (0.36) (0.01) 2001.................... 14.29 (0.01) (4.08) (4.09) (0.03) INFORMATION CLASS X SHARES* 2000(f)................. 10.00 0.06 (0.75) (0.69) -- 2001.................... 9.31 0.08 (4.07) (3.99) (0.01) CLASS Y SHARES* 2000(f)................. 10.00 0.05 (0.74) (0.69) -- 2001.................... 9.31 0.06 (4.06) (4.00) (0.01)
SEE NOTES TO FINANCIAL STATEMENTS 162
TOTAL NET ASSET NET ASSETS YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF ENDED TO AND END OF TOTAL PERIOD DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (000'S) - ----------- ------------- ------------- --------- ------- ---------- S&P 500 INDEX CLASS X SHARES 1998(d)................. -- -- $11.22 12.20%(1) $ 48,732 1999.................... $(0.03) $(0.06) 13.43 20.23 185,963 2000(a)*................ (0.06) (0.13) 12.05 (9.38) 210,530 2001*................... -- (0.10) 10.48 (12.23) 165,465 CLASS Y SHARES* 2000(b)................. (0.06) (0.13) 12.04 (9.73)(1) 12,724 2001.................... -- (0.10) 10.44 (12.53) 46,134 COMPETITIVE EDGE "BEST IDEAS" CLASS X SHARES 1998(d)................. -- -- 9.82 (1.90)(1) 36,539 1999.................... -- (0.07) 12.37 26.88 62,295 2000(a)*................ -- (0.05) 10.18 (17.39) 69,882 2001*................... (0.64) (0.70) 7.17 (23.33) 40,084 CLASS Y SHARES* 2000(b)................. -- (0.05) 10.16 (15.22)(1) 4,666 2001.................... (0.64) (0.69) 7.14 (23.53) 5,869 AGGRESSIVE EQUITY CLASS X SHARES 1999(e)................. -- (0.03) 14.57 46.08(1) 38,197 2000(a)*................ -- (0.01) 14.31 (1.75) 138,657 2001*................... -- (0.04) 10.20 (28.46) 69,418 CLASS Y SHARES* 2000(b)................. -- (0.01) 14.29 (2.48)(1) 13,392 2001.................... -- (0.03) 10.17 (28.61) 18,652 INFORMATION CLASS X SHARES* 2000(f)................. -- -- 9.31 (6.90)(1) 2,686 2001.................... -- (0.01) 5.31 (42.87) 4,434 CLASS Y SHARES* 2000(f)................. -- -- 9.31 (6.90)(1) 1,915 2001.................... -- (0.01) 5.30 (42.99) 7,427 RATIOS TO AVERAGE NET ASSETS ----------------------------- YEAR NET PORTFOLIO ENDED INVESTMENT TURNOVER DECEMBER 31 EXPENSES INCOME (LOSS) RATE - ----------- -------- ------------- --------- S&P 500 INDEX CLASS X SHARES 1998(d)................. -- (4) 1.85%(2)(4) 2%(1) 1999.................... 0.48%(5) 1.03(5) 1 2000(a)*................ 0.45 0.88 3 2001*................... 0.46 0.95 4 CLASS Y SHARES* 2000(b)................. 0.71(2) 0.60(2) 3 2001.................... 0.71 0.70 4 COMPETITIVE EDGE "BEST I CLASS X SHARES 1998(d)................. -- (4) 1.74(2)(4) 31(1) 1999.................... 0.56(5) 0.72(5) 54 2000(a)*................ 0.71 0.50 70 2001*................... 0.75 0.55 47 CLASS Y SHARES* 2000(b)................. 0.96(2) 0.06(2) 70 2001.................... 1.00 0.30 47 AGGRESSIVE EQUITY CLASS X SHARES 1999(e)................. 0.52(2)(5) 0.86(2)(5) 108(1) 2000(a)*................ 0.82 0.32 414 2001*................... 0.84 0.21 409 CLASS Y SHARES* 2000(b)................. 1.05(2) 0.32(2) 414 2001.................... 1.09 (0.04) 409 INFORMATION CLASS X SHARES* 2000(f)................. -- (6) 3.80(1)(2)(6) 1(1) 2001.................... -- (7) 1.27(7) 170 CLASS Y SHARES* 2000(f)................. 0.25(2)(6) 3.55(2)(6) 1(1) 2001.................... 0.25(7) 1.02(7) 170
