Morgan Stanley
Pathway Funds
Pathway Funds
High Yield Fund | Ticker:
THYUX
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
A high level of current income primarily through investment in below-investment grade debt securities.
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* |
0.70% |
| Distribution (12b-1) Fees |
None |
| Other Expenses |
0.47% |
| Total Annual Fund Operating Expenses |
1.17% |
| Waiver* |
(0.20)% |
| Net Annual Fund Operating Expenses* |
0.97% |
* 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.
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 |
| $300 |
$959 |
$1,642 |
$3,462 |
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 25% of the average
value of its portfolio.
Principal investment strategies
The Fund will invest, under normal market conditions, at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in U.S. dollar-denominated high yield
fixed income securities of corporate issuers rated below investment grade by two or more nationally recognized
statistical rating organizations (commonly called “junk bonds”), or, if unrated, of equivalent
quality as determined by the Sub-advisers. These securities include all types of debt obligations, such as
corporate bonds and notes, collateralized mortgage obligations and variable and floating rate securities. The
Fund may invest up to 20% of its assets in securities not denominated in U.S. dollars, including securities of issuers located in emerging market foreign countries. The Fund also may invest up to 20% of its assets in equity and equity-related
securities, including common stock, convertible securities, preferred stock, warrants and rights. The Fund may
also lend portfolio securities to earn additional income. Any income realized through securities lending may help
Fund performance.
Credit
quality. The Fund invests primarily in high yield securities or junk bonds.
Duration. The Fund’s average
portfolio duration, as calculated by the Sub-advisers (as defined below), ranges from two to six years. Duration
is an approximate measure of the sensitivity of the market value of the Fund’s holdings to changes in interest rates. Maturity means the date on which the principal amount of a debt security is due and payable. Individual securities may
be of any maturity.
The Fund employs a
“multi-manager” strategy whereby portions of the Fund are allocated to professional money managers
(each, a “Sub-adviser,” collectively, the “Sub-advisers”) who are responsible for investing the assets of the Fund.
Principal risks of
investing in the Fund
Loss of money is a risk of investing in the Fund.
The Fund’s principal risks include:
•
Market
Risk, which is the risk that the Fund will be affected by broad changes in the fixed income markets. The
prices of the Fund’s fixed income securities respond to economic developments, particularly interest rate
changes, as well as to perceptions about the creditworthiness of individual issuers, including governments and
their agencies.
2 MORGAN STANLEY | 2024
Generally, the Fund’s fixed
income securities will decrease in value if interest rates rise and vice versa. Declines in dealer market-making
capacity as a result of structural or regulatory changes could decrease liquidity and/or increase volatility in
the fixed income markets. In the case of foreign securities, price fluctuations will reflect international
economic and political events, as well as changes in currency valuations relative to the U.S. dollar. In response
to these events, the Fund’s value may fluctuate and/or the Fund may experience increased redemptions from
shareholders, which may impact the Fund’s liquidity or force the Fund to sell securities into a declining
or illiquid market. 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.
•
Derivatives Risk, which means that the Fund’s use of futures, forwards, options, swaps and swaptions based on fixed income instruments to enhance returns or hedge against market declines subjects the Fund to potentially greater volatility and/or losses. Even a small investment in futures, forwards, options, swaps and swaptions can have a
large impact on the Fund’s interest rate, securities market and currency exposure. Therefore, using
futures, forwards, options, swaps and swaptions can disproportionately increase losses and reduce opportunities
for gains when interest rates, stock prices or currency rates are changing. The Fund may not fully benefit from
or may lose money on its investment in futures, forwards, options, swaps and swaptions if changes in their value
do not correspond accurately to changes in the value of the Fund’s holdings. The other party to certain
futures, forwards, options, swaps and swaptions presents the same types of credit risks as issuers of fixed
income securities. Investing in futures, forwards, options, swaps and swaptions can also make the Fund’s
assets less liquid and harder to value, especially in declining markets.
•
Equity
Risk, which is the risk that prices of equity securities rise and fall daily due to factors affecting individual
companies, particular industries or the equity market as a whole.
•
Interest Rate Risk, which is the risk that interest rates rise and fall over time. When interest rates are low, the Fund’s yield and total return also may be low. When interest rates
rise, bond prices generally fall, which might cause the Fund’s share price to fall. When the Fund holds
variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an
increase) in market interest rates will adversely affect the income received from such securities and the net
asset value of the Fund’s shares.
•
Credit and Junk Bond Risk, which means the credit quality of an investment could cause the Fund to lose money. Non-investment grade securities (sometimes called “high yield securities” or “junk bonds”) involve greater risks of default or downgrade, are more volatile and may
be more susceptible than other issuers to economic downturns. Such securities are subject to the risk that the
issuer may not be
able to pay interest or dividends and ultimately to repay
principal upon maturity, which could substantially adversely affect the market value of the
securities.
•
Prepayment and Extension Risks, which means a debt obligation may be paid off earlier or later than expected. Either situation could cause the Fund to hold securities paying lower-than-market rates of interest, which could hurt the Fund’s yield or share price.
•
Mortgage-Backed Securities Risk, exists when the Fund invests in mortgage-backed securities, which represent an interest in a pool of mortgages. Mortgage-backed securities are subject to prepayment and extension risk as well as the risk that underlying borrowers will be unable to meet their
obligations.
•
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 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.
•
Liquidity Risk, exists when securities are difficult or impossible for the Fund to sell at the time and the price that the Fund would like due to a limited market or to legal restrictions. These securities may also need to be fair valued.
