Fund Overview. Global Fixed Income Opportunities Fund

Transcription

1 CELEBRATING 40 YEARS Fund Overview SEPTEMBER 30, 2015 Global Fixed Income Opportunities Fund

2 Overall Morningstar Rating for Class I Shares 316 World Bond Funds Based on risk-adjusted return Morningstar Ranking for World Bond Category Percentile in Category (Rank/Total Number in Category) 1 Year 24% (89/370) 3 Years 8% (26/316) 5 Years 1% (3/236) Winner 2015 and 2014 Best Global Fixed Income Fund over 3- and 5-years Class I shares. Based on risk adjusted performance among Global Fixed Income Funds; 150 for the three-year and 118 for the five-year periods ended November 30, for the three-year and 112 for the fiveyear periods ended November 30, Years 14% (20/137) Source: Morningstar, Inc. As of September 30, Rankings and ratings are historical and do not guarantee future results. Ratings: 3 year 4 Stars out of 316 funds, 5 year 5 Stars out of 236 funds, 10 year 4 Stars out of 137 funds. Rankings: Based on total returns for Class I shares. Please refer to the back cover for further information regarding the rankings and awards cited above. Investment Team The Global Fixed Income Opportunities Strategy is managed by senior members of the Global Fixed Income team. JIM CARON Managing Director Joined the firm 2006, with 23 years of financial industry experience MICHAEL B. KUSHMA Managing Director Joined the firm in 1987, with 28 years of financial industry experience RICHARD FORD Managing Director Joined the firm in 1991, with 24 years of financial industry experience CHRISTIAN G. ROTH Managing Director Joined the firm in 1991, with 28 years of financial industry experience Performance Class I (% net of fees)* As of September 30, 2015 Quarterly YTD 1 Year 3 Years 5 Years 10 Years Since Inception 07/28/1997 Global Fixed Income Opportunities Fund Barclays Global Aggregate Index N/A Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit morganstanley.com/im or call Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The gross expense ratio is 0.86% for Class I shares and the net expense ratio is 0.70%. Where the net expense ratio is lower than the gross expense ratio, certain fees have been waived and/or expenses reimbursed. These waivers and/or reimbursements will continue for at least one year from the date of the applicable fund s current prospectus (unless otherwise noted in the applicable prospectus) or until such time as the fund s Board of Trustees acts to discontinue all or a portion of such waivers and/or reimbursements. Absent such waivers and/or reimbursements, returns would have been lower. Expenses are based on the fund s current prospectus. The minimum initial investment is $5,000,000 for Class I shares, $10,000,000 for Class IS, and $1,000 for Class A and Class C shares. Class A shares have a 4.25% maximum sales charge. * Returns are net of fees and assume the reinvestment of all dividends and income. Returns for less than one year are cumulative (unannualized). Performance of other share classes will vary. Visit

3 GLOBAL FIXED INCOME OPPORTUNITIES FUND At Morgan Stanley Investment Management, our Global Fixed Income Team seeks to optimize income by uncovering solutions that go beyond the traditional. In today s yield environment, consider the Morgan Stanley Global Fixed Income Opportunities Fund. The time has come to think differently about fixed income. The 30-year bull market that grew out of a Fed-generated decline in interest rates appears to be over. The time to be passive has passed. By actively taking advantage of the best ideas within the broad universe of fixed income markets around the world, while carefully managing risk correlations between asset classes, investors can tap into pockets of value wherever they occur and potentially generate an attractive return in various market cycles. We believe that, in the long run, value prevails and research wins. As valuedriven fixed income investors, we focus on active research and selection of what we believe are the best individual investment ideas from across all areas of the fixed income markets, targeting attractive yield and total return over a three-to-five year horizon. The emphasis of our investment process is to deliver an approach that is capable of reacting quickly to changing conditions throughout the market cycle, anywhere in the world. Symbols Class A Class C Class I Class IS Fund Snapshot Fund Inception July 28, 1997 Duration 2.19 years DINAX MSIPX DINDX MGFOX Benchmark Barclays Global Aggregate Index (Unhedged) 1 30 Day SEC Yield Class I as of 6/30/15 Subsidized (%) 3.68% Unsubsidized (%) 3.66% 3 Reasons to Consider 1 Unconstrained 2 Less interest rate sensitivity 3 Risk mitigation 1 The Barclays Global Aggregate Index provides a broad-based measure of the global investment grade fixed-rate debt markets. Total returns shown in unhedged USD. It is not possible to invest directly in an index. 1