163 Morgan Stanley Variable Investment Series FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS - ----------- --------- ------------- -------------- ---------- ------------ STRATEGIST CLASS X SHARES 1997.................... $13.72 $0.45 $ 1.40 $ 1.85 $(0.45) 1998.................... 14.80 0.36 3.40 3.76 (0.36) 1999.................... 16.64 0.40 2.46 2.86 (0.40) 2000(a)*................ 19.10 0.50 (0.20) 0.30 (0.48) 2001*................... 16.66 0.38(8) (2.05)(8) (1.67) (0.39) CLASS Y SHARES* 2000(b)................. 19.29 0.49 (0.51) (0.02) (0.36) 2001.................... 16.65 0.32(8) (2.03)(8) (1.71) (0.35)
- ---------------------------- (A) PRIOR TO JUNE 5, 2000, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF THE FUND HELD PRIOR TO MAY 1, 2000 HAVE BEEN DESIGNATED CLASS X SHARES. (B) FOR THE PERIOD JUNE 5, 2000 (ISSUED DATE) THROUGH DECEMBER 31, 2000. COMMENCEMENT OF OPERATIONS: (C) JANUARY 21, 1997. (D) MAY 18, 1998. (E) MAY 4, 1999. (F) NOVEMBER 6, 2000. * THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. ** INCLUDES CAPITAL GAIN DISTRIBUTION OF LESS THAN $0.001. + CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. ++ DISTRIBUTION FROM PAID-IN-CAPITAL. ++ INCLUDES DISTRIBUTIONS FROM PAID-IN-CAPITAL OF $0.02. # DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.06% (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) IF THE INVESTMENT MANAGER HAD NOT ASSUMED ALL EXPENSES AND WAIVED ITS MANAGEMENT FEE FOR THE PERIOD JANUARY 21, 1997 THROUGH DECEMBER 3, 1997 FOR INCOME BUILDER, THE RATIOS OF EXPENSES AND NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 0.99% AND 4.89%, RESPECTIVELY. (4) IF THE INVESTMENT MANAGER HAD NOT ASSUMED ALL EXPENSES AND WAIVED ITS MANAGEMENT FEE FOR THE PERIOD MAY 18, 1998 THROUGH DECEMBER 31, 1998 FOR COMPETITIVE EDGE "BEST IDEAS" AND S&P 500 INDEX, THE RATIOS OF EXPENSES AND NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 0.92% AND 0.83%, RESPECTIVELY, FOR COMPETITIVE EDGE "BEST IDEAS" AND 0.59% AND 1.26%, RESPECTIVELY, FOR S&P 500 INDEX. (5) IF THE INVESTMENT MANAGER HAD NOT ASSUMED ALL EXPENSES AND WAIVED ITS MANAGEMENT FEE FOR THE PERIOD JANUARY 1, 1999 THROUGH APRIL 30, 1999 FOR COMPETITIVE EDGE "BEST IDEAS" AND FOR THE PERIOD MAY 4, 1999 THROUGH NOVEMBER 4, 1999 FOR SHORT-TERM BOND AND AGGRESSIVE EQUITY AND FOR THE PERIOD JANUARY 1, 1999 THROUGH JANUARY 5, 1999 FOR S&P 500 INDEX AND "CAPPED" THE EXPENSES OF S&P 500 INDEX AT 0.50% OF ITS DAILY NET ASSETS FOR THE PERIOD JANUARY 6, 1999 THROUGH DECEMBER 31, 1999, THE RATIO OF EXPENSES AND NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS WOULD HAVE BEEN 0.77% AND 0.51%, RESPECTIVELY, FOR COMPETITIVE EDGE "BEST IDEAS", 2.38% AND 3.07%, RESPECTIVELY, FOR SHORT-TERM BOND, 1.41% AND (0.02)%, RESPECTIVELY, FOR AGGRESSIVE EQUITY AND 0.48% AND 1.02%, RESPECTIVELY, FOR S&P 500 INDEX. SEE NOTES TO FINANCIAL STATEMENTS 164