•
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.
•
Foreign Investment Risk, which means risks unique to investing in foreign securities, including less information about foreign issuers, less liquid securities markets, political
instability and unfavorable changes in currency exchange rates.
•
Emerging Markets Risk, emerging markets countries, which are generally defined as countries that may be represented in a market index such as the MSCI Emerging Markets Index (Net) or having per capita income in the low to middle ranges, as determined by the World Bank. In addition to foreign investment and currency risks, emerging markets may experience rising interest rates, or, more significantly, rapid inflation or hyperinflation. Emerging market securities may present market, credit, liquidity, legal, political and
other
3 MORGAN STANLEY | 2024
risks different from, or greater
than, the risks of investing in developed foreign countries. The Fund also could experience a loss from
settlement and custody practices in some emerging markets.
•
Currency Risk, which refers to the risk that as a result of the Fund’s investments in securities denominated in, and/or receiving revenues in, foreign currencies, those currencies
will decline in value relative to the U.S. dollar or, in the case of hedged positions, the U.S. dollar will
decline in value relative to the currency hedged.
•
Convertible and Preferred Securities Risk, convertible and preferred securities have many of the same characteristics as stocks, including many of the same risks. In addition, convertible securities may be more sensitive to changes in interest rates than stocks. Convertible securities may also have credit ratings below investment grade, meaning that they carry a higher risk of failure by the issuer to pay principal and/or interest when due.
•
Short Sale Risk, selling short may produce higher than normal portfolio turnover, result in increased transaction costs and magnify the potential for both gain and loss to the
Fund. In addition, because the Fund’s loss on a short sale arises from increases in the value of the
security sold short, such loss is theoretically unlimited. By contrast, the Fund’s loss on a long position
arises from decreases in the value of the security and is limited by the fact that a security’s value
cannot drop below zero.
•
Securities Lending Risk, which includes the potential insolvency of a borrower and losses due to the re-investment of collateral received on loaned securities in investments that
default or do not perform well.
•
Manager Risk, which is the risk that poor security selection by a Sub-adviser will cause the Fund to underperform. This risk is common for all actively managed funds.
•
Multi-Manager Risk, which is the risk that the investment styles of the Sub-advisers may not complement each other as expected by the Manager. The Fund may experience a higher portfolio turnover rate, which can increase the Fund’s transaction costs and result in more taxable short-term
gains for shareholders.
•
Issuer
Risk, which is the risk that the value of a security may decline for reasons directly related to the issuer, such
as management performance, financial leverage and reduced demand for the issuer’s goods or
services.
•
Leverage
Risk means that the Fund’s use of derivatives may result in the Fund’s total investment exposure
substantially exceeding the value of its portfolio securities and that the Fund’s investment returns
depending substantially on the performance of securities that the Fund may not directly own. The use of leverage
can amplify the effects of market volatility on the Fund’s share price and may also cause the Fund to
liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations. The
Fund’s use of leverage may result in a heightened risk of investment loss.
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.
4 MORGAN STANLEY | 2024
Annual total returns (%) calendar years
High Yield Fund
Fund’s best and worst
calendar quarters
Best: 6.95% in 1st quarter 2019
Worst: (12.56)% in 1st quarter 2020
Year-to-date: 6.03% (through 3rd quarter 2023)
Worst: (12.56)% in 1st quarter 2020
Year-to-date: 6.03% (through 3rd quarter 2023)
Average Annual Total Returns
(for the periods ended December 31,
2022)
| INCEPTION DATE: 7/13/1998 |
1 YEAR |
5 YEARS |
10 YEARS |
| Fund (without advisory program fee) | |||
| Return Before Taxes |
(12.02)% |
0.76% |
2.39% |
| Return After Taxes on Distributions |
(13.78)% |
(1.23)% |
0.37% |
| Return After Taxes on Distributions and Sale of Fund Shares |
(6.70)% |
(0.28)% |
0.77% |
| Bloomberg U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) |
(11.19)% |
2.31% |
4.03% |
| Lipper High Yield Funds Average |
(10.65)% |
1.73% |
3.22% |
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. Corporate High Yield Bond Index, a broad-based market measure of high yield bonds, commonly known as “junk bonds.” The benchmark
is designed to mirror the investible universe of the
dollar-denominated high yield debt market. 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 to the Lipper High Yield Funds Average. The Lipper High Yield Funds Average is composed of funds that, by fund practice, aim at high current
yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower grade
debt issues.
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.
5 MORGAN STANLEY | 2024
Sub-advisers and portfolio
managers
PineBridge Investments LLC (“PineBridge”)
Western Asset Management Company (“Western”)
Western Asset Management Company (“Western”)
| PORTFOLIO MANAGERS |
SUB-ADVISER OR ADVISER |
FUND’S PORTFOLIO
MANAGER SINCE |
| John Yovanovic, CFA®, Managing Director and Portfolio Manager |
PineBridge |
2021 |
| Jeremy Burton, CFA®, Managing Director and Portfolio Manager |
PineBridge |
2021 |
| Michael C. Buchanan, CFA®, Deputy Chief Investment Officer |
Western |
2005 |
| Walter E. Kilcullen, Portfolio Manager |
Western |
2017 |
| S. Kenneth Leech, Chief Investment Officer |
Western |
2014 |
| Michael C. Buchanan, CFA® ,Co-Chief Investment Officer |
Western |
2023 |
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.
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.
6 MORGAN STANLEY | 2024