4 GLOBAL FIXED INCOME OPPORTUNITIES FUND 1 Unconstrained Our active approach provides not only flexible asset allocation between the sleeves of fixed income, but also the ability, via bottom-up security selection, to own what we believe are the best bonds in each segment while avoiding the idiosyncratic risks inherent in a passive approach. Leveraging a global platform of professionals, we populate the portfolio with investment ideas from a number of asset classes within the fixed income markets including mortgage-backed securities, convertible bonds and emerging-markets debt and from around the world. This allows positions and risks to be rotated throughout the market cycle to reduce exposures to drops in any single market and increase the potential to participate in gains wherever they happen. Emerging Markets Debt Convertible Bonds Investment Grade Credit Government Bonds Global Fixed Income Opportunities Fund Currencies High Yield Credit Mortgage Backed Securities Loans Active, Unconstrained, Global, Less Exposed and Risk Managed: The Results Our active, well-balanced portfolio with exposure to a diverse range of fixed income classes, sectors and currencies allows an investor to intelligently spread risk across various asset classes Q15 Gbl HY EMD LCL TIPS Gbl HY Gbl HY 6.47 Muni 9.05 Treas 1.76 EMD USD Gbl HY Muni EMD USD GFIO 2.38 US Corp 7.46 Gbl Sov 1.71 GFIO EMD USD Treas 9.81 EMD LCL MBS EMD USD 7.43 Muni 1.65 EMD LCL GFIO US Corp 8.15 GFIO US Corp MBS 6.08 MBS 1.30 US Corp US Corp 9.00 Muni Barclays Agg 6.54 Barclays Agg 7.84 US Corp 9.82 Barclays Agg Barclays Agg 5.97 Barclays Agg 1.23 EMD USD 7.35 TIPS 6.98 Muni GFIO 5.15 US Corp 0.83 TIPS TIPS 6.31 Gbl Sov 6.35 Muni 6.78 Treas Treas 5.05 TIPS Barclays Agg 5.93 Treas 5.87 MBS 6.23 Barclays Agg 4.21 Gbl Sov TIPS 3.64 EMD USD MBS 5.89 MBS 5.37 GFIO 5.96 MBS 2.59 EMD USD Gbl HY 2.58 GFIO Gbl Sov 2.55 Gbl Sov 5.17 Gbl HY 3.63 Treas 1.99 TIPS Gbl Sov Gbl HY Treas Muni 2.38 EMD LCL Gbl Sov 1.65 EMD LCL EMD LCL EMD LCL Annual returns. Source: MSIM. Data as of 9/30/2015. Past performance is not indicative of future results. Gbl HY = Barclays Global High Yield TR Hdg USD; EMD USD = JPM EMBI Global Diversified TR US; MBS = Barclays US MBS TR USD; US Corp = Barclays US Corp IG TR USD; Barclays Agg = Barclays US Agg Bond TR USD; Muni = Barclays Municipal TR USD; Treas = Barclays Treasury TR USD; Gbl Sov = Citi WGBI USD; TIPS = Barclays US Treasury US TIPS TR USD; EMD LCL = JPM GBI EM Global Diversified TR USD; GFIO = Morgan Stanley Global Fixed Income Opportunities Fund, Class-I Shares (net of fees). Investing involves risks including the possible loss of principal. In general, fixed income investments are subject to credit and interest rate risks. High yield investments may have a higher degree of credit and liquidity risk. Foreign securities are subject to currency, political, economic and market risks. The risks of investing in emerging market countries are greater than investments in foreign developed countries. Investors should carefully review the risks of each asset class prior to investing. For risks considerations of the fund, please refer to the back cover and the fund s prospectus. 2