TOTAL NET ASSET NET ASSETS YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF ENDED TO AND END OF TOTAL PERIOD DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (000'S) - ----------- ------------- ------------- --------- ------- ---------- STRATEGIST CLASS X SHARES 1997.................... $(0.32) $(0.77) $14.80 13.71% $497,028 1998.................... (1.56) (1.92) 16.64 26.55 633,934 1999.................... -- (0.40) 19.10 17.35 729,701 2000(a)*................ (2.26) (2.74) 16.66 1.64 701,294 2001*................... (0.66) (1.05) 13.94 (10.18) 522,655 CLASS Y SHARES* 2000(b)................. (2.26) (2.62) 16.65 (0.02)(1) 23,375 2001.................... (0.66) (1.01) 13.93 (10.40) 47,886 RATIOS TO AVERAGE NET ASSETS ----------------------------- YEAR NET PORTFOLIO ENDED INVESTMENT TURNOVER DECEMBER 31 EXPENSES INCOME (LOSS) RATE - ----------- -------- ------------- --------- STRATEGIST CLASS X SHARES 1997.................... 0.52% 3.09% 159% 1998.................... 0.52 2.32 84 1999.................... 0.52 2.24 120 2000(a)*................ 0.52 2.68 126 2001*................... 0.52 2.53(8) 124 CLASS Y SHARES* 2000(b)................. 0.77(2) 2.77(2) 126 2001.................... 0.77 2.28(8) 124
- ---------------------------- (6) IF THE INVESTMENT MANAGER HAD NOT ASSUMED ALL EXPENSES (EXCEPT FOR DISTRIBUTION FEES) AND WAIVED ITS MANAGEMENT FEE FOR THE PERIOD NOVEMBER 6, 2000 THROUGH DECEMBER 31, 2000 FOR INFORMATION, THE RATIOS OF EXPENSES AND NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.82%, AND 1.98%, RESPECTIVELY, FOR CLASS X SHARES AND 2.07% AND 1.73%, RESPECTIVELY, FOR CLASS Y SHARES. (7) IF THE INVESTMENT MANAGER HAD NOT "CAPPED" ALL EXPENSES (EXCEPT FOR DISTRIBUTION FEES) FOR SHORT-TERM BOND, AT 0.50% OF ITS DAILY NET ASSETS FOR THE PERIOD JUNE 1, 2001 THROUGH DECEMBER 31, 2001 AND HAD NOT ASSUMED ALL EXPENSES (EXCEPT FOR DISTRIBUTION FEES) AND WAIVED ITS MANAGEMENT FEE FOR THE YEAR ENDED DECEMBER 31, 2001 FOR INFORMATION, THE RATIOS OF EXPENSES AND NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS WOULD HAVE BEEN 0.65% AND 3.80%, RESPECTIVELY, FOR SHORT-TERM BOND CLASS X SHARES AND 0.90% AND 3.55%, RESPECTIVELY, FOR SHORT-TERM BOND CLASS Y SHARES AND 1.62% AND (0.35)%, RESPECTIVELY, FOR INFORMATION CLASS X SHARES AND 1.87% AND (0.60)%, RESPECTIVELY, FOR INFORMATION CLASS Y SHARES. (8) EFFECTIVE JANUARY 1, 2001, THE FUND HAS ADOPTED THE PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES, AS REVISED, RELATED TO PREMIUMS AND DISCOUNTS ON DEBT SECURITIES. THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED DECEMBER 31, 2001 FOR SHORT-TERM BOND, QUALITY INCOME PLUS, HIGH YIELD, UTILITIES, INCOME BUILDER AND STRATEGIST WAS TO DECREASE NET INVESTMENT INCOME PER SHARE AND INCREASE NET REALIZED AND UNREALIZED GAIN/LOSS PER SHARE BY $0.07, $0.01, $0.01, $0.01, $0.03 AND $0.01, RESPECTIVELY, AND TO DECREASE THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS BY 0.66%, 0.12%, 0.28%, 0.05%, 0.23% AND 0.06%, RESPECTIVELY. THE FINANCIAL HIGHLIGHTS DATA PRESENTED IN THIS TABLE FOR PRIOR PERIODS HAS NOT BEEN RESTATED TO REFLECT THIS CHANGE. 