Morgan Stanley
Pathway Funds
Pathway Funds
Inflation-Linked Fixed Income Fund |
Ticker: TILUX
January 1, 2024
Summary Prospectus
Before you invest, you may want to review the Fund’s prospectus, which contains more information about the Fund and
its risks. The Fund’s prospectus, dated January 1, 2024, and Statement of Additional Information, dated January 1, 2024, are incorporated by reference into the summary prospectus, making them legally part of the summary prospectus. You can find the Fund’s prospectus and
other information about the Fund online at www.morganstanley.com/wealth-investmentsolutions/cgcm. You can also get this information at no cost by calling 1-800-869-3326 or by sending an
e-mail request to client.field.services@morganstanley.com.
Investment objective
Total return that exceeds the rate of inflation over an economic cycle.
Fund fees and
expenses
This table describes the fees and expenses you may pay if you buy and hold shares of the Fund.
Annual Advisory Program Fees
(fees paid directly from your investment in the applicable Morgan Stanley-sponsored investment advisory program)
| Maximum annual fees in the Consulting Group Advisor, Select UMA or Portfolio Management investment advisory programs (as a percentage of prior quarter-end net assets)* |
2.00% |
Annual Fund Operating Expenses
(expenses that you pay
each year as a percentage of the value of your investment in the Fund)
| Management Fees* |
0.50% |
| Distribution (12b-1) Fees |
None |
| Other Expenses(1) |
1.85% |
| Total Annual Fund Operating Expenses |
2.35% |
| Waiver* |
(0.05)% |
| Net Annual Fund Operating Expenses*(1)
|
2.30% |
* CGAS (defined herein) has contractually agreed to waive fees and reimburse expenses in order to keep the Fund’s management fees from exceeding the total amount of sub-advisory fees paid by CGAS
plus 0.20% based on average net assets. This contractual waiver will only apply if the Fund’s total management fees exceed the total amount of sub-advisory fees paid by CGAS plus 0.20% and will not affect the Fund’s total
management fees if they are less than such amount. This fee waiver and/or reimbursement will continue for at least one year from the date of this prospectus or until such time as the Board of Trustees acts to discontinue all or a portion of such
waiver and/or reimbursement when they deem such action is appropriate.
(1) Includes interest expense which represents 1.32%.
Examples
These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The examples assume that you invest $10,000 in the Fund for the time periods indicated. The examples also
assume that your investment has a 5% return each year and that the Fund’s operating expenses remain the
same. The effect of the Fund’s contractual fee waiver is only reflected in the first year of the example.
The figures are calculated based upon total annual Fund operating expenses and a maximum annual fee of 2.00% for
the applicable Morgan Stanley-sponsored investment advisory program through which you invest. Although your
actual costs may be higher or lower, based on these assumptions your costs would be:
| AFTER
1 YEAR |
AFTER
3 YEARS |
AFTER
5 YEARS |
AFTER
10 YEARS |
| $432 |
$1,313 |
$2,207 |
$4,491 |
Portfolio turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher
transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs,
which are not reflected in annual fund operating expenses or in the above examples, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 56% of the average
value of its portfolio.
Principal investment strategies
Under normal market conditions, the Fund will invest at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in fixed income securities. The Fund seeks to allocate assets among investments to achieve the highest level of real return (total return less the rate of inflation). The Fund will shift its investments among the following general asset classes: inflation-indexed securities
issued by governments, corporations, and municipal issuers; investment grade fixed income securities and
high-yield fixed income securities (i.e., junk bonds) issued by governments, corporations, and municipal issuers;
and short-term non-dollar denominated debt securities. The Fund may also, to a lesser extent, invest in equity
securities with high correlation to broad measures of inflation.
Inflation-indexed securities are fixed income securities that are structured to provide protection against inflation. The
value of the security’s principal or the interest income paid on the security will be adjusted to track
changes in an official inflation measure. The U.S. Treasury uses the Consumer Price Index for Urban Consumers as
their inflation measure. Inflation-indexed securities issued by a foreign government are generally adjusted to
reflect a comparable inflation index, calculated by that government.