5 GLOBAL FIXED INCOME OPPORTUNITIES FUND 2 Less interest rate sensitivity There s a climate change taking place in bonds right now the threedecade secular decline in interest rates appears to have ended and it s time to consider a shift from passive to active strategies. Since interest rates peaked in 1981, the passive historical return from the Barclays Global Aggregate Bond Index, for example, has averaged approximately 8 percent. Of that 8 percent, about 85 percent resulted from the decline in interest rates. Returns in fixed income were primarily beta driven, with a much smaller role for alpha. Unconstrained management techniques enable us to better diversify risks and reduce exposures to movements in interest rates, which tend to be the primary source of return volatility. The correlation between the returns of the Fund (Class I shares) and 10-year U.S. Treasury rates was 17 percentage points lower than that between the Barclays Global Aggregate Index and 10-year U.S. Treasury rates. Falling Rates From March 2012 to July 2012, 10-year US interest rates rallied 74 basis points (bps). During this period, the fund (Class I shares) generated 3.13%, outperforming the passive index by 1.35%. Rising Rates From July 2012 to December 2013, 10-year US interest rates sold off by 156 bps. During this 17 month period, the Fund outperformed the passive index by 9.66%, generating a cumulative return of 8.62%. More Diversification and Less Correlation outperformed in rising and declining rate environments 3.25% 3.00% 2.75% 2.50% Falling Rates 3/31/2012 7/31/ % 2.00% 1.75% 1.50% Rising Rates 7/31/ /31/2013 Falling Rates 12/31/2013 4/30/2015 Nov 30, 2011 = 100, (NAV, $) 130 Rising Rates 4/30/2015 9/30/ % 95 12/11 3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14 6/14 9/14 12/14 3/15 6/15 9/15 DINDX (RHS) US 10y Treasury Yield (LHS) Barclays Global Agg Cumulative Return (RHS) Source: MSIM. Barclays. As of September 30, Past performance is not indicative of future results. Diversification neither assures a profit nor guarantees against loss in a declining market. Short-term returns may not be indicative of the strategy s long-term performance potential. Returns are cumulative for the fund, net of fees, quoted in USD terms, and include the reinvestment of all dividends and income. Performance returns are compared to those of an unmanaged index and are considered to be a relevant comparison. Comparisons of performance assume the reinvestment of all dividends and income. Net asset value (NAV) normalized to 100 with NAV = 100 on November 30,

6 GLOBAL FIXED INCOME OPPORTUNITIES FUND 3 Risk mitigation A well-balanced portfolio with exposure to a diverse range of fixed income asset classes is an important start, but it s not enough to ensure uncorrelated returns or appropriate diversification. By managing risk at every stage of the process and paying close attention to the correlations between asset classes, the individuals risks within the portfolio can be blended optimally to decrease the overall risk of the portfolio and ensure no single risk dominates. While our investment decisions across sectors and interest rates are not dictated by the benchmark, as unconstrained bond fund managers, we have imposed limits around sector positioning so that no one risk or sector dominates. We use a flexible duration range of zero to six years to complement our sector positioning rather than dictate performance. Our focus on spread and carry is designed to offset interest rate risk. Here s what the risk-controlled tactical allocations looked like over the past two years, broken out by sectors. As you can see, we aim to build conviction or reduce exposures over time, which is consistent with our value-oriented investment philosophy. A Flexible Approach to Portfolio Positioning The Morgan Stanley Global Fixed Income Opportunities Fund tactical allocations over the past three years, broken out by sectors. 100% 80% 60% Cash/Derivatives Government Bonds Securitized Corporate Credit 40% 20% 0% Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Source: Morgan Stanley Investment Management. For informational purposes only. Information is only presented from 03/2012 since that is the point the fund was managed according to the GFIO strategy. Information is subject to change and should not be deemed as a recommendation to buy or sell any security in the sectors mentioned above. Need three more reasons? 4 The right size Since the financial crisis, liquidity and inventories have been reduced due to stricter regulations. This restricts the ability for very large funds to hedge risks and limits their investment opportunities. We believe a fund now needs to be right-sized to maximize investment-return opportunities. 5 Strong execution With experienced global trading desks and an optimal strategy size, we are able to implement ideas efficiently. 6 Track record Our Global Fixed Income team has been investing in the asset class since 1975, successfully running opportunistic strategies through varied periods of market fluctuation, winning awards and distinctions along the way. 4