165 Morgan Stanley Variable Investment Series INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF MORGAN STANLEY VARIABLE INVESTMENT SERIES: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Morgan Stanley Variable Investment Series (the "Fund"), formerly Morgan Stanley Dean Witter Variable Investment Series, comprising Money Market Portfolio, Short-Term Bond Portfolio, Quality Income Plus Portfolio, High Yield Portfolio, Utilities Portfolio, Income Builder Portfolio, Dividend Growth Portfolio, Capital Growth Portfolio, Global Dividend Growth Portfolio, European Growth Portfolio, Pacific Growth Portfolio, Equity Portfolio, S&P 500 Index Portfolio, Competitive Edge "Best Ideas" Portfolio, Aggressive Equity Portfolio, Information Portfolio and Strategist Portfolio (the "Portfolios") as of December 31, 2001, and the related statements of operations for the year then ended and of changes in net assets for each of the periods presented, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodians and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Portfolios constituting Morgan Stanley Variable Investment Series as of December 31, 2001, the results of their operations for the year then ended, the changes in their net assets for each of the periods presented, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK FEBRUARY 15, 2002 166 Morgan Stanley Variable Investment Series TRUSTEE AND OFFICER INFORMATION Independent Trustees:
NUMBER OF TERM OF PORTFOLIOS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT SERVED* DURING PAST 5 YEARS BY TRUSTEE** HELD BY TRUSTEE ------------------------ -------------- -------------------- ----------------------- ------------- -------------------- Michael Bozic (60) Trustee Trustee since April Retired; Director or 129 Director of Weirton c/o Mayer, Brown & Platt 1994 Trustee of the Morgan Steel Corporation. Counsel to the Stanley Funds and the Independent Trustees TCW/DW Term Trusts; 1675 Broadway formerly Vice Chairman New York, NY of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (69) Trustee Trustee since Director or Trustee of 129 Director of Franklin c/o Summit Ventures LLC January 1993 the Morgan Stanley Covey (time 1 Utah Center Funds and the TCW/DW management systems), 201 S. Main Street Term Trusts; formerly BMW Bank of North Salt Lake City, UT United States Senator America, Inc. (R-Utah) (1974-1992) (industrial loan and Chairman, Senate corporation), United Banking Committee Space Alliance (1980-1986); formerly (joint venture Mayor of Salt Lake between Lockheed City, Utah (1971-1974); Martin and the formerly Astronaut, Boeing Company) and Space Shuttle Discovery Nuskin Asia Pacific (April 12-19, 1985); (multilevel Vice Chairman, Huntsman marketing); member Corporation (chemical of the board of company); member of the various civic and Utah Regional Advisory charitable Board of Pacific Corp. organizations. Wayne E. Hedien (67) Trustee Trustee since Retired; Director or 129 Director of The PMI c/o Mayer, Brown & Platt September 1997 Trustee of the Morgan Group Inc. (private Counsel to the Stanley Funds and the mortgage insurance); Independent Trustees TCW/DW Term Trusts; Trustee and Vice 1675 Broadway formerly associated Chairman of The New York, NY with the Allstate Field Museum of Companies (1966-1994), Natural History; most recently as director of various Chairman of The other business and Allstate Corporation charitable (March 1993-December organizations. 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).