The Fund invests primarily in investment grade debt securities; however, the Fund may invest up to 20% of its total assets in
below investment grade debt securities (i.e., junk bonds), as rated by Moody’s, S&P or Fitch or, if
unrated, determined by the Sub-adviser (as defined below) to be of comparable credit quality to such a rating.
The Fund may also invest up to 30% of its total assets in foreign currency denominated securities, including
emerging market securities. For purposes of pursuing its investment goal, the Fund may enter into currency-related
transactions involving certain derivative instruments, including currency and cross currency forward contracts.
The use of derivative currency transactions may allow the Fund to reduce a specific risk exposure of a portfolio
security or its denominated currency or to obtain net long exposure to selected currencies. Under normal market
conditions, the Fund will seek to limit its foreign currency exposure to 20% of its total assets.
The Fund may invest, without limitation, in derivative
instruments, such as options, futures contracts, or swap agreements, or in mortgage- or asset- backed securities,
subject to applicable law and any other restrictions described
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in this Prospectus or Statement of Additional
Information. The Fund may purchase or sell securities on a when-issued, delayed delivery, or forward commitment
basis and may engage in short sales. The Fund may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as buy backs or dollar rolls). The Fund may also invest up to 10% of its total
assets in preferred stocks.
The
Fund’s investment objective is not fundamental and may be changed by the Board of Trustees without shareholder approval.
Principal risks of
investing in the Fund
Loss of money is a risk of investing in the Fund.
The Fund’s principal risks include:
•
Interest Rate Risk, the risk that fixed income securities will decline in value because of an increase in interest rates; a fund with longer average portfolio duration will be more sensitive to changes in interest rates than a fund with shorter
average portfolio duration.
•
Call Risk, the risk that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity
for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the
issuer’s credit quality). If an issuer calls a security that the Fund has invested in, the Fund may not
recoup the full amount of its initial investment and may be forced to reinvest in lower-yielding securities,
securities with greater credit risks or securities with other, less favorable features.
•
Credit
Risk, the risk that the Fund could lose money if the issuer or guarantor of a fixed income security, or the
counterparty to a derivative contract, is unable or unwilling to meet its financial obligations.
•
High Yield Risk, the risk that high yield securities and unrated securities of similar credit quality (commonly known as “junk bonds”) are subject to greater levels of credit, call and liquidity risks. High yield securities are
considered primarily speculative with respect to the issuer’s continuing ability to make principal and
interest payments and may be more volatile than higher-rated securities of similar maturity.
•
Market
Risk, the risk that the value of securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably, due to factors affecting securities markets generally or particular industries. Environmental and
public health risks, such as natural disasters, epidemics, pandemics or widespread fear that such events may
occur, may impact markets adversely and cause market volatility in both the short- and long-term.
•
Issuer
Risk, the risk that the value of a security may decline for a reason directly related to the
issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or
services.
•
Liquidity Risk, the risk that a particular investment may be difficult to purchase or sell and that the Fund may be unable
to sell illiquid securities at an advantageous time or price or achieve its desired level of exposure to a certain sector.
Liquidity risk may result from the lack of an active market, reduced number and capacity of traditional market
participants to make a market in fixed income securities, and may be magnified in a rising interest rate
environment or other circumstances where investor redemptions from fixed income mutual funds may be higher than
normal, causing increased supply in the market due to selling activity.
•
Derivatives Risk, the risk of investing in derivative instruments (such as forwards, futures, options, swaps and structured securities), include liquidity, interest rate, market,
and credit risks, each of which is described herein. Derivative instruments also may be difficult to accurately
price due to their complexity, particularly derivative instruments that are traded off an exchange (also known as
“over the counter”). Changes in the value of the derivative may not correlate perfectly with, and may
be more sensitive to market events than, the underlying asset, rate or index, and the Fund could lose more than
the initial amount invested. The Fund’s use of derivatives may result in losses to the Fund, a reduction in
the Fund’s returns and/or increased volatility. Over-the-counter derivatives are also subject to the risk
that the other party in the transaction will not fulfill its contractual obligations. For derivatives traded on
exchanges, the primary credit risk is the creditworthiness of the Fund’s clearing broker or the exchange
itself.