7 Get active. Go anywhere. See the big picture. The Morgan Stanley Global Fixed Income Opportunities Fund provides a passport to go anywhere in the fixed income universe in terms of geography, asset class and ideas. And it does so in a way that s risk managed. About Morgan Stanley Investment Management * Morgan Stanley Investment Management, together with its investment advisory affiliates, has 596 investment professionals around the world and approximately $404 billion in assets under management or supervision as of September 30, Morgan Stanley Investment Management strives to provide outstanding longterm investment performance, service and a comprehensive suite of investment management solutions to a diverse client base, which includes governments, institutions, corporations and individuals worldwide. For more information, please us at info@morganstanley.com or visit our website at This material is current as of the date specified, is for educational purposes only and does not contend to address the financial objectives, situation or specific needs of any individual investor. * Source: Assets under management as of September 30, Morgan Stanley Investment Management ( MSIM ) is the asset management business of Morgan Stanley. Assets are managed by teams representing different MSIM legal entities; portfolio management teams are primarily located in New York, Philadelphia, London, Amsterdam, Hong Kong, Singapore, Tokyo and Mumbai offices. Figure represents Morgan Stanley Investment Management s total assets under management/supervision. NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT

8 The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. BAML Euro High Yield Constrained. The index is designed to track the performance of euro-denominated below-investment-grade corporate debt publicly issued in the eurobond or euro domestic markets by issuers around the world. Barclays Global Aggregate. The Barclays Global Aggregate Index provides a broad-based measure of the global investment grade fixed-rate debt markets. Total Returns shown is unhedged USD. The index is unmanaged and does not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Barclays Global High Yield TR Hdg USD. The Global High-Yield Index provides a broad-based measure of the global high-yield fixed income markets. Barclays US MBS TR USD. The Barclays Mortgage Index covers the mortgagebacked pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). This index is the Mortgage Backed Securities Fixed Rate component of the Barclays U.S. Aggregate Index. Barclays US Corp IG TR USD. The Barclays U.S. Corporate Index is a broad-based benchmark that measures the investment grade, fixed-rate, taxable, corporate bond market. Barclays US Agg Bond TR USD. The Barclays U.S. Aggregate 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-backed securities. Barclays Municipal TR USD. The Barclay s U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds. Barclays Treasury TR USD. The Barclay s U.S. Treasury Index includes public obligations of the U.S. Treasury. Citi WGBI USD. The Citi World Government Bond Index (WGBI) measures the performance of fixed-rate, local currency, investment-grade sovereign bond from over 20 countries. JPM EMBI Global Diversified TR USD. The JP Morgan Emerging Markets Bond Global ( EMBG ) Index tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, eurobonds and local market instruments for over 30 emerging market countries. Barclays US Treasury US TIPS TR USD. The Barclays U.S. Treasury Inflation- Protected Securities (TIPS) Index is a rules-based, market value-weighted index that tracks inflation-protected securities issued by the U.S. Treasury. JPM GBI EM Global Diversified TR USD. The JP Morgan GBI-EM Diversified Bond Index is an index which tracks local currency government bonds issued by emerging markets. S&P MLP Index. The index is designed to provide exposure to leading partnerships that trade on major US exchanges and are classified in the GICS Energy Sector and GICS Gas Utilities Industry. The S&P MLP Index includes both master limited partnerships and publicly traded limited liability companies which have a similar legal structure to MLPs and share the same tax benefits as MLPs. RISK CONSIDERATIONS There is no assurance that a mutual fund will achieve its investment objective. Funds are subject to market risk, which is the possibility that the market values of securities owned by the fund will decline and that the value of fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this fund. Please be aware that this fund may be subject to certain additional risks. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall. In a declining interest-rate environment, the portfolio may generate less income. Mortgage- and asset-backed securities are sensitive to early prepayment risk and a higher risk of default and may be hard to value and difficult to sell (liquidity risk). They are also subject to credit, market and interest rate risks. Some U.S. government securities are not backed by the full faith and credit of the U.S., thus these issuers may not be able to meet their future payment obligations. High yield securities ( junk bonds ) Investments in securities rated below investment grade present greater risk of loss to principal and interest than investment in higher-quality securities. Public bank loans are subject to liquidity risk and the credit risks of lower rated securities. Foreign securities are subject to currency, political, economic and market risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Sovereign debt securities are subject to default risk. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Collateralized mortgage obligations can have unpredictable cash flows can increase the risk of loss. SEC 30-day yield is a measure of the income generated by the portfolio s underlying assets over the trailing 30 days, relative to the asset base of the portfolio itself. The 30 Day SEC Yield (Subsidized) reflects current fee waivers in effect. Absent such fee waivers, the yield would have been lower. The 30 Day SEC Yield (Unsubsidized) does not reflect the fee waivers currently in effect. Alpha is the excess return or value added (positive or negative) of the portfolio s return relative to the return of the benchmark. Beta is a measure of the relative volatility of a security or portfolio to the market s upward or downward movements. A beta greater than 1.0 identifies an issue or fund that will move more than the market, while a beta less than 1.0 identifies an issue or fund that will move less than the market. The Beta of the Market is always equal to 1. Carry is a bond coupon income over a period of time. Correlation is a statistical measure of how two securities move in relation to each other. Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. OVERALL MORNINGSTAR RATING Ratings as of 9/30/15. World Bond Category - Class I Shares. The Overall Rating is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating Metrics. Morningstar, Inc. is an independent publisher of mutual fund research and ratings. Ratings reflect a fund s risk-adjusted 3-, 5-, and 10-year total returns, including any sales charge. A fund is rated against all other funds in its category. 5 stars are assigned to the top 10%; 4 stars to the next 22.5%; 3 stars to the next 35%; 2 stars to the next 22.5%; and 1 star to the bottom 10%. Morningstar only rates funds with at least a 3-year history. Morningstar ratings may vary for other share classes. Past performance is not indicative of future results Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/ or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. MORNINGSTAR RANKING Rankings are based on total returns for class I shares and assume all dividends reinvested and do not include the effect of any applicable sales charges. If they had been, total returns would be less. Morningstar counts each share class as a separate fund for purposes of its ranking calculations. Morningstar compares mutual funds within a universe of funds with similar investment objectives, including dividend reinvestment. Past performance is no guarantee of future results. Rankings for other share classes will vary. LIPPER FUND AWARDS Lipper Fund Awards are granted annually to the funds in each Lipper classification that achieve the highest score for Consistent Return, a measure of funds historical risk-adjusted returns, measured in local currency, relative to peers. Winners are selected using the Lipper Leader rating for Consistent Return for funds with at least 36 months of performance history as of November 30, 2013 and November Scores for Consistent Return are calculated for the following periods: three-year, five-year, ten-year, and overall. Source: Lipper Inc. Past performance is no guarantee of future results. Other share classes may have different performance and expense characteristics. Lipper awards are not intended to predict future results and the accuracy of their information is not guaranteed. Please consider the investment objective, risks, charges and expenses of the fund carefully before investing. The prospectus contains this and other information about the fund. To obtain a prospectus, download one at morganstanley.com/im or call Please read the prospectus carefully before investing. Morgan Stanley Investment Management (MSIM) is the asset management division of Morgan Stanley. Morgan Stanley Institutional Fund Inc. (MSIF) is a mutual fund offering various active portfolios, including equity, fixed-income, international, emerging markets, real estate and growth portfolios. Fund adviser MSIF is managed by Morgan Stanley Investment Management, Inc Morgan Stanley. Morgan Stanley Distribution, Inc Exp. 04/07/ _KC_1015 Lit-Link: GFIOOVERVIEW