167 Morgan Stanley Variable Investment Series TRUSTEE AND OFFICER INFORMATION CONTINUED
NUMBER OF TERM OF PORTFOLIOS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT SERVED* DURING PAST 5 YEARS BY TRUSTEE** HELD BY TRUSTEE ------------------------ -------------- -------------------- ----------------------- ------------- -------------------- Dr. Manuel H. Johnson Trustee Trustee since July Chairman of the Audit 129 Director of NVR, (52) 1991 Committee and Director Inc. (home c/o Johnson Smick or Trustee of the construction); International, Inc. Morgan Stanley Funds Chairman and Trustee 1133 Connecticut Avenue, and the TCW/DW Term of the Financial N.W. Trusts; Senior Partner, Accounting Washington, D.C. Johnson Smick Foundation International, Inc., a (oversight consulting firm; organization of the Co-Chairman and a Financial Accounting founder of the Group of Standards Board). Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Michael E. Nugent (65) Trustee Trustee since July Chairman of the 207 Director of various c/o Triumph Capital, 1991 Insurance Committee and business L.P. Director or Trustee of organizations. 237 Park Avenue the Morgan Stanley New York, NY Funds and the TCW/DW Term Trusts; director/trustee of various investment companies managed by Morgan Stanley Investment Management Inc. and Morgan Stanley Investments LP (since July 2001); General Partner, Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). John L. Schroeder (71) Trustee Trustee since April Retired; Chairman of 129 Director of Citizens c/o Mayer, Brown & Platt 1994 the Derivatives Communications Counsel to the Committee and Director Company Independent Trustees or Trustee of the (telecommunications 1675 Broadway Morgan Stanley Funds company). New York, NY and the TCW/DW Term Trusts; formerly Executive Vice President and Chief Investment Officer of the Home Insurance Company (August 1991-September 1995).
168 Morgan Stanley Variable Investment Series TRUSTEE AND OFFICER INFORMATION CONTINUED Interested Trustees:
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS MANAGEMENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS TRUSTEE** HELD BY TRUSTEE ------------------------ -------------- -------------------- ----------------------- ------------- -------------------- Charles A. Fiumefreddo Chairman, Trustee since July Chairman, Director or 129 None (68) Director or 1991 Trustee and Chief c/o Morgan Stanley Trust Trustee and Executive Officer of Harborside Financial Chief the Morgan Stanley Center, Executive Funds and the TCW/DW Plaza Two, Officer Term Trusts; formerly Jersey City, NJ Chairman, Chief Executive Officer and Director of the Investment Manager, the Distributor and Morgan Stanley Services, Executive Vice President and Director of Morgan Stanley DW, Chairman and Director of the Transfer Agent, and Director and/or officer of various Morgan Stanley subsidiaries (until June 1998). James F. Higgins (53) Trustee Trustee since June Senior Adviser of 129 None c/o Morgan Stanley Trust 2000 Morgan Stanley (since Harborside Financial August 2000); Director Center, of the Distributor and Plaza Two, Dean Witter Realty Jersey City, NJ Inc.; Director or Trustee of the Morgan Stanley Funds and the TCW/DW Term Trusts (since June 2000); previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (58) Trustee Trustee since April Director or Trustee of 129 Director of American 1585 Broadway 1994 the Morgan Stanley Airlines, Inc. and New York, NY Funds and the TCW/DW its parent company, Term Trusts; Chairman AMR Corporation. of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/ or officer of various Morgan Stanley subsidiaries.