•
LIBOR Transition Risk refers to the fact that the elimination of the London Inter-Bank Offered Rate (“LIBOR”) rate may adversely affect the interest rates on, and value of, certain Fund investments that are tied to LIBOR. The U.K. Financial
Conduct Authority ceased publishing all LIBOR settings on a representative basis after June 30, 2023, although
some USD LIBOR settings will continue to be published under a synthetic methodology until September 30, 2024 for
certain legacy contracts. Alternatives to LIBOR are established or in development in most major currencies and
markets are slowly responding to these new rates. It is difficult to predict the full impact of the transition
away from LIBOR on the Fund.
•
Equity
Risk, the risk that the value of equity securities, such as common stocks and preferred stocks, may decline
due to general market conditions which are not specifically related to a particular company or to factors
affecting a particular industry or industries. Equity securities generally have greater price volatility than
fixed income securities.
•
Mortgage-Related and Other Asset-Backed Securities risk, the risks of investing in mortgage-related and other asset-backed securities, including interest rate risk, extension risk, prepayment risk, and
credit risk.
•
Asset-Backed Securities Risk, exists when the Fund invests in asset-backed securities which are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. Asset-backed securities are subject to many of
3 MORGAN STANLEY | 2024
the same risks as mortgage-backed
securities including prepayment and extension risk. The ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets may be limited.
•
Foreign (Non-U.S.) Investment Risk, the risk that investing in foreign securities may result in the Fund experiencing more rapid and extreme changes in value than a fund that invests
exclusively in securities of U.S. companies, due to smaller markets, differing reporting, accounting and auditing
standards, increased risk of delayed settlement of portfolio transactions or loss of certificates of
portfolio securities, and the risk of unfavorable foreign government actions, including nationalization,
expropriation or confiscatory taxation, currency blockage, or political changes or diplomatic developments.
Foreign securities may also be less liquid and more difficult to value than securities of U.S. issuers.
•
Emerging Markets Risk, the risk of investing in emerging market securities, primarily increased foreign investment risk.
•
Sovereign Debt Risk, the risk that investments in fixed income instruments issued by sovereign entities may decline in value as a result of default or other adverse credit event
resulting from the issuer’s inability or unwillingness to make principal or interest payments in a timely
fashion.
•
Currency Risk, the risk that foreign currencies will decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign currencies or in securities that trade in, and receive revenues in, or in derivatives that provide
exposure to, foreign currencies.
•
Leveraging Risk, the risk that certain transactions of the Fund, such as reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions, or derivative instruments, may give rise to leverage, magnifying gains and
losses and causing the Fund to be more volatile than if it had not been leveraged. This means that leverage
entails a heightened risk of loss.
•
Short Sale Risk, the risk of entering into short sales, including the potential loss of more money than the actual cost of the investment, and the risk that the third party to the short sale may fail to honor its contract terms, causing a
loss to the Fund.
•
Portfolio Turnover Risk, which is the risk that due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities.
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. For more information on the risks of investing in the Fund please see the Fund details section of this Prospectus.
Performance
The bar chart below shows how the Fund’s investment results have varied from year to year, and the following table shows
how the Fund’s annual total returns for various periods compare to those of the Fund’s benchmark
index and Lipper peer group. This information provides some indication of the risks of investing in the Fund. The
Fund is available only to investors participating in Morgan Stanley-sponsored investment advisory programs. These
programs charge an annual fee (see Annual Advisory Program Fees above). The performance information in the bar chart and table below does not reflect this fee, which
would reduce your return. The Fund’s past performance, before and after taxes, does not
necessarily indicate how the Fund will perform in the future. For current performance information please see
www.morganstanley.com/wealth-investmentsolutions/cgcm.