- ---------------------------- * EACH TRUSTEE SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. ** THE FUND COMPLEX INCLUDES ALL OPEN AND CLOSED END FUNDS (INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY MORGAN STANLEY INVESTMENT ADVISORS INC. AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF MORGAN STANLEY INVESTMENT ADVISORS INC. (INCLUDING BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND VAN KAMPEN ASSET MANAGEMENT INC.). 169 Morgan Stanley Variable Investment Series TRUSTEE AND OFFICER INFORMATION CONTINUED Officers:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) EXECUTIVE OFFICER REGISTRANT TIME SERVED* DURING PAST 5 YEARS ------------------------ ----------------------------------- ----------------------------------- ------------------------------ Mitchell M. Merin (48) President President since May 1999 President and Chief Operating 1221 Avenue of the Officer of Morgan Stanley Americas Investment Management (since New York, NY December 1998); President, Director (since April 1997) and Chief Executive Officer (since June 1998) of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor (since June 1998); Chairman and Chief Executive Officer (since June 1998) and Director (since January 1998) of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Morgan Stanley Funds and TCW/DW Term Trusts (since May 1999); Trustee of various Van Kampen investment companies (since December 1999); previously Chief Strategic Officer of the Investment Manager and Morgan Stanley Services and Executive Vice President of the Distributor (April 1997-June 1998), Vice President of the Morgan Stanley Funds (May 1997-April 1999), and Executive Vice President of Morgan Stanley. Barry Fink (46) Vice President, Secretary and Vice President, Secretary and General Counsel (since May c/o Morgan Stanley Trust General Counsel General Counsel since February 1997 2000) and Managing Director Harborside Financial (since December 2000) of Center, Morgan Stanley Investment Plaza Two Management; Managing Director Jersey City, NJ (since December 2000), and Secretary and General Counsel (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Vice President, Secretary and General Counsel of the Morgan Stanley Funds and TCW/DW Term Trusts (since February 1997); Vice President and Secretary of the Distributor; previously, Senior Vice President, Assistant Secretary and Assistant General Counsel of the Investment Manager and Morgan Stanley Services. Thomas F. Caloia (55) Treasurer Over 5 years First Vice President and c/o Morgan Stanley Trust Assistant Treasurer of the Harborside Financial Investment Manager, the Center, Distributor and Morgan Stanley Plaza Two Services; Treasurer of the Jersey City, NJ Morgan Stanley Funds. Armon Bar-Tur (32) Vice President Since October 1996 Executive Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager for over New York, New York 5 years. Mark Bavoso (41) Vice President Since January 1994 Managing Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager for over New York, New York 5 years. Richard M. Behler (48) Vice President Since May 2001 Executive Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager and/or its New York, New York investment management affiliates for over 5 years. Thomas Bergeron (37) Vice President Since May 2001 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager; previously a New York, New York Financial Analyst with Bank Boston (1993-1997). Stephen F. Esser (37) Vice President Since January 2001 Managing Director and One Tower Bridge Portfolio Manager of the West Conshohocken, Investment Manager and/or its Pennsylvania investment management affiliates for over 5 years.
170 Morgan Stanley Variable Investment Series TRUSTEE AND OFFICER INFORMATION CONTINUED
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) EXECUTIVE OFFICER REGISTRANT TIME SERVED* DURING PAST 5 YEARS ------------------------ ----------------------------------- ----------------------------------- ------------------------------ Edward F. Gaylor (60) Vice President Since inception of the Fund Executive Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager for over New York, New York 5 years. Ellen Gold (37) Vice President Since May 2001 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager for over 5 years. New York, New York Peter Hermann (42) Vice President Since May 1996 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager for over 5 years. New York, New York David S. Horowitz (28) Vice President Since February 2001 Vice President and Portfolio One Tower Bridge Manager of the Investment West Conshohocken, Manager and/or its investment Pennsylvania management affiliates for over 5 years. Kevin Jung (36) Vice President Since May 1999 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager (since New York, New York September 1997); previously a portfolio manager with UBS Asset Management Inc. Michelle Kaufman (37) Vice President Since May 1996 Managing Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager for over New York, New York 5 years. Anita H. Kolleeny (46) Vice President Since inception of the fund Managing Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager for over New York, New York 5 years. Gordon W. Loery (41) Vice President Since January 2001 Executive Director and One Tower Bridge Portfolio Manager of the West Conshohocken, Investment Manager and/or its Pennsylvania investment management affiliates for over 5 years. Deanna L. Loughnane (35) Vice President Since January 2001 Executive Director and One Tower Bridge Portfolio Manager of the West Conshohocken, Investment Manager and/or its Pennsylvania investment management affiliates since 1997; previously Vice President and Corporate Bond Analyst for Putnam Investments (1993-1997). Angelo Manioudakis (35) Vice President Since February 2001 Executive Director and One Tower Bridge Portfolio Manager of the West Conshohocken, Investment Manager and/or its Pennsylvania investment management affiliates for over 5 years. Catherine Maniscalco Vice President Since August 1999 Vice President and Portfolio (38) Manager of the Investment 1221 Avenue of the Manager for over 5 years. Americas New York, New York
171 Morgan Stanley Variable Investment Series TRUSTEE AND OFFICER INFORMATION CONTINUED
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) EXECUTIVE OFFICER REGISTRANT TIME SERVED* DURING PAST 5 YEARS - ------------------------ ----------------------------------- ----------------------------------- ------------------------------ Charles Moon (35) Vice President Since February 2001 Executive Director and One Tower Bridge Portfolio Manager of the West Conshohocken, Investment Manager (since Pennsylvania 1999); previously Vice President and Global Banks Analyst for Citigroup (1993-1999). Jonathan R. Page (55) Vice President Since inception of the Fund Managing Director and c/o Morgan Stanley Trust Portfolio Manager of the Harborside Financial Investment Manager and/or its Center, investment management Plaza, Two, affiliates for over 5 years. Jersey City, NJ Robert Rossetti (54) Vice President Since July 2001 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager for over 5 years. New York, New York Guy G. Rutherfurd, Jr. Vice President Since May 1999 Managing Director and (62) Portfolio Manager of the 1221 Avenue of the Investment Manager for over Americas 5 years. New York, New York Gustave Scacco (40) Vice President Since December 2001 Assistant Vice President and 1221 Avenue of the Equity Analyst of the Americas Investment Manager (since New York, New York 1998); previously Vice President-Finance of Amicale Industries (1997-1998). Ronald B. Silvestri (36) Vice President Since May 2000 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager (since New York, New York December 1999); previously a Senior Research Analyst with the Investment Manager. Paul D. Vance (66) Vice President Since inception of the Fund Managing Director and 1221 Avenue of the Portfolio Manager of the Americas Investment Manager and/or its New York, New York investment management affiliates for over 5 years. Alison E. Williams (33) Vice President Since July 2001 Vice President and Portfolio 1221 Avenue of the Manager of the Investment Americas Manager (since February 2001); New York, New York previously an equity analyst at Painewebber.
- ---------------------------- * EACH OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. 172 Trustees ------------------------------------------------------------ Michael Bozic Dr. Manuel H. Johnson Charles A. Fiumefreddo Michael E. Nugent Edwin J. Garn Philip J. Purcell Wayne E. Hedien John L. Schroeder James F. Higgins Officers ------------------------------------------------------------ Charles A. Fiumefreddo CHAIRMAN AND CHIEF EXECUTIVE OFFICER Mitchell M. Merin PRESIDENT Barry Fink VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL Thomas F. Caloia TREASURER Transfer Agent ------------------------------------------------ Morgan Stanley Trust Harborside Financial Center--Plaza Two Jersey City, New Jersey 07311 Independent Auditors ------------------------------------------------ Deloitte & Touche LLP Two World Financial Center New York, New York 10281 Investment Manager ------------------------------------------------------------ Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 Sub-Advisor (European Growth and Pacific Growth Portfolios) ------------------------------------------------------------ Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Morgan Stanley Distributors Inc., member NASD. # 40113A -----END PRIVACY-ENHANCED MESSAGE-----