Annual total returns (%) calendar years
Inflation-Linked Fixed Income Fund
Fund’s best and worst
calendar quarters
Best: 6.18% 2nd quarter 2020
Worst: (6.42)% 2nd quarter 2022
Year-to-date: (1.27)% (through 3rd quarter 2023)
Worst: (6.42)% 2nd quarter 2022
Year-to-date: (1.27)% (through 3rd quarter 2023)
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Average Annual Total
Returns
(for the periods ended December 31, 2022)
| INCEPTION DATE:
3/8/2016 |
1 YEAR |
5 YEAR |
Since Inception |
| Fund (without advisory program fee) |
|
| |
| Return Before Taxes |
(12.16)% |
2.02% |
1.93% |
| Return After Taxes on Distributions |
(13.92)% |
(0.02)% |
0.37% |
| Return After Taxes on Distributions and Sale of Fund Shares |
(6.18)% |
0.73% |
1.09% |
| Bloomberg U.S. Treasury Inflation Protected Securities (TIPS) Index (reflects no deduction for fees, expenses or taxes) |
(11.85)% |
2.11% |
1.12% |
| Lipper Inflation Protected Bond Funds Average |
(9.57)% |
1.85% |
0.70% |
The after-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an individual investor’s
tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In
some cases, the return after taxes may exceed the return before taxes due to an assumed tax benefit from any
losses on a sale of Fund shares at the end of the measurement period.
The Fund’s benchmark is the Bloomberg U.S. Treasury Inflation Protected Securities (TIPS) Index. Unlike the Fund, the benchmark is unmanaged and does not include any fees or
expenses. An investor cannot invest directly in an index.
The Fund also compares its performance with the
Lipper Inflation Protected Bond Funds Average. The Lipper Inflation Protected Bond Funds Average is composed of
funds that invest primarily in inflation-indexed fixed income securities issued in the United States that are
structured to provide protection against inflation.
Investment adviser
Consulting Group
Advisory Services LLC (“CGAS” or the “Manager”), a business of Morgan Stanley Wealth
Management (“MSWM”), serves as the investment adviser for the Fund. Subject to Board review, the
Manager selects and oversees professional money managers (each a “Sub-adviser,” collectively, the
“Sub-advisers”) who are responsible for investing the assets of the Fund. The Sub-advisers are
selected based primarily upon the research and recommendation of the Manager, which includes a quantitative
and qualitative evaluation of a Sub-adviser’s skills and investment results in managing assets for specific
asset classes, investment styles and strategies. The Manager allocates and, when appropriate, reallocates
the Fund’s assets among one or more Sub-advisers, continuously monitors and evaluates Sub-adviser
performance (including trade execution), performs other due diligence functions (such as an assessment of changes
in personnel or other developments at the Sub-advisers), and oversees Sub-adviser compliance with the
Fund’s investment objectives, policies and guidelines. The Manager also monitors changes in market conditions and considers whether changes in the allocation of Fund assets or the lineup of Sub-advisers should be made in response to such
changes in market conditions. Sub-advisers may also periodically recommend changes or enhancements to the
Fund’s investment objectives, policies and guidelines, which are subject to the approval of the Manager and
may also be subject to the approval of the Board.
Sub-adviser and portfolio
managers
Pacific Investment Management Company LLC (“PIMCO”)
| PORTFOLIO MANAGERS |
SUB-ADVISER OR ADVISER |
FUND’S PORTFOLIO
MANAGER SINCE |
| Daniel He, Executive Vice President and Portfolio Manager |
PIMCO |
2019 |
| Steve Rodosky, Managing Director and Real Return Portfolio Manager |
PIMCO |
2019 |
Purchase and sale of Fund shares
Purchases of shares of the Fund must be made through an investment advisory program with Morgan Stanley. You may purchase or sell shares of the Fund at net asset value on any day the New York Stock Exchange (“NYSE”) is open by
contacting your Morgan Stanley Financial Advisor.
•
The minimum initial aggregate investment in the Morgan Stanley-sponsored investment advisory programs is $1,000.
•
There is no minimum
on additional investments in the Fund or the applicable investment advisory program through which you
invest.
•
Each of the Fund and the Morgan Stanley-sponsored investment advisory programs through which investments in the Fund are offered may vary or waive these investment minimums at any time.
For more information about the Morgan Stanley-sponsored investment advisory programs, see the About the Funds section of this Prospectus.
Tax information
The Fund’s distributions are generally taxable to you as ordinary income, capital gains, or a combination of the
two.
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Payments to financial
intermediaries
If you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of
Fund shares and related services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more information.
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